In order to attract highly skilled people to New Zealand, an automatic temporary tax exemption was granted from 1 April 2006 to individuals who qualified as transitional residents to reduce tax barriers.
Who qualifies as transitional resident?
New migrants and returning residents (who have not been NZ tax residents for 10 years) would qualify as transitional residents. An individual is deemed to be a transitional resident from the time they actually move permanently to New Zealand, that is, from the time that person acquires a permanent place of abode in New Zealand.
The tax exemption is for four years and applies to that individual’s overseas income and includes:
- Bonuses from previous overseas job,
- Income from foreign financial arrangements, and
- Certain other types of income.
However, the exemption does not extend to:
- Employment income performed overseas, or
- Business income relating to services performed overseas while that person is a transitional resident.
Since the tax exemption is automatic i.e. there is no need to apply for it, the person will have to return all their overseas income in New Zealand after the expiry of the four-year exemption period.
There were many New Zealanders migrating to Australia temporarily but were treated as Australian tax residents and taxed on their worldwide income in Australia until 1 July 2006. However, since then, many New Zealanders have fallen into a new category of taxpayers called “temporary resident” and have been exempted from Australian tax on most of their foreign–sourced income including:
- Rental income,
- Australian capital gains tax relating to foreign-sourced capital gains and some Australian assets,
- Interest withholding tax from interest paid to foreign lenders, and
- Certain other types.
In Australia, the definition of “temporary resident” is quite rigid. For a New Zealander to qualify as a “temporary resident”, they will have to meet the following criteria:
- Are not an Australian citizen,
- Not hold a permanent visa,
- Do not have an Australian spouse (including de facto spouse), and
- Do not hold a “protected” special category visa.
The last criteria may pose a problem for some New Zealanders who have lived in Australia since before February 2001.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.