New Zealand Tax Residency for Individuals

Your tax residency and immigration status are separate. You become a New Zealand tax resident when you have been present in New Zealand for more than 183 days in any 12-month period (the “183-day rule”), or when you establish a permanent place of abode, whichever happens first. If you become resident under the 183-day rule, your residency is generally backdated to the first of those 183 days. A separate exception may apply to qualifying non-resident visitors under the 275-day rule discussed below.

A permanent place of abode does not have to be a property you own. Broadly, it is a dwelling in New Zealand where you habitually live and can call home. Your family and social connections, economic interests, employment or business ties, the time you spend here and your pattern of returning to New Zealand may all be relevant. You may be treated as tax resident in both Australia and New Zealand under each country’s domestic rules. If so, the New Zealand–Australia double tax agreement must be considered to determine how your residence and taxing rights are allocated. This is an area where advice before or soon after your move can prevent costly mistakes.

Applying for an IRD number

You will generally need an IRD number if you earn income in New Zealand or have New Zealand tax obligations, including from property. New arrivals with a New Zealand residence visa or an Australian passport may be able to apply online using their Immigration New Zealand details. The application process depends on your circumstances and how long you have been in New Zealand, so check Inland Revenue’s current identity-verification requirements when you apply.

If you set up a business through a partnership, company or trust rather than operating as a sole trader, the entity will usually need its own IRD number. The tax-residence rules for non-individuals are different and are outside the scope of this article.

Transitional Migrant Exemption

Once you become a New Zealand tax resident, you are generally taxed here on your worldwide income, even if the income is not brought into New Zealand. However, a temporary exemption may give eligible new or returning residents time to review and reorganise their overseas investments before most foreign income becomes taxable here.

Transitional Tax Exemption for Most Overseas Income

The good news is that some new or returning residents qualify for a temporary exemption from New Zealand tax on most types of overseas income. You may qualify for this exemption, which lasts about four years, if you became a New Zealand tax resident on or after 1 April 2006 and had not been resident here at any time during the previous 10 years. It applies automatically if you are eligible, but you can receive it only once.

The exemption can end early if you or, in some cases, your partner applies for Working for Families tax credits, including Best Start. It can also end if you include otherwise exempt income in a New Zealand return, confirm to Inland Revenue and an overseas tax authority that the income will be taxed in New Zealand, or tell Inland Revenue that you do not want the exemption. These choices can be difficult or impossible to reverse, so obtain advice before taking any of these steps.

The exemption covers most foreign-sourced passive income, including overseas interest, dividends, foreign investment fund income and rent. It does not generally cover income from overseas employment or personal services, although a double tax agreement or the separate non-resident visitor rules may provide relief. Foreign trusts, companies, financial arrangements, life insurance policies and investment portfolios can create additional issues, so seek advice if you retain these interests after moving.

Transitional Tax Exemption for Superannuation

A separate four-year exemption can apply to lump-sum withdrawals or transfers from foreign superannuation interests acquired while you were non-resident, if you have not previously had an exemption period. Australian superannuation has specific treatment and lump-sum withdrawals or transfers from an Australian scheme are generally not taxed in New Zealand. Regular pension payments can be treated differently. Obtain advice before withdrawing or transferring retirement savings, particularly if funds have moved between countries.

Digital nomads and the 275-day rule

A qualifying non-resident visitor may spend up to 275 days in total in any 18-month period without becoming a New Zealand tax resident, and income from remote work performed here may be exempt. The visitor must not work for a New Zealand resident or New Zealand branch, sell goods or services to New Zealand customers, be required to be here to perform the work, or receive Working for Families. They must also remain tax resident and liable for tax in another country. Anyone planning an extended working visit should check the full conditions rather than relying on the day count alone[i].

When the Four-Year Exemption Ends

When your transitional resident exemption ends, New Zealand will generally tax you on your worldwide income. This can include income and gains connected with Australian bank accounts, investments and property, even if the money stays in Australia. The rules may apply differently from the Australian rules, so it is worth reviewing your overseas assets before the exemption expires. The following are some of the most common Trans-Tasman issues.

Foreign tax credits

Paying Australian tax does not mean the income can be left out of your New Zealand return. You may need to report the same income in both countries and claim a foreign tax credit in New Zealand. The credit is generally limited to the New Zealand tax payable on that income, and differences in tax years, timing or the way each country classifies income can still leave additional tax to pay. The New Zealand–Australia double tax agreement may affect the result, so keep evidence of the Australian income and tax paid and seek advice if the treatment is unclear.

Australian franking credits

Australian dividends may come with franking credits, but ordinary Australian franking credits generally cannot be claimed as tax credits in New Zealand. This can mean a dividend that is tax-effective in Australia produces extra tax in New Zealand once the transitional exemption ends. Some eligible Australian companies may attach New Zealand imputation credits, which are treated differently. Check the dividend statement and obtain advice rather than assuming the Australian credit will carry across.

