[UK Neil]

I just need to clarify my understanding or lack of on this tax break.

My understanding is that this means people emmigrating dont have to pay interest on money earned outside of NZ for the first 4 years, ie interest or rent earned in the UK.

I have read in another post that this only applies to people who arrived before the 1st April? Is that correct?

We wont be getting there until later in the year and were hoping to take advantage of this.

Cheers for any reply.

[MarkS]

Nope, it applies to anyone who arrived on or after 1st April 2005. You'll pay no tax on unearned income - i.e. interest or rent is untaxed, employment income would still be taxed.

[UK Neil]

Thats excellent. Potentially a nice earner if you have a lump sum from a house sale. Cheers for the reply.

[incredible hulse]

Nope, it applies to anyone who arrived on or after 1st April 2005. You'll pay no tax on unearned income - i.e. interest or rent is untaxed, employment income would still be taxed.
Isn't it 2006 ? If it is 2005 I've suddenly cheered up a hell of a lot

[MarkS]

you're right. I was thinking this year was still 2006!

[incredible hulse]

Damn - missed it by about a month then. Will have to keep on hiding that interest from the tax man ;)

[Jenny & Mark]

I have heard that if you claim the 4-year tax break then you will not qualify for any government incentives, such as a child bonus. Can anyone speak to that?

Mark.

[UK Neil]

I have heard that if you claim the 4-year tax break then you will not qualify for any government incentives, such as a child bonus. Can anyone speak to that?

Mark.

That is true. When you get an IRD number you choose the 4 year tax break thing but it does mean, like Jenny & Mark said, that you dont get the family tax credit thing in NZ. So you need to work out what is going to be best for you.

[MarkS]

Deleted - I was talking rubbish again (as shown by the next post). Not having a good night!

[UK Neil]

Somone posted this up for me on another forum which spells out pretty clearly. You need to do the sums but it could be really good for some people even with the loss of the family credits, i think if you take it you cant get the family credits for 4 years regardless, ie you cant opt back in again if you run out of savings abroad so you need to be sure its the right move for you:


Temporary tax exemption on foreign income for new migrants and returning New Zealanders

From 1 April 2006, people becoming tax residents in New Zealand may qualify for a temporary tax exemption on some of their foreign income. This temporary tax exemption is available to those who qualify as a tax resident in New Zealand on or after 1 April 2006 and are new migrants or returning New Zealanders (transitional residents) who have not been resident for tax purposes in New Zealand for at least 10 years prior to their arrival in New Zealand.

The exemption can only be granted once in a lifetime.

The exemption
The temporary tax exemption for foreign income is for four 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 is valid until the last calendar day of that month four years later. For example:

You qualify as a tax resident in New Zealand on 22 April 2006 and have one or more types of foreign income that are temporarily exempt for taxes in New Zealand (see list below). You are eligible for the exemption counting from 1 April 2006 until 30 April 2010, which effectively is 49 months.

Exempt types of foreign income
Types of foreign income which are temporarily exempt from tax in New Zealand:

Controlled foreign company 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)
Non-resident withholding tax (for example on foreign mortgages)
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 four years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).

These types of foreign income are not tax exempt in New Zealand:

Employment income from overseas employment performed while living in New Zealand
Business income relating to services performed offshore.
If you have any of these types of income, you must declare them on your annual income tax return (IR3 for individuals) from the date of your arrival in New Zealand.

To be eligible
You must have become a tax resident in New Zealand on or after 1 April 2006, and
You must not have been a New Zealand tax resident at any time in the past 10 years prior to your arrival date in New Zealand. Read more about tax residency
This is a once in a lifetime exemption eg you can't extend your tax exemption or renew it after its expiry date
You or your partner cannot receive Working for Families Tax Credits while being tax exempt from foreign income, but will have to determine which is better for your situation, for example:

You and your partner have $1,000 worth of foreign interest per year, but are eligible for $5,000 per year Working for Families Tax Credits in New Zealand if you do not claim the exemption for foreign income. In this situation, it is in your family's best interest to waive the exemption and pay New Zealand tax on the foreign interest and receive Working for Families Tax Credits. You can inform us of your foreign income on your annual income tax return (IR3 for individuals).

[kzn2nz]

UK Neil - congrats on the Visas!!!

[Rabbit]

Some things to factor into the deal...do not think you are getting something for nothing..

- no tax free allowance from day 1 on earned income so income is taxed at the first dollar

- pathetic tax relief for pensions provision ($20 per week max - employee contributions)

- If you are lucky probably an employers contribution to your pension of 1%

- much lower earnings, and few financial benefits.

