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TOP 5 TAX ISSUES FOR IMMIGRANTS

 

Thinking of migrating to New Zealand?  You have probably thought of tax issues, but no-one in your country of origin is an expert on New Zealand taxation.  Recently I took the opportunity to meet with Sybrand van Schalkwyk, Senior Tax Manager, Staples Rodway Tauranga about tax issues for immigrants. Here are the top 5 tax issues that he advises clients on, which you may have to consider before coming to New Zealand.

Issue 1: When will my New Zealand tax residence start?

New Zealand has two tests for tax residence purposes.  These tests function independently from tests used for immigration purposes.

You will generally be a resident in New Zealand if you spend more than 183 days in a 12 month period in New Zealand.  Your residence starts from the first day of presence, so if you came for a "look, see, and decide" trip, your residence might start earlier than you think.

The other test that could catch you is known as the permanent place of abode test.  Briefly, you should satisfy this test if you have a place available for you to sleep on a permanent basis, such as a house or a rental, and you have a sufficiently permanent connection with New Zealand.  Whether you have the required level of permanence depends on the consideration of various factors. 

For most people migrating to New Zealand it will be fairly clear when they become a tax resident in New Zealand.

Issue 2:  Will I be a transitional resident once in New Zealand?

Around 2005 there was concern in New Zealand that the high end of the labour market was either working in London, or moving across the Tasman.  Around this time Australia introduced an exemption from tax for highly skilled migrants on their offshore income, to encourage these migrants to work in Australia.  New Zealand introduced similar measures for migrants who came after 1 April 2006 in order to remain competitive with Australia.

The exemption was aimed at attracting either new migrants, or Kiwis who had been out of the country for at least 10 years.  Therefore, generally speaking, if you fall in either of these categories you should fall within the exemption.

If you do fall within the exemption you should not be taxed on your offshore income for a period of around 48 months.  Note that the exemption does not apply to personal services income.  So, for most migrants who fall within this exemption and who come to New Zealand for the first time, you won't need to worry about tax issues for the first 48 months.  However, you will need to consider the issues once you get close to the 48 months running out.

Issue 3:  How will my foreign superannuation be taxed?

There are two issues here: (a) the taxation of pensions; and (b) the taxation of lump sum withdrawals from overseas pension funds. 

Regarding the taxation of pensions, if you are a transitional resident you should not be taxed on this for the first four years.  However, after that the pension income will be taxed in the usual way.  If you are not a transitional resident then your pension income will generally be taxed in New Zealand as you receive it.  There are some exceptions to this rule.

Regarding lump sum withdrawals, these are tax free for the first four years whether or not you are a transitional resident.  However, if the withdrawal happens after that, then things become a bit more complex.  Generally speaking though, you will probably be taxed on a scheduler method based on how long you have been in the country before you make the withdrawal.  For example, if 5 years, then around 5% will be income, if 6 years, then around 10% will be income, and so on, until 100% of the lump sum withdrawal will be treated as income, and taxed at your marginal tax rate.

Issue 4:  If I am a transitional resident, what do I need to do before my time runs out?

You need to see your tax advisor at least 6 months before your transitional residence expires.  If you have offshore assets, like shares or share options, or foreign bank accounts, then planning for the loss of transitional residence is essential.  If you don't plan you are likely to pay more tax than you otherwise would have.

Issue 5: Should I be setting up a trust before I come to New Zealand?

Although trusts are useful vehicles for estate and wealth planning, they will usually make your affairs significantly more complicated, and therefore increase your professional advice bill.  If your wealth is limited, then the cost benefit analysis would probably point you in the direction of not having a trust.  However, where your wealth is significant you may like to consider the use of a trust, or, you may already have a trust, and the question is more about how this trust will be taxed once you come to New Zealand.  There are important elections to make for trusts settled before you come to New Zealand, so care should be taken to discuss this with your advisor early on.

Written by Michelle Carabine at 09:00

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