By Frank Newman on 10th February 2014
We are certainly noticing many more of our clients doing business offshore and that often involves the New Zealand taxpayer spending more time overseas and tax complications regarding residency. A recent ruling by the Taxation Review Authority (TRA) shows the matter is not as simple as many people think.
The key issue before the TRA was whether the taxpayer was a New Zealand resident. The taxpayer (who was working in Iraq) said he was not a NZ resident for tax purposes due to the number of days he was absent from New Zealand a year.
The IRD did not dispute the time he was out of the country but took the view that the taxpayer was a New Zealand resident for tax purposes by virtue of having a permanent place of abode here and the enduring connections he had with New Zealand. The IRD therefore assessed NZ income tax on the overseas income.
The taxpayer disputed the IRDs assessment about his residency, but the TRA agreed with the IRD. The TRA found the taxpayer continued to have a strong and enduring relationship with New Zealand. That enduring relationship included having an available dwelling to return to, property investments in New Zealand, making further investments in NZ while working overseas, and the continuing relationship with his NZ children (including financial support) and ex-spouse.
The important message is residency is not based on the days out of the country alone. The assessment must be looked at in a wider context.