- what happens after the four years, in terms on liabilities on offshore holdings e.g. pep's and ISA's - they become liable to NZ tax.

Consider carefully, the short and long term implications.

It is certainly not competitive.

So be aware of the smoke and mirrors.

Rabbit

[UK Neil]

Some things to factor into the deal...do not think you are getting something for nothing..

- what happens after the four years, in terms of liabilities of offshore holdings e.g. pep's and ISA's

- no tax free allowance from day 1 on earned income so income is taxed at the first dollar

- pathetic tax relief for pensions provision ($20 per week max)

- much lower earnings, and few financial benefits.

Consider carefully, the long term implications.

It is certainly not competitve.

Rabbit

After 4 years any offshore income is subject to the standard rules but no other penalties as far as im aware. After the 4 years are up im assuming that normal rules apply all round, ie, you get the usual tax allowance on income, same tax relief etc. If that is not the case then give me a heads up?

If i understand it right, it may not work for some but it definately will for others, but i would say you need to make the most of it for the full 4 years to make it work for you as during that time your not going to get some benefits from the gov't. Whether its competitive or not and what the financial benefits are surely depend on how you use it and what you have got invested doesn't it?

[babscat]

Is it not possible to leave bulk of funds in a high interest rate in UK till needed for house purchase or other major item?
I believe you can ask for a form from the bank to declare that you are a non tax payer in the UK - presumably true if you are not earning, though would probably depend on the time of the year when you left UK and earnings to that date.
Would you not then able be take advantage of the family tax credits available in NZ?
Is this illegal in some way
Babscat

[UK Neil]

Is it not possible to leave bulk of funds in a high interest rate in UK till needed for house purchase or other major item?
I believe you can ask for a form from the bank to declare that you are a non tax payer in the UK - presumably true if you are not earning, though would probably depend on the time of the year when you left UK and earnings to that date.
Would you not then able be take advantage of the family tax credits available in NZ?
Is this illegal in some way
Babscat

You can leave it in the uk and fill out an r105 form but that only gets you off paying uk income tax. You will be liable for NZ income tax on the interest. If you do that then you can get all the NZ credits as normal.
This 4 year tax break is a way of getting around paying any income tax on it at all but like rabbit points out its not a clear cut decision as it has its drawbacks. You need to do the sums and see if it is right for you. Another option is to stick it in an NZ savings account where you can get about 7.6% on it and just pay the tax. After tax you should get near the 5% mark anyway but the exchange rate isnt the best at the moment so its all swings and roundabouts.
Nothing illegal about any of it as long as you dont just go for pure tax evasion!

[UK Neil]

This is off the back of the IRD number application form:

2. Question 9: Temporary tax exemption on foreign income
You qualify for a temporary tax exemption on foreign income for four calendar years (up to 49 months) if you fulfil these requirements:
• you qualified as a tax resident in New Zealand on or after 1 April 2006, and
• you haven’t been a New Zealand tax resident at any time in the past 10 years prior to your arrival date in New Zealand.
Also note:
• You can only claim this exemption once.
• You cannot receive Working for Families Tax Credits* while being tax exempt from foreign income.
Types of foreign income that are temporarily exempt from tax in New Zealand:
• Controlled foreign company income that is attributed under New Zealand’s CFC rules;
• Foreign investment fund income that is attributed under New Zealand’s FIF rules (including foreign superannuation);
• Non-resident withholding tax (for example on foreign mortgages);
• 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 the sale of property derived offshore (held on revenue account); and
• Offshore business income (that is not related to the performance of services).
The foreign income that will continue to be taxed in New Zealand is:
• Employment income from overseas employment performed while living in New Zealand; and
• Income from services

[eternalkiwi]

Just a quick point to follow up what Rabbit said about the Governments Kiwisaver pension scheme.

Employees who make contributions do not physically receive tax relief (even though the Government calls it a Tax Credit), rather the Government pays into the Superannuation Scheme the same amount as the employee (up to the $1,042 per year).

If the employee stays in Kiwisaver until the Government Super retirement age (currently 65) they keep the money, if the take the money out before retirement age the employee 'Tax Credits' are returned to the Government.

Shawn

[HelenandPhil]

we are intending to bring £40k with us in November, we have PR and no rug rats and so do not anticipate claiming any benefits.

