Expat Taxation

Question

Hi

It was with interest that I read how overseas investments are taxed. I and a number of Expat’s who are all now resident taxpayers in New Zealand were surprised by his comment on having to declare tax on overseas investments.

Speaking for myself, I am already paying tax in England on the interest that I earn, and had no idea that i was meant to declare this money here. I have a term deposit and have been here for 4 and a half years.

What is the next step, and what are the legal implications of my situation? I have proof of paying tax in the UK since arriving in NZ.

Like the person who sent in last weeks query, I am also watching the exchange rates as I would like to bring all the money over to NZ to put down as a deposit on a house, but am waiting for a more favourable rate.

I hope that you can forward this on to somebody who can advise the general public on this issue. It seems as if many people have done the same thing and are not aware of what the NZ requirements are. What with such a large Expat community in Auckland, this advice will be greatly received.

I am happy for you to publish this query.

Kind regards

James S

Answer

James bad news I’m afraid. Income earned in any jurisdiction is assessable in New Zealand if you are a resident tax payer.

Worse, it is at the marginal taxation rate of your grossed up income regardless of the tax component that you may already have had deducted at source.

The only ray of sunshine is that the tax deducted at source can be applied as a credit against the total taxation sum payable if the investment is domiciled in certain ‘grey list’ countries (the countries are Australia (excluding Norfolk Island), Canada, Germany, Japan, Norway, the UK, and the US (excluding its possessions and territories)).

If the investment happens to be outside those listed countries any tax deducted is in effect ‘lost’ to your local obligation.

To reduce tax barriers to the recruitment of highly skilled people to New Zealand, a four-year tax exemption on foreign income will be available to new migrants or returning New Zealanders who have been non-resident for tax purposes for at least 10 years. It will apply to people who arrive from 1 April 2006.

The wider issue of taxation on overseas investments is currently being hotly debated. It is expected some form of capital/ revenue boundary shift will be applied thereby taxing capital gains on investments beyond the Australasian borders.

It is my suggestion that you take advice from somebody local that has a good rapport with the IRD. You will find that they will treat you fairly I’m sure. However taxation avoidance can carry heavy penalties, inadvertent or not.

Original Article published May 2006