New Zealand imposes income tax on a residency basis. Once an individual or organization becomes resident for tax purposes in New Zealand, income tax is imposed on worldwide income during the period of tax residency.
Whether making a permanent or temporary move to New Zealand, several issues arise.
The first issue is the way in which New Zealand income tax is imposed on new migrants. New Zealand income tax legislation may provide tax relief for new migrants arriving after 1 April 2006, for four years after settling in New Zealand. This is the Transitional Resident Exemption.
Relief is available through an exemption from New Zealand income tax on most categories of foreign income once specific eligibility criteria are met. A useful planning technique when moving to New Zealand is to manage the date at which transitional resident status takes effect, in order to gain maximum relief using this exemption. This is appropriate when a migrant visits New Zealand in advance of immigrating, such as an exploratory visit to seek out employment or accommodation.
Upon expiration of the transitional resident period residents of New Zealand are taxable on their worldwide income. Residents are then exposed to the pseudo-capital gains taxing regime which exists in New Zealand. In addition to certain capital gains derived within New Zealand being taxable, certain other taxing mechanisms can bring to account unrealised capital gains and losses on some categories of foreign investments, including shares and retirement schemes.
Furthermore, unrealised foreign exchange gains on foreign currency-denominated accounts are taxable in New Zealand unless exempt under a de-minimis rule, and foreign exchange losses are not necessarily deductible.
New Zealand income tax return filing
The New Zealand tax year runs from 1 April to 31 March each year for most individuals and non-individuals. In the event that another tax year is justifiable and appropriate, an application may be made for a different tax year to the Inland Revenue Department.
Tax returns are due for filing by 7 July in the same year, unless an extension of time for filing applies. Extension of time for filing is available by way of the taxpayer linking to a tax agent, and provided the taxpayer has filed previous years’ returns in a timely manner.
Departure from New Zealand
Upon departure from New Zealand, and peculiar to New Zealand an individual may still have a liability to New Zealand tax on worldwide income. The issue of losing New Zealand residency for tax purposes can be problematic. This may be due to the subjectivity involved in assessing whether the individual’s association with New Zealand has been broken to the extent that the individual no longer has an enduring relationship with New Zealand.
The Income Tax Treaty may also impact on the way that individuals and organizations are taxed in New Zealand.