Determining Tax Residency
If you’re living or planning to move to New Zealand, it’s important to understand whether or not you are considered a tax resident. Being a tax resident in New Zealand means that you are subject to New Zealand tax on all income earned, both locally and abroad. However, if you are not a tax resident any income sourced in New Zealand will be subject to the relevant New Zealand tax.
In this article, we hope to give you a good overview of how to determine if you are a tax resident and what factors are considered when making this determination. There are two ways to be considered a tax resident in New Zealand: The 183-day rule and Permanent Place of Abode (PPOA).
The 183-Day Rule
If you spend more than 183 days in New Zealand in any 12-month period, you will be considered a tax resident. These days do not need to be consecutive and “part” days spent are counted as whole (e.g. days of arrival or departure to/from New Zealand). Once you reach the 183-day threshold your tax residency is backdated to the first of the 183 days.
Permanent Place of Abode (PPOA)
However, physical presence is not the only factor. You can also be considered a tax resident if you have a permanent place of abode. The IRD defines a permanent place of abode as “somewhere in New Zealand (ie, a house or other dwelling), where you habitually reside from time to time”. If you qualify under this test then the 183-day rule isn’t applicable and can mean that you may be absent from New Zealand for up to 325 days.
This test is focused on assessing the ties you have to New Zealand. The determination of whether a place is a permanent place of abode can include factors relating to your business, family, personal property and many other aspects that substantially relate to your current or future connection to New Zealand.
Can you be a tax resident of more than one country?
Yes, you can. This will generally come down to the specific rules of each country.
New Zealand is involved with a variety of DTAs or “Double Tax Agreements” which involve their own unique tests which will help to determine which country you pay tax to.
What may end your Tax Residency in New Zealand?
Losing tax residency in New Zealand can occur if you leave the country with no plans to return, or if you spend more than 325 days outside of New Zealand within a 12-month period. Additionally, if you are considered to lack a permanent place of abode outside of New Zealand, you may also lose your tax residency. If you do lose your tax residency, you will only be required to pay taxes on income earned in New Zealand, rather than on your worldwide income. However, it’s important to note that determining tax residency can be a complex issue, and the IRD’s approach may not always be straightforward.
Further Guidance
Please note that this article provides general information on how to determine tax residency in New Zealand and is not exhaustive. Tax residency can be a complex issue, and there may be individual circumstances that affect your residency status. It’s important to seek professional advice or refer to the New Zealand tax residence questionnaire – IR886 if you’re unsure about your tax residency status.
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact The Number Studio office.