Tax Exemption for New Residents

A generous tax break is available to migrants to New Zealand for the first four years of their residency. 

Anyone arriving in New Zealand after 1st April 2006 and who qualifies as a "Transitional Resident" will be exempt from NZ Income Tax for four calendar years on all foreign sourced income other than employment income and income from the supply of services.

This means that investments held overseas that generate income, including dividends and interest, will not have this income taxed under NZ tax laws. This would also apply to certain types of pension funds held overseas. The exemption applies form the first calendar day of the month you qualify as a New Zealand tax resident and is valid until the last calendar day of that month four years later.

A Transitional Resident is an emigrant to New Zealand or a returning New Zealander who:

1. is a New Zealand tax resident or has a permanent place of abode in New Zealand and

2. has not been resident in NZ for a continuous period of 10 years prior to moving or returning to New Zealand and

3. has not previously been a "transitional resident".

In plain English the "permanent place of abode" test is based on factors such as whether you are going to live here permanently, whether you have bought a house and how strong your association with NZ is (bank account, children at school, permanent job etc.). 

If you hold investments or assets in the UK and other overseas countries, the Transitional Resident rules can result in significant tax savings in your first four years in New Zealand. 

If you have a family please note that you cannot claim tax relief under the transitional residence rules while you are receiving Working for Families tax credits - you can however choose which one is best for you.

Examples of the Exemption in Operation

Henry Brandts-Giesen, a lawyer from Helmore Ayers Lawyers in Christchurch, kindly provided the following examples of the Transitional Resident tax exemption in operation:

01Laurence, an accountant from Manchester, visits New Zealand on 1 February 2008 for an interview with a "Big 4" firm. He relocates here permanently and acquires a permanent place of abode on 1 May 2008. He is subsequently deemed to be tax resident from 1 February 2008 under the 183 day rule. He has never been tax resident in New Zealand before.

Laurence would qualify for the exemption. Although he is treated as tax resident from 1 February, he does not begin to satisfy the requirements for being resident until 1 May. His exemption would run from 1 February 2008 to 31 May 2012.

02Jonny, a professional rugby player from Newcastle, arrives in New Zealand on 1 June 2006 to play for the Crusaders in the Super 14. He stays for three months (92 days). He comes back to New Zealand on 1 March 2007 and stays for another 3 months (92 days). By the time he leaves on 31 May 2007 he has been in New Zealand for more than 183 days in a 12 month period and is deemed to be tax resident from 1 June 2006. Jonny relocates to New Zealand and establishes a permanent place of abode here on 1 January 2008. He has never been tax resident in New Zealand before.

Jonny would qualify for the exemption. Although he is deemed to be tax resident from 1 June 2006, he does not begin to satisfy the residence requirements until after that date. His exemption would run from 1 June 2006. (Further investigation would be required to determine whether he is then eligible to play for the All Blacks!)

03 Rachel, an investment banker living in London but originally from Auckland, leaves New Zealand and ceases to have a permanent place of abode here on 30 September 2006. She returns on holiday from time to time to visit friends. Each time, she is only present in New Zealand for a couple of weeks a year. Her last holiday here is from 1 to 14 August 2016. On 1 December 2016, Rachel decides to move back to New Zealand to live. She acquires a permanent place of abode on that date. She was last resident on 30 September 2006 - just over 10 years ago. On 19 May 2017, when she has been present for 184 days, she is deemed to be tax resident from 1 August 2016.

Rachel would qualify for the exemption. She began to satisfy the requirements of the Act for being a resident on 1 December 2016 when she reacquired a permanent place of abode in New Zealand. At that time she had not been resident in New Zealand in the preceding 10 years. Her exemption runs from 1 August 2016 to 31 December 2020.

Check the IRD website for more information on the Transitional Residence tax exemption for migrants to New Zealand.

Don't hesitate to contact us if you have any questions about your tax position as a UK migrant to New Zealand or a Kiwi returning from the UK.