Tax When Leaving New Zealand 09 Dec 2011
What Tax Issues do you need to consider when thinking of leaving New Zealand?
Here are a few things to think about when you are in the process of leaving New Zealand. If you do not plan your move correctly, you may have to pay tax twice, or even three times on the same income. Your only insurance is to plan it right.
New Zealand Tax Residence
The first thing to consider when you are leaving New Zealand is whether you will remain a tax resident of New Zealand when you are away. This is important, because New Zealand taxes its tax residents on all income they generate anywhere in the world. Note that tax residence is quite separate from citizenship or permanent residence for New Zealand immigration purposes.
How do you know whether you are a New Zealand tax resident?
- you leave New Zealand for more than 325 days in a 12 month period; and
- you break all your connections with New Zealand;
then it is likely that you will break your New Zealand tax residence.
You will likely have broken your connections with New Zealand if you:
- Have no house or other place to live in New Zealand;
- Close your New Zealand bank account as soon as you leave;
- Don’t have your employer keep your job open for you;
- Take all your belongings with you;
- Take your family with you;
- Close your Kiwisaver account;
- Close any investments accounts you hold in New Zealand;
- Stay away for at least two years;
- Essentially, try to break all economic contact with New Zealand.
If you can do all this, then it is likely that you don’t have to pay tax in New Zealand while you are away. We suggest you fill in IRD form IR886, which can be obtained from the IRD website. The IRD will then give you a ruling about your residence.
Your circumstances will be unique, and may not be as clear-cut as above. The rules become a bit murky in borderline cases. The greater connection you have with New Zealand the more likely it is that you will not break your residence. It is not easy to make general rules about this, as each situation will depend on its peculiar facts. The IRD procedure should give you the greatest amount of certainty in these circumstances.
One other point to remember is that if you are moving to a country with which New Zealand has a double tax agreement, then residence will be less of an issue. New Zealand has double tax agreements with 39 other countries, and a list of these can be obtained here.
Traps for people leaving New Zealand
Don’t think you can escape the IRD by merely leaving New Zealand. Government exchange of information networks are getting better and better all the time, and it is likely that the IRD will be able to get information about you if you are moving to a developed country. Other things to watch are:
- Have you been a salary or wage earner in New Zealand? If so you are likely to get a tax refund, as Pay As You Earn (PAYE) will have been deducted on your salary and wages on the basis that you will have worked for the whole year.
- Do you hold shares in a Loss Attributing Qualifying Company (LAQC), and will leaving New Zealand impact on the status of the LAQC?
- Are you a partner in a GST (Goods and Services Tax) registered business, or are you registered for GST in your own right? If so, your GST registration may cease, giving rise to GST to pay.
- Do you hold foreign currency reserves in excess of NZ$50,000 on any day in the income year? If so, you may have to pay tax on unrealised foreign currency gains when you leave.
- Are you the settlor/trustee/beneficiary of a New Zealand trust? If so, you have to consider how the migration will impact on the tax status of the trust.
When you get to your destination
It is well worth getting professional advice on the tax consequences of moving to a new country. For example:
- The United Kingdom tax laws favour individuals who have not lived in the UK all their lives, and do not intend to either (although there have been some recent developments that reduce this benefit).
- Singapore and Hong Kong, and some other countries have territorial tax systems. This means they generally tax profits generated from within their borders, and they do not tax profits generated overseas.
- Australia offers special rules for temporary migrants and if these rules apply to you then you may be exempt from income tax on your offshore income.
If you are retaining a New Zealand share portfolio it is worth letting your investment advisor know. Non-residents are able to get favourable treatment on the taxation of dividends and interest derived from New Zealand. Broadly speaking though, you will still be paying tax in New Zealand on company generated profits at 30% because of the application of the imputation rules.
In conclusion, it is important to think of the tax consequences of any big relocation event in your life. Getting it wrong can be very costly, and not to mention, extremely stressful. Be sure to get it right and get some good advice.