Who is, or who is not considered to be a New Zealand tax resident is once again at the forefront of recent tax legislative issues.  Mainly due to the recent case considered through the Tax Review Authority, High Court and the New Zealand Court of Appeal re the Diamond v Commissioner of Inland Revenue (2014) 26 NZTC 21, 093 case.

The case hinged on whether owning residential rental property in New Zealand could constitute a permanent place of abode.  Put simply a permanent place of abode is a dwelling that the taxpayer could reside in as their primary dwelling upon their return to New Zealand.  The Tax Review Authority originally ruled owing rental property in New Zealand could constitute a permanent place of abode.  The High Court on appeal, rule that view was incorrect.  The Inland Revenue then appealed to the Court of Appeal.

The Court of Appeal determined that residential rental property owned by an individual not present in New Zealand does not automatically constitute a permanent place of abode.  If it can be determined that no rental properties have been used as a home in the past and there is no intention to use them as a home in the future, then they cannot be a permanent place of abode.

Had the Inland Revenue proved the tax payer had a permanent place of abode in New Zealand, the taxpayer would have been liability for a significant amount of tax on overseas income earned, plus interest and penalties.

There are two main residency tests to determine if an Individual is tax resident in New Zealand one is a day-count test. The other is whether or not the individual has a permanent place of abode here in New Zealand.

It must be noted that a “permanent place of abode” is not expressly defined in New Zealand tax legislation.  A permanent place of abode is currently being determined by case law.  Therefore New Zealand tax residency status needs to be determined on a case by case basis; it’s not as simple as saying “I’m not living in New Zealand, therefore I’m not tax resident”.

This particular area has wide ranging implications across a large number of New Zealanders.  If you have any questions or you have any concerns surrounding your tax residency status or are planning to head overseas, then please contact the All Accounted For team.

Written by Blake Chamberlain