On 13 March 2014, Inland Revenue published the final version of its interpretation statement (IS 14/01) on tax residence. Tax residence is a fundamental issue for individuals working on yachts. It has a significant impact on an individual’s tax position. If you are deemed to be a New Zealand tax resident you are liable to pay tax on your worldwide income (as calculated under New Zealand concepts). In this guide we will try to highlight the various residency rules that are considered when determining an individual’s residency status.
The 183 Rule; you will be deemed a resident for tax purposes if you have spent more than 183 days in New Zealand in a 12-month period. An individual will then be considered tax resident from the first of the 183 days. It is important to note that once you are considered resident by this rule you remain resident until you fulfil the 325 rule.
The 325 Rule; the 183 rule will apply until you can demonstrate that you have been out of New Zealand for 325 days in any 12-month period and you do not have a permanent place of abode in New Zealand. The 325 days do not have to be consecutive but they must be within the same 12-month period. Note that both the 183 and 325 day rules apply within “rolling” 365 day years, and not either fiscal or calendar years. Furthermore days of arrival and departure are counted as “resident” days.
Permanent Place of Abode; An individual will be considered resident under this rule if they have a permanent place of abode available to them in New Zealand. An abode can be a lasting or enduring place where they usually live. It addition it can also be a place in which they can live or dwell when required, in locality with which they have a durable connection. This rule takes precedence over the 183 day rule so, in theory, travellers could be deemed to be resident well past the 183 days where a PPA exists.
The Permanent Place of Abode (PPA) rule requires some interpretation; to have a (PPA) in New Zealand it must be somewhere that you can live for example a house or other dwelling, and it must be available to you. Individuals who return to their parents house after finishing work overseas can often be deemed resident as per this rule, more especially if they lived there before departing to work overseas. In the event this happens you will be considered resident for all of the years that you worked overseas.
If you feel that any of the above rules may apply to your situation you must then consider the following ties:
Presence in New Zealand: How much time do you spend in New Zealand? Are you there for continuous periods or are you there intermittently?
Accommodation: If you have accommodation in New Zealand do you own/ lease it or it a family home?
Family and social ties: Do your family still live in New Zealand? Do you belong to any New Zealand Clubs or associations?
Economic Ties: Do you have bank accounts, credit cards, investments, life insurance or superannuation funds in New Zealand?
Employment or Business Ties: Do you run a business or have employment to return to in New Zealand?
Personal Property: Do you have vehicles, clothing or property in storage in New Zealand?
Intentions: Do you to intend to come back to New Zealand to live? If you do intend to return when will this be?
Benefits & Pension payments: Do you receive any welfare benefits, pensions or other payments from New Zealand agencies or organisations?
If you want to break New Zealand tax residency status you must be physically absent from New Zealand for 325 days in a 12-month period as per the 325 Rule. In addition you must not have a PPA in New Zealand available to you. If you feel that any of the rules & ties outlined in this article relate to you then careful consideration needs to be given to your residency status.
Residency is a very specialised area of tax law and if you have concerns about your status it is advisable to seek professional advice.
Any tax advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.