The Inland Revenue Department (IRD) has released its long awaited ‘Interpretation Statement’ (IS) on tax residence. It updates previously published view on tax residence in the June 1989 Public Information Bulletin 180 (PIB 180).
The approach would be of interest for individuals following the recent Taxation Review Authority (TRA) decision (TRA 43/11).
The TRA decided that an expatriate New Zealander was resident, notwithstanding that at the time of the decision he had been living overseas for 10 years. The IS also sets out IRD’s position on the tax residence of companies and trusts, although there is little change from the 1989 view.
The IS, in its final version, is broadly consistent with the draft Statement that was issued for consultation in December 2012, although certain aspects have been updated for recent court decisions and, we understand, to take into account submissions on the original draft (including by KPMG).
Permanently residents
A crucial part of the residence analysis for individuals is recognition that a person must either be in New Zealand for more than 183 days in a 12-month period, or have a permanent place of abode (PPOA), to be a New Zealand tax resident.
A prerequisite for the existence of a PPOA is having a dwelling in New Zealand.
A dwelling, for the purposes of the PPOA test, need not be owned directly by the individual in order to be objectively regarded as available. Properties held in trust, through corporate vehicles, or owned by other family members (e.g. a room at a parent’s house) may constitute a dwelling of an individual where there is sufficient connection to that property.
Similarly, investment properties could be considered as dwellings depending on the circumstances (i.e. if the property could objectively be used as a place to live, having regard to factors such as the property’s location, suitability and whether the person has previously lived there).
Ruling factors
Where a dwelling exists for the purposes of the residency analysis, the IS outlines the material factors for determining an individual’s PPOA.
The focus is on an individual’s ‘continuity and duration of association’ and ‘durability of association’ with the dwelling. This requires consideration of nature and use of the dwelling, intentions, family and social ties, employment, business and economic ties, personal property and other factors.
An example
Under a similar example in PIB 180 (which is three years away) was broadly considered to be long enough for a person to lose their New Zealand PPOA, notwithstanding most other ties. While the IS Example reverses this outcome, it suggests that if Cate (just a name) did not intend to return, a position with her New Zealand employer was not guaranteed on her return (that is, the employer would only use best endeavours to find Cate a job), and she took her belongings overseas, Cate would not have a New Zealand PPOA. This is a change from the December 2012 draft Statement which was definitive that Cate maintained a New Zealand PPOA.
Dual residence
Where an individual is resident in both New Zealand and a country with which New Zealand has a Double Tax Agreement (DTA), there are a number of tests to determine where the person is resident. The first test is whether the individual has a permanent home available in one country, or the other.
The widely followed OECD guidance requires that a dwelling be ‘continuously available’ to be a permanent home. The IS concludes that a home that is let out on arm’s length terms to a non-associated person, under either a fixed or periodic tenancy, will not be available as a permanent home.
This again is a change from the December 2012 draft Statement which suggested periodic tenancies could still qualify a property as being available to the owner.
Dinesh Naik is Tax Partner at KPMG based in Auckland. The above is only a part of a long analysis. For full text, please visit www.kpmg.com/nz. KPMG is the Sponsor of the ‘Business Excellence in ICT Category’ of the Indian Newslink Indian Business Awards 2014.
