Tax Implications of Heading Offshore
It's getting so much easier to travel the world these days with many clients leaving NZ to test out living in other countries. If you're thinking of heading off overseas, you need to be aware of how NZ tax laws will affect you.
If you leave NZ and cease your NZ tax residency at that time, then you'll only be required to include your NZ sourced income in your NZ tax return (this may just be rental profit/loss if you rent out your home).
If you leave NZ and remain a NZ tax resident, then you'll be required to include your worldwide income in your NZ tax return. While you'll often get a NZ tax credit for the overseas tax paid, you will ultimately end up paying tax at whatever is the highest rate of tax, NZ's or the country where you live. So, its generally better if you can cease being a NZ tax resident from the time you leave NZ.
The IRD's policy on determining tax residency dates back to 1989. However, in December 2012, the IRD released an updated draft policy and this is what it says:
Permanent Place of Abode
If you leave NZ, you will remain a NZ tax resident if you still have a "permanent place of abode" in NZ. This is broken into two components:
(1) Do you have a place of abode?
A place of abode is a dwelling in NZ this is either owned, rented or simply a dwelling made available through a parent, friend or relative. The dwelling needs to be available on more than just a temporary basis so it wouldn't count if your parents allowed you to stay for a few weeks whenever you wanted.
The dwelling doesn't need to be immediately available so a rental property in NZ would be a place of abode. Having said that, whether you have ever lived in a dwelling would be a relevant factor in assessing the availability of a dwelling as you need a sufficient connection and be able to carry on your normal life on a durable basis from that dwelling.
(2) Is the place of abode permanent?
If you do have a place of abode in NZ, then you need to determine if it is permanent. This is determined by considering the nature and quality of the use of that dwelling including:
- Duration of presence in NZ prior to leaving
- Duration of absence from NZ
- Whether any dwelling was previously lived in or used exclusively as a rental property
- Any intention to return to NZ
- Location of your immediate family
- Employment or business ties to NZ
- Bank account or credit cards in NZ
- Insurance or superannuation in NZ
- Other investments in NZ
- Property such as furniture or a vehicle situated in NZ
The back 4 pages of this newsletter contain IRD examples of whether someone would be a NZ tax resident or not. While I'm sure your situation won't match any of the examples exactly, they do provide a pretty good guideline for most situations.
Disclaimer: The above article is general in nature and we recommend you seek professional advice tailored to your specific personal situation.