Investor residency changes
There are a number of scenarios that can occur when notified foreign investors change residency:
- a non-resident can be come a resident
- a resident can become a non-resident, and
- a non-resident can move to another foreign country or territory.
For the last scenario the change could affect the prescribed investor rate (PIR) applied to unimputed dividends based on the DTA to non-DTA countries rule.
The issue is further complicated by when the foreign investment PIE is able to apply a change in residency. For example a quarterly PIE may only be able to apply the status for the whole quarter instead of applying a change part way through a quarter. Flexibility has been built into allow the PIE to make the change to an investors status as soon as practicable, but not later than the start of the next tax year.
The following tables set out the various scenarios and results:
Scenario 1a - A non-resident becomes a resident
| If they advise the PIE straightaway or during the year, and the PIE ... | then the PIE ... | and provided the ... |
|---|---|---|
|
makes the change straightaway |
applies the correct PIRs for each part of year |
investor has notified the correct PIRs then for:
|
|
makes the change at the start of next tax year |
applies the transitional rule and doesn't change the PIR during the tax year |
investor has provided their correct PIR, the attributed PIE income is excluded income. |
|
omits the change |
should correct for its period of omission | PIE has corrected the position the tax treatment of the income will not change. |
Scenario 1b - A non-resident becomes a resident
| If they advise the PIE in the next tax year, and the PIE ... | then the PIE ... | and ... |
|---|---|---|
|
makes the change straightaway |
applies the new rate to income from then on |
for the period where the notified foreign investor rates have been applied, the income needs to be included in the investor's income tax return. |
|
makes the change at the start of next tax year |
continues to treat the investor as a notified foreign investor |
the investor is required to include all the attributed PIE income in their income tax return. |
|
omits the change |
should correct for its period of omission | if the PIE has corrected the position and treated the investor as a resident then normal rules apply to the attribute PIE income as per the first column (?which one) |
Scenario 2a - A resident becomes a non-resident
| If they advise the PIE straightaway or during the year, and the PIE ... | then the PIE ... | and provided the ... |
|---|---|---|
|
makes the change straightaway |
applies the correct PIRs for each part of year |
investor has notified the correct PIRs then for:
|
|
makes the change at the start of next tax year |
applies the transitional rule and doesn't change the PIR during the tax year |
investor has provided their correct PIR, the attributed PIE income is excluded income. |
|
omits the change |
should correct for its period of omission | PIE has corrected the position the tax treatment of the income will not change. |
Scenario 2b - A resident becomes a non-resident
| If they advise the PIE in the next tax year, and the PIE ... | then the PIE ... | and ... |
|---|---|---|
|
makes the change straightaway |
applies the new rate to income from then on |
provided the investor has notified their correct PIRs, the attributed PIE income is excluded income. |
|
makes the change at the start of next tax year |
continues to treat the investor as a notified foreign investor |
provided the investor has notified their correct PIRs the attributed PIE income is excluded income. |
|
omits the change |
should correct for its period of omission | the PIE should correct the position otherwise the investor may not have any other recourse if taxed at a PIR greater than required. |
Scenario 3 - A notified foreign investor changes their foreign country of residence (from a DTA or non-DTA)
Where the investor has had a rate applied to their attributed PIE income less than their correct PIR, the income is no longer excluded income. The investor should file an income tax return to correct the shortfall.
If a resident investor becomes non-resident
For resident investors that become non-resident, upon notification of the change of status, the PIE should treat the investor as a notified foreign investor from the day of notification if they are able to do so, but no later than the start of the next tax year.
If the investor has misrepresented their status to the PIE by indicating that they are a non-resident when in fact they are a resident, the rules ensure that the income attributable to the period where the PIE has treated them as a notified foreign investor should be taxable to the investor as if they were a resident (with credits for any tax paid at the PIE level).
If a non-resident investor becomes a resident investor
For a non-resident investor that becomes a resident investor, the foreign investment PIE has the choice of changing the investor's status immediately or waiting until the beginning of the next tax year to do so. If the PIE waits, the investor can continue to be treated as a notified foreign investor for the tax year and any income that is attributed to the investor during this transitional period is not subject to further tax at the investor level. Amongst other things, this is to handle situations when residency applies retrospectively, that is due to the application of the 183-day rule.
The foreign investment PIE's responsibility
The foreign investment PIE's responsibility for an investor claiming to be a notified foreign investor has been designed to replicate the treatment afforded by the PIR and notified investor rate. The foreign investment PIE can rely on the notification from the investor of their entitlement to access a particular PIR or PIRs. The PIE can continue to treat the investor's status as unchanged up to the end of the tax year even though the investor's residency status has changed.
The foreign investment PIE is required once a year to confirm with the investor that they continue to meet the requirements to be a notified foreign investor. If they do not receive a response the PIE can continue to treat the investor as a notified foreign investor.
The foreign investment PIE can then carry out the tax calculation on the basis the investor is a notified foreign investor. This ensures that the PIE can rely on the investor's advice and carry out the tax calculation without confirming the investor qualifies as a notified foreign investor. The consequence from the investor incorrectly notifying the PIE then fails on the investor with the liability for any tax shortfall falling on the investor.
Date published: 30 Aug 2011
Back to top