Overseas Income

If you receive overseas income and are a tax resident in New Zealand, you shall be taxed in New Zealand on your worldwide income.

Tax Residence

In New Zealand, a person's liability for income tax depends on the person's residence status.  The concept of residence for tax purposes is based mainly on the "permanent place of abode" test or on a quantitative test.

The rules for determining an individual's residence for tax purposes are:

  •   The permanent place of abode test:  A person is deemed to be a New Zealand resident if that person has a permanent place of abode here, whether or not that person also has a permanent place of abode overseas.
  •   The 183-day test:  A person who is present in New Zealand for more than 183 days in aggregate in any 12 month period is deemed to be a resident from the first day of presence.  (Even if the person concerned has a permanent place of abode overseas, that person may still be regarded as a New Zealand resident.)
  •  The 325-day test:  To cease New Zealand residency, a person must be absent from New Zealand for a period or periods exceeding in aggregate 325 days in any 12 month period.   Non-residence commences from the first day of absence.

The permanent place of abode test takes precedence over all the other provisions.

Consequently, an individual whose permanent place of abode is in New Zealand remains a tax resident, despite an absence from New Zealand of more than 325 days in a 12 month period.   However, when determining residency, both the permanent place of abode test and the 183-day test must be applied.

Factors that, therefore, require consideration in determining whether there is a permanent place of abode in New Zealand are:

  •   The length of time spent in New Zealand.
  •   Accommodation arrangements — whether a house is rented or purchased, and whether a house is retained in New Zealand while overseas.
  •   Employment history.
  •   Whether the taxpayer's family has accompanied him or her to or from New Zealand.
  •   Financial ties made or retained in New Zealand — bank accounts, investments, superannuation arrangements, etc.

  •   Whether annual leave is taken in New Zealand or the overseas country.

Normally all and not just some of these factors are examined to determine an individual's permanent place of abode.

 

Double Tax Agreement

New Zealand has double tax agreements with a number of countries.  If a double tax agreement exists, this means that any tax deducted from earnings in the overseas country is allowed as a tax credit for taxation due in New Zealand.  The tax credit is limited however to the lesser of the tax deducted overseas or the equivalent taxation due on this income in New Zealand.

Hamish Pryde - Chartered Accountant and Business Advisor -  October 2011