The Taxation Act 2006 introduced a tax exemption for transitional residents. The exemption is available to people coming to live in New Zealand on or after 1 April 2006 for the first time or after an extended absence. It lasts for four years after migration and covers most types of foreign income.
People becoming tax residents in New Zealand on or after 1 April 2016 and are new migrants or returning New Zealanders who have not been resident for tax purposes in New Zealand for at least 10 years prior to qualifying as a tax resident in New Zealand may qualify for a temporary tax exemption on some of their foreign income.
Features of the Temporary tax exemption
- The temporary tax exemption for foreign income is for 4 calendar years (up to 49 months). The exemption starts on the first calendar day of the month you qualify as a tax resident in New Zealand and ends on the last calendar day of that month four years later.
- The exemption can only be granted once in a lifetime.
Types of exempt foreign income
The following types of foreign income are temporarily exempt from tax in New Zealand.
- Controlled foreign company (CFC) income that is attributed under New Zealand’s controlled foreign company (CFC) rules.
- Foreign investment fund income that is attributed under New Zealand’s foreign investment fund (FIF) rules (including foreign superannuation).
- Foreign income subject to non-resident withholding tax (for example on foreign mortgages).
- Foreign income subject to approved issuer levy (for example on foreign mortgages).
- Income arising from the exercise of foreign employee share options.
- Accrual income (from foreign financial arrangements).
- Income from foreign trusts.
- 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).
- When your tax exemption ends after 4 years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).
Foreign income that is not tax-exempt
Not all types of income are exempt under these rules. Employment income from overseas employment performed while living in New Zealand or Business income relating to services performed offshore is taxable and must be declared on your IR3 Tax Return.