The COVID-19 travel restrictions and their impact on tax residency

28 April 2020

The action by governments to contain the outbreak of COVID-19 in New Zealand and around the world has resulted in a widespread restriction on travel. With borders largely closed and most countries in some form of lockdown, it is very difficult for people to come and go as they normally would.

The impact has been significant on businesses with many unable to derive income during this period. However, there has also been other less publicised impacts, such as the impact on those stranded in New Zealand who do not normally live here. Such persons could be at risk of becoming a tax resident of New Zealand if forced to stay longer than expected.

In New Zealand, an individual is considered a tax resident under domestic rules if:

  • The individual is physically present in New Zealand for 183 days or more in any 12-month period; or
  • The individual has a permanent place of abode (“PPOA") in New Zealand.

Only one of these tests needs to apply for a person to be a tax resident of New Zealand. Also, these tests do not consider a person’s residency status under immigration rules.

183 Day Test

Many know and understand the 183-day test. Essentially, if a person is in New Zealand for 183 days (with part-days counted as a full day) over any 12-month period (i.e. not just a tax or calendar year) they will become a New Zealand tax resident. As a result, people usually arrange their travel in New Zealand to be within this restriction.

However, such plans could now be interrupted and travellers could find themselves a tax resident under this test if they are unable to leave due to the border restrictions and subsequent lockdown.

Findex has been lobbying the IRD for relief for those caught in such a situation. The OECD has also encouraged jurisdictions to not treat a person as tax resident purely because they were stranded due to COVID-19.

Thankfully, the IRD have considered the situation and they will not count the days a person is unable to travel under this test, if:

  • The individual is stranded in New Zealand due to COVID-19 despite plans to leave; and
  • The individual leaves New Zealand within a reasonable time after they are no longer practically restricted in travelling.

A person will need to be able to demonstrate they had plans to leave New Zealand before the imposed restriction on travel.

Permanent Place of Abode (PPOA)

The other consideration for some will be the PPOA test. This test is less understood and inherently more difficult to apply, because it is an assessment of a person’s qualitative ties to New Zealand.

These ties include:

  • Whether the individual has a home available to them.
  • The individual’s time in New Zealand.
  • What social (family and friends) and economic ties the individual has in New Zealand.

The primary tie is that a person has a home (a property) available to them and their use of that property and its subsequent ties are enough to be considered more than temporary.

This could impact non-residents who have a holiday home in New Zealand that they usually only spend a few months of each year in. As a result, they generally may not have a PPOA in New Zealand. However, if they were in their holiday home when the travel restrictions came into place, this poses a risk under the PPOA test.

The IRD were silent on this issue when outlining its position on residency. This is likely due to the subjective nature of the PPOA test making it difficult to provide such advice at a policy level.

For those affected, there may be an argument that their stay should be considered temporary if only staying due to the travel restrictions, and not result in that property being considered a place of abode which is permanent. However, this will need to be considered on a case by case basis and affected taxpayers should seek advice to assess where they stand.

If a person does become a tax resident under domestic legislation there are Tax Treaties that can provide relief if they are also a tax resident of other countries. However, this could impact on other rules, such as the ability to claim Transitional Residency Exemption (“TRE”), a useful shield for new migrants.

Other Measures

Other relief measures being offered to individuals are:

  • A possible extension of the period the TRE applies if individuals can show they were planning to leave prior to the travel restrictions.
  • Individuals with student loans who are trapped overseas may not be considered overseas based if they are stranded.

We note the measures do not cover all scenarios, such as the tax treatment of trusts if a settlor or trustee becomes a non-resident due to the restrictions.


The IRD also stated relief will be offered to companies that could become a tax resident of New Zealand if directors/employees are stranded in New Zealand. This will need to be considered on a case-by-case basis, considering wider factors.

There is also some PAYE/Withholding Tax relief if an employee or contractor is temporarily in New Zealand but becomes stranded.

It is good to see the IRD will offer relief in such cases, in what is an unprecedented situation. One thing that remains to be seen is whether there will be some legislative changes, as current legislation does not extend to provide this relief.

In all cases, the position will need to be assessed to ensure the relief can be applied. If you need any assistance, please get in touch with out Tax Advisory team for assistance.

Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.

Findex NZ Limited trading as Findex

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April 2020