Last week, Inland Revenue released its long awaited Interpretation Statement (“IS”) on tax residence. It updates Inland Revenue’s previously published view on tax residence in the June 1989 Public Information Bulletin 180 (“PIB 180”).
The IS, which applies from 1 April 2014, covers the residence tests for individuals, companies and trusts. It will impact New Zealand expatriates and their families (particularly those living and working in non-Double Tax Agreement (“DTA) countries) and potentially their New Zealand employers as well (if overseas secondees are still resident).
For individuals, the key tests for determining New Zealand residence are Permanent Place of Abode (“PPOA”) and permanent home (where a person is resident in a DTA country). There have been a number of useful changes to Inland Revenue’s view on both tests and, on the whole, we consider the IS represents a more pragmatic guide to the issue of determining tax residence of an individual than an earlier December 2012 draft of the Statement.
Nevertheless, determining an individual’s tax residence is not straightforward; it involves considering the totality of a person’s circumstances and the level of their enduring relationships with New Zealand. This can require the exercise of significant judgement. We therefore strongly recommend those affected seek advice on their tax status.
We also have concerns about how Inland Revenue will practically apply the new rules and treat historic positions. This includes where individuals have sought Inland Revenue’s confirmation of non-residence or have relied on the examples in PIB 180. KPMG considers that these taxpayers should be protected from the requirement to re-assess their positions.