Foreign investment fund rules

After the exemption ends, Australian shares, managed funds, exchange-traded funds and other overseas investments may come within New Zealand’s foreign investment fund (FIF) rules. These rules calculate taxable income under a prescribed method rather than simply taxing the dividends or gains you receive, and in some cases income can arise even when you have received no cash. Important exemptions and thresholds may apply, including for some direct holdings in ASX-listed Australian companies. The rules and available calculation methods can change, so have your portfolio reviewed before the exemption ends and before buying or selling significant overseas investments.

Australian rental property

Once the exemption ends, rental income from an Australian property will generally need to be included in your New Zealand return as well as being dealt with in Australia. New Zealand rules determine the allowable income and expenses for the New Zealand return, so the Australian tax calculation cannot simply be copied across. Amounts must also be converted to New Zealand dollars. A foreign tax credit may be available for Australian tax paid, while an Australian-dollar mortgage can create additional withholding tax, financial arrangement and foreign-exchange issues. Selling the property may also have New Zealand tax consequences, so obtain advice before signing a sale agreement.

When to File Your Income Tax Return

New Zealand’s standard tax year runs from 1 April to 31 March. If all your income is reported to Inland Revenue and taxed before you receive it — for example, salary or wages subject to PAYE and certain interest or dividends — Inland Revenue will usually issue an automatic income tax assessment. You should still check that the income, tax and personal details shown are complete and correct.

You will generally need to file an individual income tax return if you receive more than $200 of income that Inland Revenue has not already been told about. Common examples include rental income, self-employment income, shareholder salaries, partnership or trust income, and taxable overseas income. You may also need to file if you have deductible expenses to claim, such as eligible income-protection insurance premiums. New residents should take particular care to identify all Australian and other overseas income, even when tax has already been paid overseas.

Without an extension of time, an individual income tax return is generally due by 7 July following the end of the tax year. Clients of a tax agent will usually have an extension to the following 31 March, provided they qualify. Payment dates may also differ for clients of a tax agent.

Student Loan

New Zealand’s student loan scheme helps eligible students meet approved tuition fees, course-related costs and living costs. Eligibility depends on matters such as age, citizenship or residence status, and how long the person has lived in New Zealand. Check the current criteria with StudyLink before assuming you qualify[ii].

Repayments are generally required once income exceeds the applicable threshold. For employees, deductions are usually made through PAYE; other borrowers may need to make interim or end-of-year payments. New Zealand-based borrowers generally receive interest-free treatment, while different rules can apply if you later live overseas.

ACC Levies

ACC levies help fund New Zealand’s no-fault accident compensation scheme for injuries occurring at home, at work, on the road or in public places. Employees pay an earners’ levy through PAYE. Employers and self-employed people may receive separate ACC levy invoices, and vehicle licensing charges also include an ACC component. Self-employed people may be able to choose an agreed level of cover[iii], but should discuss the insurance and cash-flow implications with an insurance adviser before changing cover.

Kiwisaver

KiwiSaver is New Zealand’s voluntary retirement savings scheme. Contributions may be made through payroll by employees and employers, or directly by self-employed members. To join, you must generally live or normally live in New Zealand and be a New Zealand citizen, an Australian citizen, or entitled to remain in New Zealand indefinitely. Temporary visa holders cannot usually join. Contribution rates and government contribution settings change from time to time, so check the current rules before making comparisons with Australian superannuation.

If you receive New Zealand paid parental leave, you may choose to have KiwiSaver contributions deducted from those payments. The associated employer contribution and other eligibility rules should be checked against Inland Revenue’s current guidance.[iv]

Get tax advice from both sides of the Tasman

A move across the Tasman can affect the timing and taxation of salary, investments, rental property, trusts, companies and retirement savings. Ideally, speak with both your Australian adviser and a New Zealand tax adviser before you move or before you change or dispose of overseas assets. JDW can help you understand your New Zealand obligations, identify the questions that need specialist Australian advice and plan the practical next steps for your circumstances.

-       Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. JDW does not provide Australian tax advice, except in general terms, but can refer clients to an Australian tax adviser in the ASNAF network where specific advice is needed.

This article is general in nature and is not a substitute for advice specific to your circumstances. If you are planning a move to New Zealand, please contact your adviser before making decisions.

  [i] https://www.jdw.co.nz/nz-tax-changes-for-digital-nomads

[ii] https://www.studylink.govt.nz/products/a-z-products/student-loan/index.html#studentloaneligibility

[iii] https://www.jdw.co.nz/am-i-paying-the-right-acc-levies

[iv] https://www.ird.govt.nz/kiwisaver/kiwisaver-individuals