Authorities clarify tax position of expats from New Zealand

by Ray Clancy on April 4, 2014

Tax authorities have announced that New Zealand expats will not be regarded as a tax payer in their home country if they rent out their home when they are living and working abroad.

The Inland Revenue Department (IRD) has issued an interpretation of New Zealand residency rules last year which implied that expats would be regarded as tax payers in New Zealand if they had certain ties such as owning a property and renting it out.

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Tax authorities announced a new assessment of an individual’s tax residence when they leave New Zealand

The advice suggested that this would be a key determinant and mean that they could be taxed on earnings from overseas.

‘After more than a year of uncertainty, heightened by the somewhat surprising decision from TRA (Taxation Review Authority,) we finally have a basis on which to begin reconstructing the foundations for assessing an individual’s tax residence when they leave New Zealand,’ said Deloitte associate tax director Mike Williams.

He explained that the combination of the TRA advice and IRD’s view that ‘commercially rented dwelling houses constituted a permanent place of abode’ left many expats concerned about their tax position.

‘The acknowledgement from the Commissioner of Inland Revenue that long term investment properties and holiday homes would not normally constitute a permanent place of abode, but need to be considered with all other circumstances, is reassuring,’ he added.

The TRA decision arose from the case of an expat New Zealander fulfilling security contracts offshore, whose children and ex-wife continued to live in a house in which he had an interest.

But Williams said that in this case the circumstances were exceptional and most expat New Zealanders would not be in this position and a common sense approach is needed.

However, KPMG tax director Rebecca Armour, warned the new determination was not cut and dried. ‘Inland Revenue’s position for any specific person must be predictable at the time decisions need to be made about tax residency,’ she explained.

Armour believes that the Inland Revenue operational guidance is not actually that helpful and it may be that the circumstances of each case will need to be examined in determining tax status.

She pointed out that even if they had already received confirmation of their tax residency status, expat New Zealanders should review their position, especially if they were relying on the fact they had been out of New Zealand for more than three years to establish non-resident status for tax purposes.

Employers should also be alive to the potential for offshore staff to run into tax residency problems, and the potential obligation to deduct PAYE, ACC and fringe benefit tax on their behalf.

‘The tax costs associated with an employee will impact on the cost of remuneration, the pricing of contracts, and how competitive New Zealand tenders are for overseas projects,’ KPMG said.

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