Are You a New Zealand Tax Resident? Why Is It Important To Know

Are You a New Zealand Tax Resident? Why Is It Important To Know

Why is it important?

Like most other countries, one of the ways that New Zealand imposes tax is by the concept Tax Residency. It means that all New Zealand tax residents are liable to pay tax to the Inland Revenue Department (IRD) on their worldwide income.

Your worldwide income includes any income that you derive in a foreign country even if you do not bring the money into New Zealand.

This is very important because it will drastically change the amount of tax you will have to pay to the IRD. This will be particularly relevant if you have significant assets overseas, or if you’re a new migrant to New Zealand, who still have financial ties to your country of origin.

Your worldwide income could include the following:

  • An amount of interest you derive from funds you have in an offshore bank account
  • Rental income (a rental property in Australia? Or China?)
  • Salary and wages paid both by New Zealand companies and offshore companies

Common Misconception

A common misconception that people have is that they confuse the definition of “resident” for immigration purposes with “tax resident” for tax purposes. The definition of a New Zealand resident for immigration purposes is different to the definition of “tax resident”, which is defined in the Income Tax Act 2007. What this means is that whilst you may be on a student or work visa in New Zealand, you might still nonetheless be considered a tax resident of New Zealand. Conversely, you might hold a permanent resident visa but, in some circumstances, still not be a tax resident of New Zealand.

Therefore, this leads us to the next question.

What is the definition of a “tax resident”?

If you want to find out if you are a New Zealand tax resident or not, then you have to look at the definition in sYA1 of the Income Tax Act 2007. Essentially, if you meet either one of points below, then you will be a tax resident of New Zealand.

  1. Be physically present in New Zealand for 183 days in any 12 month period; OR
  1. Have a Permanent Place of Abode (PPOA) in New Zealand

Things to watch out for

Note how the first point mentions that the 183 days is counted in any 12 month period. So it’s not 183 days in a calendar year or tax year. This is an important distinction because you could have triggered this inadvertently if you’re not careful.

The term “Permanent Place of Abode” in layman’s terms is a lasting or enduring place where the taxpayer usually live. A person could have more than one permanent place of abode in different countries. So say if you split your time between New Zealand and Australia, and have a regular place to live in each country, then it could be very possible that you have a permanent place of abode in both New Zealand and Australia.

Common Issues

Properties Owned Overseas

Being a New Zealand tax resident not only means that you will need to pay tax on your overseas income, but it also means that New Zealand tax law apply to your overseas assets as well.

Many of you might have heard of the bright-line test for residential properties, where if you buy and sell within 5 years, then you will need to pay tax on the capital. However, not many people know that if you’re a New Zealand tax resident, then this rule applies to your properties owned overseas as well. So if you bought and sold a residential property in Australia for example, within 5 years after 29 March 2018, then you will need to report that gain to the IRD and pay tax on it.

Rental or Business Income from overseas

Another common issue that we see is clients having rental properties or business income from overseas. In that situation, taxes might have already been paid in that foreign country, and in order to avoid double taxation, we can help you determine if a foreign tax credit might be available and then to accurately ascertain that tax credit amount to reduce your tax payable.

Own shares in a foreign company?

Another common issue that some clients face is if they also own shares in an overseas company. In particular, if they own shares in an overseas privately held company. There are separate rules dealing with such cases which can be very complex and you might need to pay tax on paper gains which you have not received a cash receipt for. So be very careful in that case, and contact us to make sure all the right disclosures are made to the IRD, and that you’re not paying more tax than you should.

Transitional Resident

There is another rule called the “transitional resident” rule, which exempts overseas income from taxation within 4 years of a person first becoming a New Zealand tax resident. There are some strict rules around who can qualify for this, and when the 4 years start and when it ends. There are also some exceptions to this transitional resident rule. So please make sure to contact us if you’re in this situation and we can help you determine which rules apply to you. This could potentially mean thousands if not tens or hundreds of thousands of dollars. So getting the right advice is crucial.

