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If you change your country of residence

There are a number of scenarios that can occur when notified foreign investors change residency:

  • a notified foreign investor can be come a resident
  • a resident can become a notified foreign investor, and
  • a notified foreign investor 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 country 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 for a living person:

Scenario 1a - A notified foreign investor becomes a resident

If they advise the PIE straightaway or during the tax year, and the PIE ... then the PIE ... and provided the ...
makes the change straightaway applies the correct PIRs for each part of the year investor has notified the correct PIRs that the attributed PIE income is excluded income.
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 notified their correct PIR for each year, the attributed PIE income is excluded income.
omits the change should correct for its period of omission PIE has corrected the position the attributed PIE income is excluded income.

Scenario 1b - A notified foreign investor 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 from the start of the next tax year when the notified investor rates applied, the income needs to be included in the investor's income tax return.
makes the change at the start of next tax year treats the investor as a resident for all the next tax year the income for both years stays excluded.
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 the income is treated as per the first or second lines above as applicable.

Scenario 2a - A resident becomes a notified foreign investor

If they advise the PIE straightaway or during the tax 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 the attributed PIE income is excluded income.
makes the change at the start of next tax year applies the transitional rule and doesn't change the PIR until the start of the next tax year investor has notified their correct PIRs, the income for both years remains excluded income.
omits the change should correct for its period of omission PIE has corrected the position the tax treatment of income is treated as per the first or second lines above as applicable.

Scenario 2b - A resident becomes a notified foreign investor

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, for the period from the start of the next tax year when the incorrect investor rate was applied, the income may need to be included in their income tax return.
makes the change at the start of next tax year treats the investor as resident for the year of change then as a notified foreign investor for the next tax year 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. Where corrected, the income is treated as per the first or second lines above as applicable.

Scenario 3 - A notified foreign investor changes their foreign country of residence (to or 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 who 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.

 


Date published: 31 Aug 2011

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