How and When I Become Transitional Tax Resident
If you are a new migrant or a New Zealander returning home, you may be eligible for a temporary exemption on certain overseas income in New Zealand.
This exemption is applicable automatically if the conditions are met, although you can opt to not be a transitional resident at the time of application of the IRD number. It is available only once.
WHO IS EXEMPT?
- You have to be a new migrant or a New Zealander returning home
- You were not a NZ tax resident at any time in the previous 10 years
- You qualify as an NZ tax resident after 01 April 2006.
WHEN DOES THE EXEMPTION BEGIN?
The exemption period starts from the first day of becoming a tax resident.
For example, if you live in NZ for 183 days in a 12 month period, you become a NZ tax resident and qualify as a transitional resident from the first day of the 183 day period. If you became a tax residency by establishing a permanent place of abode, it starts from the day of establishment.
WHEN DOES THE EXEMPTION END?
The exemption ends 4 years after the end of the month in which you completed the above 183 days, or established the permanent place of abode.
Alternatively, it may end earlier if you
- Opt out
- Become a non resident tax payer
- Or apply for Working for Families tax credit.
WHAT INCOME ARE EXEMPT?
Most foreign sourced passive income are exempt from tax during the transitional residency period. For example, FIF incomes, overseas interest and dividends, overseas rentals, overseas capital gains etc are all not required to be declared as income.
However, if you receive any foreign sourced employed income (working for an overseas organization while living in NZ etc), or providing services overseas and receive foreign sourced income, these are not exempt.
*Please note that the above article only intends to capture the salient points regarding the transitional tax residence in New Zealand and does not constitute a tax advice. If you have specific questions regarding your situation, please reach out to us through the contact us option.
Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.
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