We hope this answers all your queries. Watch this space and stay tuned, because we will be back to talk about what happens when you’re a tax resident in New Zealand as well as another country.

Written by Gordon

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REMINDER: Rental losses ring- fenced from 2019/2020 tax year

REMINDER: Rental losses ring- fenced from 2019/2020 tax year

The new law on ring-fencing rental losses is now in force, which means:

  • In most cases ring-fenced deductions will be carried forward and can only be used against residential rental or sale of property income in future years.
  • Property investors will, in most cases, no longer be able to reduce their tax liability by offsetting residential rental property deductions against their other income, such as salary or wages, or business income.

What does this mean? Here’s an example to guide you through: 
Tony owns a three bedroom rental property in Pakuranga, which he lets out at $570 per week. After paying the interest on his mortgage, property management fees, rates and other outgoings, he ends up with a $3,000 tax loss. Tony also works as an IT Manager for the Big Company Limited and receives a $100,000 annual salary.

Before the rule change, Tony would have been able to offset his $3,000 tax loss against his $100,000 annual salary, so that his total taxable income would be $97,000 ($100,000 – $3,000 = $97,000). This way, Tony would most likely have been able to claim a tax refund at the end of the year, because Big Company Limited would have deducted taxes from his salary at an assumed taxable income of $100,000 (rather than the actual taxable
income of $97,000).

The new rules stops that from happening. Instead, the $3,000 tax loss would be carried over to the next tax year, where it can only be offset against any rental profits / taxable property gains.

The new rules apply from the start of the 2019-2020 income year and apply to:

  • Mainly rental properties but can also include other residential land.
  • Individuals, partnerships, trusts, look-through companies and close companies.

Own a rental property? We’re happy to talk you through your tax implications so you don’t get caught out.

Written by Gordon

January 14, 2020

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Getting holiday pay right

Getting holiday pay right

Do you have staff taking leave over Christmas? Are systems in place to make sure everyone gets what they’re entitled to? Even if someone else handles your payroll, you are responsible for making sure holiday pay and leave payments are handled correctly.

Remember:

  • Whether your staff work full-time, part-time, casual, on-call, or shift work, they’re entitled to any benefits that come from working on public holidays.
  • If your employee agrees to work on a public holiday that falls on a day they would normally work, they will need to be paid time and a half PLUS receive another paid day off later, otherwise known as a day in lieu. If an employee works on a public holiday, and it is not a day they would usually work, the employee is only entitled to the time and a half. The entitlement to time and a half has to be included in employment agreements.
  • Employees can choose to take their day in lieu:
    • on a mutually agreeable date that is not a public holiday
    • on another day on which they would normally be working
    • for a whole working day, regardless of how much of the public holiday they actually worked.
  • If your business is having a closedown period, employees are entitled to a paid public holiday if they would ordinarily work on the day of the public holiday.
  • Make sure your payroll system:
  • is flexible enough to handle different working arrangements (eg, changing employee work schedules)
  • records all relevant time worked and payments made
  • has accurate and up-to-date information.
  • If you realise an employee hasn’t been paid the right amount, be up front and correct the mistake immediately.

At JZR, we believe in getting the basics right, which is why we use Smart Payroll. Based in New Zealand, Smart Payroll is a cloud based software that makes it simple to pay employees and contractors and send reports to the IRD. At the click of a button all calculations are done and your employees are paid. PAYE and Kiwisaver is also included with the program and at the end of it all, your reports are filed with the IRD, so you don’t have to remember a thing. We have a dedicated payroll solutions service designed to take care of your payroll hassles. Please get in touch with us at info@jzr.co.nz or call us on 09-9722236 if you want to find out more.

Written by Gordon

December 17, 2019

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Five simple ways to finish the year feeling relaxed (not rushed!)

Five simple ways to finish the year feeling relaxed (not rushed!)

Is less stress at the top of your Christmas list? For the sake of your sanity and the best interests of your business, follow these steps to remain calm and collected as the year comes to a close.

  1. Outsource! Look at everything you need to do before 25th Is it doable without losing the plot? Write a list of what you can pass on externally to consultants / contractors or someone (less busy) in your team.

