New to New Zealand? Maybe you're entitled to temporary tax exemption

Transitional residents can be temporarily exempt from paying tax on most types of overseas income.

Who is a transitional resident?

You are a transitional resident if you:

• are a new migrant or New Zealander returning home

• qualified as a New Zealand tax resident on or after 1 April 2006, and

• you were not a tax resident at any time in the 10 years before you qualified.

You are automatically entitled to the exemption if you are eligible. You can only get the exemption once.

You can choose not to be a transitional resident. This means you don’t get the exemption.

What overseas income is exempt?

This income is exempt

• Income attributed under New Zealand's controlled foreign company (CFC) rules.

• Income attributed under New Zealand's foreign investment fund (FIF) rules (including foreign superannuation).

• Overseas income subject to non-resident withholding tax.

• Income arising from the exercise of overseas employee share options.

• Accrual income from overseas financial arrangements.

• Income from foreign trusts.

• Rental income from overseas.

• Overseas interest and dividends.

• Royalties from overseas.

• Income you earned from working overseas before you came to New Zealand.

• Gains on sale of overseas property, held on revenue account.

• Overseas business income not related to the performance of services.

This income is not exempt

• Income you earned from an overseas employer while living in New Zealand.

• Business income relating to services performed oversea

When does your exemption period start and end?

Your exemption start date depends on how you qualify as a New Zealand tax resident:

• If you qualify by living here for more than 183 days in any 12-month period your exemption starts on the first of those 183 days.

• If you qualify by establishing a permanent place of abode here your exemption starts on the day you establish that place.

Your exemption period ends on the earlier date of:

• 4 years after the end of the month in which you had lived in New Zealand for 183 days or

• 4 years after the end of the month you established a permanent place of abode in New Zealand.

The examples below show how the start and end dates work.

How you qualify as a tax resident

By living here for more than 183 days in any 12-month period

Exemption period starts

The first of those 183 days

Exemption period ends

4 years after the end of the month in which you had lived here for more than 183 days (if that is earlier than the time you established a permanent place of abode)

Example

Sarah arrived in New Zealand on 10 March 2018 and left on 14 March 2018. She moved here on 22 April 2018. She qualified as a tax resident on 16 October 2018 because she had lived here for 183 days (5 days in March and 178 days between 22 April and 16 October). Her exemption period starts on 10 March 2018 (the first day she lived here). Her exemption period ends on 31 October 2022. This is 4 years after the end of the month in which she qualified as a tax resident.

By establishing a permanent place of abode here.

The day you establish a permanent place of abode.

4 years after the end of the month in which you established a permanent place of abode (if that is earlier than the time you establish residency under the 183-day rule)

Ed arrived in New Zealand on 10 March 2018 and established a permanent place of abode on 22 April 2018. His exemption period starts on 22 April 2018. His exemption period ends on 30 April 2022. This is 4 years after the end of the month in which he qualified as a tax resident.

Your exemption will end early if:

• you opt out of it

• you or your partner apply for Working for Families Tax Credits or

• you become a non-resident taxpayer.

Opting out of the exemption

You can opt out of the exemption at any time during your 4-year exemption period. If you opt out you can’t get the exemption again.

Tell us if you want to opt out by noting this on your Individual tax return IR3.

You might want to get advice from a tax agent to see if opting out is the best option for you.

Your responsibilities

During your exemption period

If you receive any overseas income that is not exempt you need to show this on your Individual tax return IR3.

Tell us if you become a non-resident taxpayer during your exemption period.

After your exemption period ends

You need to file an Individual tax return IR3 at the end of every tax year that you are a New Zealand tax resident receiving overseas income.