Questions we've been asked: Determination of residence
Returning residents's visas - when a person seeking such a visa is resident for tax purposes
Issued December 1999
Section OE 1(1) Income Tax Act 1994 - Determination of residence of a person other than a company
We have been asked whether a person who is applying for a returning resident's visa ("RRV") is tax resident. The person spends most of his time in another country running a business. He comes to New Zealand for holidays, totalling 50 days a year. His wife and young, dependent children live here, and the children go to school. The husband and wife are not estranged, and he regularly sends money to New Zealand to support his family. The family bought a house in New Zealand, a car, and other possessions, and have bank accounts in New Zealand. The person's intention is to continue to live in the other country, although he may at some future time come to live in New Zealand. It is also possible that the whole family may return to the other country once the children finish their schooling.
Non-New Zealanders who meet the Government's immigration eligibility criteria may be granted residence in New Zealand. Residents who wish to travel out of New Zealand need to hold a valid RRV in order to re-enter New Zealand as residents. All residents are issued with an initial RRV, valid for two years, upon approval of their residence application. At the end of the two-year period, they may be eligible for an RRV valid for an indefinite period provided they have (among other things):
- been in New Zealand for a total of 184 days or more in each of the two 12-month periods preceding their application; or
- been in New Zealand for a total of 41 days or more in each of the two 12-month periods preceding the application, and are assessed as having tax residence status for 24 months in the two years before their application.
Applicants who do not meet the requirements for an indefinite RRV may be eligible for an RRV valid for 12 months or 14 days, depending on the circumstances.
Note that immigration requirements are not relevant in determining tax residence.
If a person is tax resident in New Zealand, the person will be liable for tax in New Zealand on world-wide income. Liability for tax in New Zealand can be relieved if New Zealand has a double tax agreement with a country in which the person is also tax resident. The tests to determine whether a person is resident for tax purposes are found in section OE 1:
- [Permanent place of abode] Notwithstanding any other provision of this section, a person, other than a company, is resident in New Zealand within the meaning of this Act if that person has a permanent place of abode in New Zealand, whether or not that person has a permanent place of abode outside New Zealand.
- [Deemed resident] Where a person other than a company is personally present in New Zealand for a period or periods exceeding in aggregate 183 days in any period of 12 months, that person shall be deemed to be resident in New Zealand from the first day within that period of 12 months on which that person was personally present in New Zealand.
The person in this example is not present in New Zealand for more than 183 days in 12 months, and so will not be resident under section OE 1(2). Notwithstanding this, he will be resident if he has a permanent place of abode in New Zealand under section OE 1(1).
The legislation is clear that the permanent place of abode test is a broad one. A person may have a permanent place of abode here, even though he or she is not present in New Zealand for much of a year, and regardless of whether or not he or she has a permanent place of abode in another country.
The test of whether someone has a permanent place of abode is a matter of weighing all the facts of a person's circumstances. The nature and quality of the person's ties with New Zealand are important. Cases that have discussed the permanent place of abode test include FC of T v Applegate 79 ATR 899, Case Q55 (1993) 15 NZTC 5,313, and Case H97 (1986) 8 NZTC 664.
In the situation under discussion, the person has some important connections with another country. He spends most of his time in that country, earns his living there, has somewhere to live there, and must have other associations there. He may have a permanent place of abode there. He may never intend to live in New Zealand in the future, in the sense of spending most of his time here.
However, having a permanent place of abode somewhere else does not mean that a person does not have a permanent place of abode in New Zealand. Also, the courts have held that "permanent" in this context, does not mean "everlasting" (see FC of T v Applegate at p.p. 906 and 909).
The person also has some important connections with New Zealand. His family lives here, he has a home permanently available to him, and he has personal property here. The fact that the person's immediate family lives in a home in New Zealand is important. It is not simply an empty house or an investment house let to tenants, but is a family home of the person. The presence of the family in the home gives the person an enduring connection with it. It has the nature of a home because it is the centre of the person's domestic life, and the children are young and dependent. There is the element of permanence to his association with New Zealand. The financial support he gives the family represents an economic tie with New Zealand. The nature and quality of these ties with New Zealand distinguish him from, for example, an investor or a casual visitor. In these circumstances, the person has a permanent place of abode in New Zealand and is tax resident in New Zealand.
Other situations
Determination of the permanent place of abode test is a matter of fact. In another situation, with similar facts but with differences in some important respects to the facts in this item, a person will not have a permanent place of abode in New Zealand. For example, a business person who does not have a dwelling in New Zealand, but who comes to New Zealand for 50 days a year on business may not have a permanent place of abode here. More facts would need to be known before a conclusion could be made on whether the person had a permanent place of abode in New Zealand.
The conclusion in this item might also be different if the children were in their late teens, if the wife and children were absent from New Zealand for significant periods during the year, or if the person and his spouse were separated. In the recent decision in TRA Case 17 (1999) 19 NZTC 9,174 the Court found that an estranged husband working overseas did not have a permanent place of abode in New Zealand.
The residence of a person's spouse does not determine a person's residence, and in other situations, the presence of members of a person's family in New Zealand may not create a permanent place of abode.
Notes
- In the situation in this item, the person has not been a tax resident of New Zealand before, and is trying to establish that he is tax resident. In another situation, perhaps the more common one, a person may have been tax resident in New Zealand, and may argue that he or she is no longer tax resident. The permanent place of abode test applies equally to people seeking residence as to people seeking to establish that they are non-resident.
- The procedures for issuing RRVs are changing. From June 2000, tax residence will no longer be a relevant factor. For more information on immigration requirements, contact the New Zealand Immigration Service.
More information on this topic can be found in the Commissioner's statements on residence in Public Information Bulletin 180 (June 1989) and Tax Information Bulletin Vol. 1, No.7 (July 1995).
Date published: 28 Mar 2006
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