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As you prepare to head back home, you’ll be dreaming about reclaiming the joys of the great Kiwi lifestyle. Less exciting, though, is the prospect of tackling the many thorny issues around tax requirements. In this article, KPMG’s Rebecca Armour highlights some of the key tax issues returning Kiwis should be aware of along with the special KPMG Welcome Home Package available for Kea members.

 

 

Transitional residence status - do you qualify?

One of the first things to assess is whether you qualify for transitional residence status (which is a bit like winning the lottery in the tax planning stakes).

“It’s a really valuable status,” explains Rebecca.“

Essentially, all of your offshore investments and assets will be exempt from the New Zealand tax base for a period of four years. This gives you time to think about how to structure your affairs and how to minimise the impact of New Zealand taxation.”

There’s a bright-line test to qualify. You must have been out of New Zealand for more than 10 years, and have never had the benefit of transitional residence status previously.”

If you think you might qualify, you should contact us to talk through the benefits,” advises Rebecca.

Triggering New Zealand tax residency (beware a common pitfall)

If you’re returning to New Zealand, you’ll want to manage the timing of when your New Zealand tax residency starts. This is because tax residents are taxed on their worldwide income; while non-residents are taxed only on their New Zealand-sourced income.

Residency is triggered by one of two tests – either you’re in the country for 183 days in any 12-month period; or you have a ‘permanent place of abode’ in New Zealand (i.e. a dwelling in New Zealand that’s available for your use).

Rebecca says a common pitfall is for people to inadvertently trigger residency status by returning to New Zealand for holidays or visits, prior to the permanent return.“

To avoid that, make sure there’s a period of least six months between your last visit and your permanent return,” she advises.

Similarly, Kiwis returning home should look carefully into the tax implications of investing back into the quarter-acre dream.“

Purchasing a home here could also trigger domestic residence earlier than is desirable. It’s a good idea to seek advice before making that commitment.”
 


 

Your offshore assets - potential exposure

Thirdly, you need to think about the offshore investments you hold. What will happen to these once you’ve returned home?

You may have foreign equities; as well as other ‘financial arrangements’ which include the likes of foreign currency bank accounts, terms deposits, bonds and mortgages.

“If you’re keeping these investments and assets, it’s important to bear in mind that you will be exposed to volatility in foreign exchange,” advises Rebecca.

Take the example of Bridget, an expat Kiwi who purchased a house with a mortgage while she was living in London. Having returned to live in New Zealand, she rented the property out, but after a few years, decided to sell the property.

Because the New Zealand dollar had strengthened against the pound over the time since she because resident in New Zealand, she actually made a taxable gain on the mortgage even though in New Zealand dollar terms she made a capital loss on the disposal of the property.

“It’s important to be aware of the potential exposure to tax on foreign exchange gains, because the rules can be quite nasty.  Foreign currency gains arising over a tax year may create a tax liability, even where that gain is not yet realised.”

You may also be part of an offshore superannuation scheme. There are new rules applying in New Zealand to the taxation of foreign superannuation, and the timing of withdrawals can have a significant tax impact. Again, your KPMG advisor can assist with that.

Finally, if you have an existing offshore business that you intend to keep operating after you return to New Zealand, you will need specific advice on the complex tax implications involved.

The KPMG Welcome Home Package is exclusively available to Kea Global members. For a discounted fee of NZ$750, you will receive an initial consultation with a KPMG Tax Advisor, followed by a written summary of required action and recommendations.
 

NEXT STEPS:

ON COMING HOME

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AUTHOR

REBECCA ARMOUR

Rebecca Armour is a tax partner in the Auckland tax practice of KPMG and leads the New Zealand Global Mobility Services team assisting companies to effectively and efficiently manage their globally mobile workforces. Rebecca has worked on M&A transactions in a broad variety of sectors including energy and mining, construction, finance, retail, leisure and hospitality, entertainment, real estate, technology and fund management.

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Part 12