This is a particularly important document for New Zealanders living and working overseas. For these people, remaining as a tax resident in New Zealand can have significant financial implications.
We therefore welcome its release. Residency issues have recently been at the forefront of the minds of many expats following the approach taken by the Taxation Review Authority in the recent decision about tax residency of an overseas based security consultant.
Some Amendments
The initial draft of the statement caused some unease when it suggested that retaining any property in New Zealand may cause taxpayers to remain taxable on their worldwide income. Following extensive consultation, IRD has amended several areas of the interpretation statement.
Aspects of these changes have resulted in a more reasonable outcome.
The Interpretation Statement still requires that individuals consider their entire circumstances and the level of their enduring connections with New Zealand when determining whether or not they are tax resident in New Zealand.
The importance of the holistic approach to the consideration of residence as outlined in the Interpretation Statement is highlighted following the recent Taxation Review Authority decision.
Guidance unhelpful
The residence test is still subject to judgment to be exercised and can be difficult to apply in marginal cases. The most important thing is that taxpayers have certainty.
IRD’s position for any specific person must be predictable at the time decisions need to be made. In this respect the IRD operational guidance, is unhelpful.
For expats who have previously filed a New Zealand tax residence questionnaire and are relying on the confirmation they received from IRD that they are not tax resident in New Zealand, the operational statement suggests that they should re-evaluate their positions, particularly where they are relying on the fact they have been outside New Zealand for three years or more.
No comfort
Unfortunately for those individuals, no comfort has been provided that their previously approved positions will not be challenged, as that type of confirmation is non-binding on IRD.
In such cases, we strongly recommend that individuals re-look at their residency position and seek advice if necessary, to ensure that they have correctly applied the published guidance. An ‘incorrect’ application could have serious consequences as illustrated by the recent Taxation Review Authority decision.
The tax residence of an employee can also impact on their employer’s tax obligations.
It will determine whether they need to deduct PAYE, ACC and fringe benefit tax in New Zealand.
The tax costs associated with an employee will impact on the cost of remuneration, the pricing of contracts and how competitive New Zealand tenders are for overseas projects.
Therefore employers should be wary of the implications of the residence tests.
Dinesh Naik is Tax Partner at KPMG based in Auckland. Another article on this subject appeared in our April 1, 2014 issue. KPMG is the Sponsor of the ‘Business Excellence in ICT Category’ of the Indian Newslink Indian Business Awards 2014.
