NZ Residency Laws Revisited

The IRD is trying to remove any grey areas from their residency laws to produce a working model that is clear and easy to understand.

In September they recently released a further Interpretation Statement on Tax Residence (IS 16/03) which updated and replaced IS 14/01, and the Commissioner herself stated that:

“… as a result of the Commissioner’s updated position, there may be some situations in which the application of IS 16/03 gives a different result from the application of the Interpretation Statement it replaces – IS 14/01. As the legal analysis in IS 16/03 represents the correct view of the law, taxpayers can ask Inland Revenue to apply the analysis contained in IS 16/03 to tax positions taken in earlier years. The Commissioner will consider such requests on a case by case basis."

As a general statement 16/01 is more favourable to taxpayers, and having the option to request its application to earlier years is good news.

Permanent Place of Abode

Regarding Permanent Place of Abode (PPA), an individual will be considered resident under this rule if they have a permanent place of abode available to them in New Zealand. An abode can be a lasting or enduring place where they usually live. It addition it can also be a place in which they can live or dwell when required, where they have a durable connection. This rule takes precedence over the 183 day rule and, in theory, travellers could be deemed to be resident well past the 183 days where a PPA exists.

For New Zealand yacht crew a critical determinant on residency continues to be the existence or absence of a “permanent place of abode”, as "a place where a taxpayer resides from time to time even if they spend periods of time overseas” (CIR v Diamond [2015] NZCA 613.

The 183 Day Rule

You will be deemed a resident for tax purposes if you have spent more than 183 days in New Zealand in a 12 month period. An individual will then be considered tax resident from the first of those 183 days. It is important to note that once you are considered resident by this rule you remain resident until you fulfill the 325 rule.

The 325 Day Rule

The 183 day rule will apply until you can demonstrate that you have been out of New Zealand for 325 days in any 12 month period and you do not have a permanent place of abode in New Zealand. The 325 days do not have to be consecutive but they must be within the same 12 month period. Note that both the 183 and 325 day rules apply within a 365 day period, not a fiscal or calendar year. In addition, days of arrival and departure are counted as 'resident' days.

If any of the above rules apply to your situation you must consider the following ties:

• Presence in New Zealand: How much time do you spend in New Zealand? Are you there for continuous periods or are you there intermittently?

• Accommodation: If you have accommodation in New Zealand do you own/ lease it or is it a family home?

• Family and social ties: Does your family still live in New Zealand? Do you belong to any New Zealand Clubs or associations?

• Economic Ties: Do you have bank accounts, credit cards, investments, life insurance or superannuation funds in New Zealand?

• Employment or Business Ties: Do you run a business or have employment to return to in New Zealand?

• Personal Property: Do you have vehicles, clothing or property in storage in New Zealand?

• Intentions: Do you to intend to come back to New Zealand to live? If you do intend to return when will this be?

• Benefits and Pension Payments: Do you receive any welfare benefits, pensions or other payments from New Zealand agencies or organisations?

If you want to break New Zealand tax residency status you must be physically absent from New Zealand for 325 days in a 12 month period as per the 325 Rule. In addition you must not have a PPA in New Zealand available to you. If any of the rules and ties outlined above relate to you must carefully consider your residency status.

Residency is a very specialised area of tax law and if you have concerns about your status it is advisable to seek professional advice.

At Marine Accounts we have built our very own residency test to determine this for you and you can view it here: Residency Test

Any tax advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.

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