If we bring the cash and put it in a NZ savings account at 7% will we be exempt from tax on the interest?

thanks

[IanW99]

The way that I understand it is no, you will NOT be exempt i.e. you are only exempt from foreign income.

If you bring your saving from the UK into a NZ bank then the bank will automatically deduct tax from any interest paid.

You would need to decide whether it is better to keep the money in the UK bank earning UK interest or a NZ bank earning NZ interest.

You will of course need to ensure that you are no longer paying tax on the UK bank interest otherwise there would be no benefit.

Ian

[Ana&Steve]

Also, make sure you get your IRD #s ASAP, so you are paying less interest on your interest earnings! (Probably already mentioned, bit I haven't read through this thread for a while)
Ana

[robberger]

That is true. When you get an IRD number you choose the 4 year tax break thing but it does mean, like Jenny & Mark said, that you dont get the family tax credit thing in NZ. So you need to work out what is going to be best for you.

I think I'm about to be really annoyed, but I'll ask anyway. I applied for my IRD number and question number nine says "Do you qualify for a temporary exemption on foreign income? (Please read Note 2 on the back)."

Well, I meet the criteria, so I said 'yes' and put down the date of my arrival in NZ. I did not think when I said 'yes' I qualified that I was saying 'yes' I wanted the exemption! I assumed, perhaps stupidly, that 'qualifying' and 'electing' for the exemption were two separate things, and that I would have to fill out some other form to claim the exemption. Now, is there any way to undo that--if checking 'yes' was indeed claiming the exemption?

[eternalkiwi]

I expect if you contact Inland Revenue quickly, that they will be able to advise you on what your options are. I would suspect that if you contact them soon after lodging your application, that you will be able to have this reversed.

Shawn

[UK Neil]

we are intending to bring £40k with us in November, we have PR and no rug rats and so do not anticipate claiming any benefits.

If we bring the cash and put it in a NZ savings account at 7% will we be exempt from tax on the interest?

thanks

Like IanW99 says, its only on foreign income so you will pay income tax on it. Rates are going the right way for savers in NZ though at the moment, and even after tax you will not be a million miles away from what you would get from the money as untaxed foreign income, ie about 5.5%untaxed in the UK.

[isv]

we are intending to bring £40k with us in November, we have PR and no rug rats and so do not anticipate claiming any benefits.

If we bring the cash and put it in a NZ savings account at 7% will we be exempt from tax on the interest?

thanks

Not if you put it in an onshore NZ bank account. It really is simple - you have to keep the money offshore. It doesn't have to be with a UK bank - any will do. You could even open an NZD denominated account - and earn NZ rates of interest.

Don't forget - it is only an exemption from NZ tax - you can still be liable for taxes in other countries in which you earn income. Easiest to put it in an 'offshore' account with a UK high-street bank (e.g IOM, Channel Isles etc.) which usually do not deduct tax.

Alan.

[Super_BQ]

Please note that NZ's 4 year tax exemption only applies at the NZ side. It would be untrivial to think that the other country (ie UK, USA, etc) will not tax income earned there (despite the person declared non-residency).

I know specifically in Canada, work income, rental income, business income that is earned IN the country must be also taxed in the country and declared on the tax return - non-resident or not. Perhaps other countries may be different that don't tax on any income earned in the country by a foreigner - then this would pose a potential tax hole ; notably residents of tax free nations earning income in developed taxing nations.

But when specifically speaking interest income earned in bank accounts, then that's a different story as most countries in the OECD have tax treaties. Usually the set 'with-holding' tax on non-resident accounts is 15% regardless of denomination of currency.

Of the countries that require a tax returned file by non-residents, the amount paid is credited when you declare on the IRD tax return. Under the Foreign Credit section declaring you already paid this much tax overseas and want to equalise tax payments. This way it avoids double taxing of the same 'world-wide' income. End result is naturally the country with the higher income tax rate will take more.

BQ

[IanW99]

From what has been written on this post, it implies (to me anyway) that if you choose to be exempt for 4 years it will then NOT be possible to claim family assistance later (during that 4 year period).

This quote taken from the IRD website:
If an individual is eligible for family assistance, when their foreign-sourced income is taken into account, they can choose not to be a transitional resident and pay tax on their foreign-sourced income. Furthermore, if a transitional resident finds that his or her circumstances change and they require family assistance, he or she could "give up" the exemption by paying tax on their foreignsourced income. That way they can be assessed for family assistance entitlements in the normal way.

It would appear that actually, the best option would be to always claim exemption and then if you need family assistance later to "give up" the exemption.

Ian