About tax residency and status
Why is tax residency important?
New Zealand residents are taxed on their “worldwide income", that is income from New Zealand as well as from other countries. For example, a New Zealand resident individual that receives interest income from the United Kingdom will be taxed on that income in New Zealand as well as the United Kingdom. However, generally New Zealand will give a foreign tax credit for any foreign tax paid.
Note
Your worldwide income includes any income that you derive in a foreign country even if you do not bring the money into New Zealand.
Your worldwide income could include the following:
- an amount of interest you derive from funds you have in an offshore bank account
- rental income
- salary and wages paid both by New Zealand companies and offshore companies
What if I am resident in New Zealand and also another country?
If New Zealand does not have a double tax agreement with the other country:
- you will be taxed in New Zealand on your worldwide income and
- you will generally be given a credit for any foreign tax paid.
If New Zealand does have a double tax agreement with the other country (where you are resident) there are tiebreaker provisions that will decide which country can tax you on your worldwide income.
Generally, these tiebreaker tests are:
- the country you have a permanent home in, or
- if you have permanent homes in both countries or neither - then the country that your family and economic interest are in, or
- if this is not clear then the country you spend most of your time in, or
- if this is not clear the country you are a citizen of.
Example
Katie is a New Zealand citizen who has moved to the United Kingdom to work for two years. She has kept her house in New Zealand and her friends and family are in New Zealand and overseas. She is not in a relationship in the nature of marriage and has no dependents. She will not be travelling back to New Zealand over that time.
Katie has an enduring relationship or permanent place of abode in New Zealand by virtue of her house and social ties and so is resident in New Zealand. She will also be resident in the United Kingdom due to the time she spends there. As she rents a flat in the United Kingdom she will have a permanent home there.
While she has friends and family in New Zealand she also has friends and family elsewhere. As her job is in the United Kingdom and this is the place she will be physically located in the next two years, she will be treated as resident in the United Kingdom and non-resident in New Zealand for this period.
The effect is that only the United Kingdom can tax her employment income, but New Zealand can continue to tax any rental income from her house as well as any income with a New Zealand source such as bank interest.
Date published: 13 Oct 2011
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