A recent case at the Taxation Review Authority (TRA) against a former soldier who left New Zealand permanently 10 years ago has the potential to undermine the non-resident tax status of a number of expatriate New Zealanders who may otherwise have considered themselves well and truly outside Inland Revenue’s reach.
Due to the fact that he still owned a property with his ex-wife that was rented out on a periodic rather than fixed term basis the ruling stated that the property was theoretically available for him to live in even though this had never happened. The Income Tax Act 2007 says that a person, other than a company, who has a “permanent place of abode” in New Zealand is a New Zealand tax resident. Permanent place of abode means more than just the building you live in , it covers all your ties and links with New Zealand. These may be social, physical, economic or personal. The enduring relationship test overrides any rules about the
number of days you’re in New Zealand. Also the fact that he had also not signed forms with the Inland Revenue stating that he had left to the country permanently counted against him.
This ruling has left him liable for any outstanding taxes, a 20% penalty on-top of the taxes he had already paid in the countries where he had been based. Though he had until the end of January to appeal it is not known yet whether he has done so or not.
Rebecca Armour, head of KPMG’s International Expatriate Services tax team stated this was a “worrying development as it potentially puts expatriates’ New Zealand property investments directly in Inland Revenue’s crosshairs, even if they have purchased solely with the intention of renting”.
The ruling places pressure on Kiwi expatriates to make sure that they have evidence of the intention to leave New Zealand permanently and making sure this is done contemporaneously.
Advisors are though waiting on the Inland Revenue’s upcoming statement on tax residence which may provide some workable and practical guidance in this area. The current rules regarding tax residence can be found in the New Zealand tax residence guide IR292 provided by the Inland Revenue.