Transitional Tax Resident Exemption

Transitional Tax Resident Exemption

If you are a new or returning migrant and qualify as a “transitional resident” you may receive a once in a life time temporary tax exemption on most types of overseas income, other than income derived from personal services or employment income.

Eligibility

To be eligible you must meet the following criteria:

1. Have become tax resident on or after 1 April 2006;
2. Must not have been tax resident at any time in the 10 years immediately before you qualify as tax resident in New Zealand;
3. Never have claimed the exemption before;
4. Not have elected out of the exemption either by notifying IRD or by applying for Working for Families Tax Credits.

Period of exemption

The exemption applies from the date you first become tax resident in New Zealand and will run until the last day of the calendar month 48 months after the earlier of:

1. Your 184th day of presence in New Zealand within a 12-month period;
2. The date you acquire a permanent place of abode in New Zealand.

For example: Alex visits New Zealand for a holiday 1 February 2008 for two months. He decides to relocate here permanently and acquires a permanent place of abode on 2 June 2008. He is subsequently deemed to be tax-resident from 1 February under the 183-day tax residency test. He has never been tax-resident in New Zealand before.

Alex would qualify for the exemption. Although he is treated as tax-resident from 1 February 2008 under our day count test, he does not have a permanent place of abode in New Zealand until 2 June 2008 which is earlier than his 184th day of presence in New Zealand. His exemption would run from 1 February 2008 to 30 June 2012.

Types of income subject to the exemption

The following types of income are subject to the exemption:

• Controlled foreign company income arising under the (CFC) rules.
• Foreign investment fund income.
• Foreign income subject to non-resident withholding tax or approved issuer levy (for example on foreign mortgages).
• Income arising from the exercise of foreign employee share options.
• Accrual income (from foreign financial arrangements) such as foreign exchange movements on bank accounts held offshore.
• Income from foreign trusts.
• Income from foreign pensions.
• Rental income derived offshore.
• Foreign dividends.
• Foreign interest.
• Royalties derived offshore.
• Income from employment performed overseas before coming to New Zealand, such as bonus payments.
• Gains on sale of property derived offshore (held on revenue account).
• Offshore business income (that is not related to the performance of services)