Transitional tax residents can be temporarily exempt from paying tax on most types of overseas income, even though you are a New Zealand tax resident.
The exemption lasts for about 4 years after you become a New Zealand tax resident.
Qualifying as a transitional tax resident
You automatically qualify for the exemption if you are eligible. You can only get the exemption once.
You are a transitional tax resident if you:
- are a new migrant or New Zealander returning home
- qualified as a New Zealand tax resident on or after 1 April 2006
- were not a tax resident at any time in the 10 years before you qualified.
The exemption ends earlier if you do any of the following:
- Apply for Working for Families tax credits (including Best Start payments) or your partner does if they’re a transitional resident.
- Include income that would have been covered by the exemption in your Individual income tax return - IR3. You cannot revoke the choice to ‘opt out’ or end the exemption but, in limited situations, we may be able to consider a request to amend that return.
- Confirm to a foreign jurisdiction and us that you have paid or will pay tax in New Zealand on overseas income from a date that is in your transitional residency period.
- Tell us that you no longer want to be a transitional resident.
Exempt overseas income
Most types of foreign-source income are exempt for the period of the exemption. This includes overseas interest, dividends, foreign investment fund income, rent.
Lump sum withdrawals of foreign superannuation funds have their own 4-year exemption rule – but the time period calculation is the same.
Overseas income that is not exempt
Income you earn overseas from employment or providing personal services is not exempt.
However, in some cases, full or partial relief from New Zealand taxation may be available under an applicable double tax agreement.
Exemption period start and end dates
The start date and the end date of the exemption are separate tests – work out the start date first.
Start date
The start date is the 1st day that you become a New Zealand tax resident.
Find out how to work out your start date.
Tax residency status for individuals
End date
The end date is the earlier of 4 years after the end of the month that 1 of the following occurs.
- You qualify as a resident by being in New Zealand for more than 183 days in any 12-month period. Unlike the start date, this does not get backdated to the 1st day.
- You qualify as a resident by establishing a permanent place of abode in New Zealand.
Examples of working out start and end dates for the exemption period
Ed arrived in New Zealand on 10 March 2023. Ed bought a house in New Zealand and moved into it on 22 April 2023.
His exemption period starts on 10 March 2023.
His exemption period ends on 30 April 2027. This is 4 years after the end of the month in which he qualified as a tax resident.
Sarah arrived in New Zealand on 10 March 2023 and left on 14 March 2023. She moved back here on 22 April 2023 to travel around the country before eventually getting work and a long-term rental in November 2023.
She qualified as a tax resident on 17 October 2023 because she had been here for more than 183 days in a 12-month period (5 days in March and 178 days between 22 April and 16 October).
Her exemption period starts on 10 March 2023 (the 1st of 183 days present in New Zealand in any 12-month period).
Her exemption period ends on 31 October 2027. This is 4 years after the end of the month she first qualified as a tax resident (October 2023).
During your exemption period
If you receive any overseas income that is not exempt you need to show this on your Individual income tax return - IR3.
Tell us if you become a non-resident taxpayer during your exemption period.
After your exemption period ends
From the day after your exemption period ends you will be subject to New Zealand income tax on your worldwide income. If you earn overseas income, you need to work out what amounts need to be reported according to New Zealand tax rules and include it in your Individual income tax return - IR3.
Getting advice
Calculating your transitional residence period can be complex. Deciding whether to opt out of the exemption, or determining if you should include overseas income may require specialist knowledge and help. You may wish to speak with a tax professional to ensure that you meet your tax obligations.