Residence is determined by either of the following tests:
- Permanent place of abode: Persons are deemed residents of New Zealand if they have a permanent place of abode in New Zealand regardless of how long they have been outside of New Zealand.
- 183 days’ presence: Persons are deemed residents of New Zealand from the date of their arrival in New Zealand if they are personally present in New Zealand for a period or periods exceeding, in total, 183 days in any 12-month period.
The approach adopted to the residence tests as a result of COVID-19 and persons being practically restricted in travelling may affect how other sections that use the residence day tests apply. For example, Inland Revenue recognised the COVID-19 pandemic could have caused individuals to have stayed in New Zealand longer than 183 days despite their plans to leave. Accordingly, an individual should not have become a tax resident in New Zealand under the day-count test just because they are stranded in New Zealand. This approach is no longer enforced but was in place from 17 March 2020 to 30 June 2022.
Non-residents’ exemption
A non-resident’s personal services income earned in New Zealand is exempt from New Zealand tax if all the following conditions apply:
- the visit (or visits) of the non-resident do not exceed, in total, a period or periods of 92 days in the income year
- the non-resident is liable for income tax on New Zealand-sourced income in their country of residence, and
- the person paying the employee/contractor is not resident in New Zealand.
The COVID-19 pandemic could have caused service providers to have stayed in New Zealand longer than 92 days despite their plans to leave. Inland Revenue has issued a determination to confirm that, if the service provider leaves or returns to their country within a reasonable time after they are no longer practically restricted in travelling, then any extra days when the person was unable to leave (that are in addition to the 92 days) should be disregarded.
The exemptions listed above do not apply to public entertainers, such as performing artists and professional athletes. They are subject to a maximum 20% withholding tax (WHT).
Special rules apply to non-resident contractors. WHT is required to be deducted from payments to non-resident contractors who do not hold valid certificates of exemption. The tax withheld is an interim tax credited against the taxpayer’s ultimate income tax liability. Non-resident contractors who are present in New Zealand for less than 92 days in any 12-month period and eligible for total relief under a DTA do not have to apply for a certificate of exemption, although they may wish to in order to obtain certainty for the payer. Also, any payments received by a non-resident contractor where the total contract payments are less than NZD 15,000 in a 12-month period will be exempt from non-resident contractor’s tax (NRCT)withheld.
Because of COVID-19, and assuming a person leaves or returns to their country within a reasonable time after they are no longer practically restricted in travelling, then extra days, when the person was unable to leave, should be disregarded. This exemption was in effect from 17 March 2020 to 30 June 2022 but is no longer in effect outside these dates.
Double taxation agreements (DTAs)
A non-resident employee may seek relief from New Zealand tax if a DTA exists between New Zealand and the country in which the employee is a tax resident. The following conditions will need to be met in order to obtain relief under the treaty:
- the recipient is present in New Zealand for not more than 183 days in any 12-month period
- the remuneration is paid by or on behalf of a non-resident employer, and
- the remuneration is not borne by a permanent establishment (branch) or a fixed base that the employer has or is deemed to have in New Zealand.
The COVID-19 pandemic may have caused individuals to have stayed in New Zealand longer than 183 days despite their plans to leave. An individual should not become tax resident in New Zealand under the day-count test just because they are stranded in New Zealand. If a person leaves New Zealand within a reasonable time after they are no longer practically restricted in travelling, then extra days, when the person was unable to leave, should be disregarded for the 183-day test or included for the 325-day test (as relevant). The day-count test is based on normal circ*mstances when people are free to move. This exemption was in effect from 17 March 2020 to 30 June 2022 but is no longer in effect outside these dates.
Exemptions for new migrants
A temporary (four year) exemption from income tax is available on certain foreign income derived by new migrants or New Zealanders who return to New Zealand after an absence of at least ten years. The exemption applies to people becoming resident in New Zealand on or after 1 April 2006. The exemption can only be granted once in a lifetime. Employment income from overseas employment performed while living in New Zealand and business income relating to services performed offshore is excluded.
Some transitional residents may have planned to leave the country before the 48-month transitional resident period ended. Because of COVID-19, they were unable to easily leave the country. Inland Revenue’s position is that a person should not be regarded as no longer a transitional resident just because they were stranded in New Zealand because of COVID-19. If a person leaves New Zealand within a reasonable time after they are no longer practically restricted in travelling, then extra days, when the person was unable to depart, should be disregarded. This position was available for taxpayers from 17 March 2020 to 30 June 2022 but is no longer in effect.