 

  1. Say No. Often there’s a sense of guilt when we refuse and invite, opportunity or request but if you take everything on, you’ll suffer. It’s already a busy time of the year, so the next time someone asks you something – check to see if it’s something you want to do or feel you have to do. Then if you can, politely say no.

 

  1. Lean on your support network: Will you be working longer hours in the lead up and during the festive season? If you need to be able to prioritse your business over everything else, you’ll need a hand to make sure other areas of your life stay standing. Talk to your family. Enlist their help if you need it. You could even do a skill-swap with friends – mow their lawn in exchange for a meal.

 

  1. Leave some tasks till 2020: There’s often a feeling of, ‘I just want to get this done by the end of the year’ running through our veins in December but taking time to relax over the holidays means letting a few things go. Write a ‘to-do’ list then break it into three categories: must do, should do, can probably wait.

 

  1. Hide your phone: The best present you can give yourself over the Christmas break is presence. Time away from work, spent doing what you love to do, and truly relaxing. Putting your devices in the drawer (even just for an hour!) will do you the world of good before launching into the new year.

 

Remember, Christmas is best enjoyed relaxed and when spent with family. So bring in 2020 stress-free and happy with the list of tips!

Written by Gordon

December 17, 2019

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Partnership with Tax Management New Zealand Limited

Partnership with Tax Management New Zealand Limited

Tax pooling: Provisional tax payment flexibility

JZR Accountants & Consultants is pleased to announce a partnership with Tax Management NZ that will enable our clients to pay provisional tax when it suits them, not when IRD says so.  

Having to pay on dates set by the taxman can be problematic for some as these do not always align with when a taxpayer earns their income, nor do they recognise the state of their cashflow.

If a taxpayer fails to pay on time, IRD charges interest (currently 8.35 percent) and late payment penalties.

As an IRD-approved provider of a service called tax pooling – which has been operating in New Zealand since 2003 – Tax Management NZ remedies this problem by offering JZR’s clients more payment flexibility, at a reduced interest cost and without having to worry late payment penalties.

We feel tax pooling will help clients who wish to manage their cashflow or want to free up working capital.

 

How does it work?

Your account manager at JZR Accountants & Consultants can help you to access tax pooling via Tax Management NZ, who makes payments into its account at IRD on every provisional tax date on behalf of taxpayers wanting the option to pay an upcoming payment in instalments or at a time that suits them.  

These payments are date stamped as at the provisional tax date on which they are made (for example, 28 August 2019).  

Taxpayers then can deposit funds into JZR Accountants & Consultants trust bank account, after which we can forward this payment onto Tax Management NZ through one of two products: Flexitax® and Tax Finance.

Flexitax® enables a taxpayer to pay off what they owe as and when it suits their cashflow, with interest being recalculated on the core tax still owing at the end of each month.

With Tax Finance, a taxpayer pays a fixed interest cost upfront because they are agreeing to pay the full tax amount at a future date of their choosing. The upfront interest cost is based on the amount of tax required and when the taxpayer wishes to pay.

Whatever payment plan is used, Tax Management NZ will transfer the tax the taxpayer requires from its tax pool to the taxpayer’s own IRD account upon receiving payments.

As the tax they are transferring to a taxpayer’s IRD account has been paid and date stamped as at the original due date, IRD treats it as if the taxpayer paid their provisional tax on time when it processes this transfer. This eliminates any IRD interest and late payment penalties incurred.

 

 

“by offering taxpayers more payment flexibility, at a reduced interest cost and without having to worry late payment penalties.”

Tax types tax pooling can assist with 

Tax pooling can help JZR’s clients to make provisional or terminal tax payments for the current tax year or one just completed.

It can also assist with historic income tax as well as other tax types such as GST, PAYE, FBT RWT and NRWT in situations when IRD issues a notice of reassessment.

 

Please do not hesitate to get in touch with us if you wish to know more about how JZR Accountants & Consultants can help you with tax pooling. 

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