Temporary tax exemption on foreign income for new migrants and returning New Zealanders
From 1 April 2006, people becoming tax residents in New Zealand may qualify for a temporary tax exemption on some of their foreign income. This temporary tax exemption is available to those who qualify as a tax resident in New Zealand on or after 1 April 2006 and are new migrants or returning New Zealanders (transitional residents) who have not been resident for tax purposes in New Zealand for at least 10 years prior to their arrival in New Zealand.
The exemption can only be granted once in a lifetime.
The exemption
The temporary tax exemption for foreign income is for four calendar years (up to 49 months). The exemption starts on the first calendar day of the month you qualify as a tax resident in New Zealand and is valid until the last calendar day of that month four years later. For example:
You qualify as a tax resident in New Zealand on 22 April 2006 and have one or more types of foreign income that are temporarily exempt for taxes in New Zealand (see list below). You are eligible for the exemption counting from 1 April 2006 until 30 April 2010, which effectively is 49 months.
Exempt types of foreign income
Types of foreign income which are temporarily exempt from tax in New Zealand:
- Controlled foreign company income that is attributed under New Zealand's Controlled Foreign Company (CFC) rules
- Foreign investment fund income that is attributed under New Zealand's Foreign Investment Fund (FIF) rules (including foreign superannuation)
- Non-resident withholding tax (for example on foreign mortgages)
- Approved issuer levy (for example on foreign mortgages)
- Income arising from the exercise of foreign employee share options
- Accrual income (from foreign financial arrangements)
- Income from foreign trusts
- Rental income derived offshore
- Foreign dividends
- Foreign interest
- Royalties derived offshore
- Income from employment performed overseas before coming to New Zealand, such as bonus payments
- Gains on sale of property derived offshore (held on revenue account)
- Offshore business income (that is not related to the performance of services).
When your tax exemption ends after four years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).
These types of foreign income are not tax exempt in New Zealand:
- Employment income from overseas employment performed while living in New Zealand
- Business income relating to services performed offshore.
If you have any of these types of income, you must declare them on your annual income tax return (IR3 for individuals) from the date of your arrival in New Zealand.
To be eligible
- You must have become a tax resident in New Zealand on or after 1 April 2006, and
- You must not have been a New Zealand tax resident at any time in the past 10 years prior to your arrival date in New Zealand. Read more about tax residency
- This is a once in a lifetime exemption eg you can't extend your tax exemption or renew it after its expiry date
- You or your partner cannot receive Working for Families Tax Credits while being tax exempt from foreign income, but will have to determine which is better for your situation, for example:
You and your partner have $1,000 worth of foreign interest per year, but are eligible for $5,000 per year Working for Families Tax Credits in New Zealand if you do not claim the exemption for foreign income. In this situation, it is in your family's best interest to waive the exemption and pay New Zealand tax on the foreign interest and receive Working for Families Tax Credits. You can inform us of your foreign income on your annual income tax return (IR3 for individuals).
Read more about Working for Families Tax Credits and how to apply.
Your obligations
The tax exemption is automatically granted if you qualify. You don't have to contact us with your information.
You are required to provide us with accurate information and to notify us of any foreign income that is not tax exempt by filing an IR3 individual income tax return every year as long as you have foreign income. Read about individual income tax.
When your tax exemption expires, you must include all your foreign income when you file your IR3 individual income tax return along with your New Zealand income. You must file an income tax return after the end of your exemption, and every tax year after that as long as you have foreign income, regardless of whether or not you notified us of your foreign income upon your arrival.
Apportion your foreign income in your tax return
If your exemption expires at any time in a tax year other than on the standard balance day of 31 March, you will have to apportion your foreign income in your tax return for that year, for example:
You qualify as a tax resident in New Zealand on 10 September 2006 and have one or more types of foreign income that are temporarily exempt for taxes in New Zealand and fulfil the other eligibility criteria as listed above. In that case, you are eligible for the temporary tax exemption counting from 1 September 2006 until 30 September 2010.
However, September is in the middle of a standard New Zealand tax year that runs from 1 April to 31 March. If you have foreign income after 30 September 2010, you now have to declare the foreign income earned from 1 October 2010 until 31 March 2011 on your income tax return for 2010/2011 eg an IR3 for individual income.
To contact us
The tax exemption is automatically granted if you are eligible. You don't have to contact us with your information.
If you need to contact us there are four ways for you to do this:
- You can use the online general enquiry form on this web site.
- You can register for an online IRD services account. It will allow you to send and receive secure mail etc. It takes approximately 10 days to receive your password by traditional mail once you have registered on the web site.
- Call us free within New Zealand on 0800 227 774 or, if you're calling from overseas on 64 4 801 9973.
- Send a letter to the Processing Centre nearest you.
More information:
- You can read more about tax residency
- See here for more information on Working for Families Tax Credits
- If you need an IRD number, please see how to get an individual IRD number.
Date published: 23 Aug 2006
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