Don’t relax on tax
This is an article written by Julia Johnston for a British publication. However, the issues raised are relevant to all countries, not just Britain.
Don’t let tax spoil your new life in New Zealand.
International tax is a minefield. Many unsuspecting, well-intentioned migrants arrive in New Zealand, work hard to build a new life, and have PAYE deducted from their income, only to find out via Inland Revenue (New Zealand’s HMRC) that they have significant amounts of additional tax to pay. It doesn’t stop there; Inland Revenue then adds penalties and interest to that tax, and the amount can quickly escalate.
Every tax regime is slightly different. It is common for people to move to New Zealand without thinking about their tax affairs. This can be a costly and stressful mistake. Simple things, like having a British bank account, can trigger New Zealand tax obligations. British pension and superannuation schemes can trigger additional tax, whether they are left in Britain or transferred to New Zealand. Renting out the previous family home in Britain will also trigger additional New Zealand tax obligations which are not limited to returning the income on the rental; there is a requirement to pay tax on the interest paid on any mortgage too. This is burdensome and costly. All the while, these things will also continue to have tax implications in Britain.
Many people will have heard of transitional residency, or the “four year exemption”. This is a crucial time which allows new Kiwis to seek advice in order to restructure their affairs in a tax efficient manner. However, don’t let the transitional residency regime lure you into a false sense of security. Transitional residency only applies to passive income, and is very easily cancelled by the new Kiwi without realising. Once the transitional residency exemption has been cancelled, you cannot get it back, even if you didn’t mean to cancel it.
The world is becoming a much smaller place and business is no longer confined to a 9-5 desk job. People are finding themselves working from any location in the world, and employers are offering that flexibility. This can lead to significant adverse tax implications for both the employee, and the foreign based employer. The foreign based employer might not have even considered that allowing such flexible working arrangements could trigger New Zealand tax obligations for their overseas business. I frequently work with these types of clients who had no idea they were creating adverse tax implications for themselves or their employers. This is not confined to the super-wealthy or the top executives; it is across the board.
The transitional residency exemption only covers passive income, but I find a lot of new Kiwis that move to New Zealand still work for their British employer. Some common examples are software developers and admin staff. Then there are people who are settled in New Zealand, but travel overseas to complete their work. These people are often paid via a bank account in that overseas country. These people usually do not understand that this can be subject to tax in both jurisdictions.
The above is intended for informational purposes only and should not replace specific tax advice. For personalised advice on all tax issues please contact Julia Johnston at Saunders & Co.