In the wake of Donald Trump emerging as the president-elect of the United States, New Zealand has experienced a massive upswell in interest from Americans considering emigration to this country. However, emigration is not a trivial matter made on the spur of the moment; in addition to the upheaval of family, friends and professional networks, there are tax implications which must be considered, too.
That’s according to Crowe Horwath tax advisory managing partner Scott Mason. He says that when foreign nationals are interested in moving to New Zealand, appropriate planning must include a focus on tax obligations and implications. “Often, people take some initial steps, such as buying property or emotively deciding to leave the United States, without realising that attention must be paid to tax requirements in both countries. The other immediate issue for them is that while New Zealand has a comparatively efficient tax system, it does differ significantly from that of the United States, so it is necessary to get to grips with the way tax is handled here.”
Key issues which consistently crop up for immigrants, says Mason, include tax residency and exemptions, employment and business arrangements, ownership interests, and property purchase rules and obligations. That is without even considering the overhang of the US tax system and FATCA responsibilities if they did come to NZ.
In terms of residency, all New Zealand tax residents are required to pay tax locally on their worldwide income. For potential immigrants, becoming a tax resident is determined by how many days you spend in the country per year; 183 days or more, and you are a resident. Alternatively, if the individual’s permanent place of abode is determined to be in New Zealand (owing to property, business and/or personal interests), that person can be adjudged to be a resident. “Many people aren’t aware of these conditions and the timing of residency being triggered, and can be surprised by them,” observes Mason.
If a tax resident of New Zealand, and a tax resident of another country, double tax agreements can apply and must be handled appropriately, he adds.
There is a four-year exemption from having to return certain overseas income in this country for new residents. However, there are requirements to meet and the exemption does not apply to all forms of income, while residency tests also apply. “Again, determining tax residency is key to assessing whether the exemption is available and for how long,” Mason notes.
If immigrants intend to work or start a business locally, various additional rules apply; ownership interests must be considered as a component of residency and tax implications, while a recurrent issue that Crow Horwath deals with relates to those with ties to trusts, as Mason explains: “There can be significant issues with the migration of a person if they are associated to a trust, particularly if they are a settlor, trustee or beneficiary. There are issues around disclosure and timing of decision-making that are crucial as it can result in the trust being classified as non-complying, and attracting a punitive tax rate on all gains.”
A major hot button for New Zealanders, property is also routinely an issue for non-residents or potential new residents. Mason notes that an IRD number is required, which typically also requires a local bank account, while GST can apply to some purchases, and a purchase can also impact on tax residency. Some cases require Overseas Investment Office approval, while tax on land issues, such as the bright line test, must be understood.
In short, Mason says that while the interest from the United States has spiked dramatically, he doesn’t believe there will be a flood of American immigrants. “The interest, for most of those upset at the election result, is probably a knee-jerk reaction. However, for those who are serious about moving to New Zealand, it is highly advisable to pay close attention to your tax and other financial affairs, as these arrangements will change and must be provided for. This in itself will act as a brake to many taking action.”
For more information, please contact:
Scott Mason, Tax Advisory Managing Partner,
Crowe Horwath Australia/New Zealand