[upnorthkyosa]

I am a US citizen and my family is currently in the process of emmigrating to NZ. We plan to have our PR before we go. So, my question is this, how will our taxes work? I've read alot of stuff in this forum that has been somewhat helpful and somewhat contradictory. Can anyone give me a general rundown of what we can expect?

[Trigirl]

is there anything specific you are interested in?

income tax will be at NZ rates (19.5% up to 38k, 33% up to $60k, 39% over that)
you wont be taxed for the first 4 years on interest, rent etc in your home country as there is a special migrants exemption
after that 4 years you are required to pay NZ tax on your worldwide income

[upnorthkyosa]

is there anything specific you are interested in?

Mostly, I'm wondering if I'll be double taxed. I've read about some people who had to pay taxes for both countries, but I'm not sure why.

Income tax will be at NZ rates (19.5% up to 38k, 33% up to $60k, 39% over that) you wont be taxed for the first 4 years on interest, rent etc in your home country as there is a special migrants exemption after that 4 years you are required to pay NZ tax on your worldwide income.

Yeah, I read about the tax rate on Wikipedia. I did not know about the migrant's exception, however. If we had our PR in NZ, would we qualify for this? If I read this right, if we qualify, that means that we would not have to pay NZ taxes for four years, but we would still be required to pay taxes back to the US...

Is that correct?

[Trigirl]

nz probably has a double tax agreement with the us. this sets out which country you pay tax in and means you never have to pay tax on the same income twice.

the exemption stops you having to pay tax in nz. its a relatively new rule - introduced in april this year. i'm not sure about in the us. but as a non-resident we're not required to pay tax on our interest/rent in the uk so it may be the same?

[veronica]

I think the term double tax is a bit misleading as my understanding of it is that if you are earning money in another country then you pay the tax there. If the tax in the other country is for example 10% and in NZ the tax rate is 15% then as the money comes into the country you would have to pay the extra 5% in NZ to bring it up to the NZ tax level. If this isn't right could someone please set me straight as this is just as I understand it.

[montana]

Here is what I found on the exclusion:

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must satisfy all three of the following requirements.

1.Your tax home must be in a foreign country.
2.You must have foreign earned income.
3.You must be either:
1.A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
2.A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

There are very specific definitions as to each requirement so be aware of those. You can find more at http://www.irs.gov/publications/p54/ch04.html#d0e2273

[willowshouse]

nz probably has a double tax agreement with the us. this sets out which country you pay tax in and means you never have to pay tax on the same income twice.

the exemption stops you having to pay tax in nz. its a relatively new rule - introduced in april this year. i'm not sure about in the us. but as a non-resident we're not required to pay tax on our interest/rent in the uk so it may be the same?

For us thickies from the UK .. could you answer my question?

If I have PR in NZ and have rental income from UK I don't have to pay tax on it in NZ (have ticked that bit on the IRD form) but do I have to pay tax on it in the UK? I seem to remember when I worked in an estate agents that they used to deduct tax from overseas landlord's rent monies for some reason.

Anyway, if that is right .. what happens when you leave part of the way through the tax year .. are you liable to pay only for the time you are in the UK or for the whole year. Is there anything I need to do - like let the Inland Revenue know I am out of the country?

Help much appreciated .. was going to dump the whole lot in the hands of an accountant!

Dawn

[Trigirl]

you do need to let the inland revenue know you are leaving - there's a form for this called P85. if you leave part way through a tax year you may get a tax refund.

there is a withholding tax on rent payments - i've only looked at this briefly but i think you may be able to apply for an exemption if you live overseas.

[Paul]

you do need to let the inland revenue know you are leaving - there's a form for this called P85. if you leave part way through a tax year you may get a tax refund.

there is a withholding tax on rent payments - i've only looked at this briefly but i think you may be able to apply for an exemption if you live overseas.

And don't forget you will still get a personal allowance in the UK so if your rental profits (and total UK income) are going to below roughly £5000 a year you should be able to get the agents not to deduct the tax as you would not
have a liability in the UK

Surprised you don't have to put that income on your NZ tax return - you are normally taxed on your worldwide income???

[tigerlily]

My understanding of American tax laws is that you are taxed as a citizen, no matter where you live you MUST file a tax return. Your first 80K US dollars are exempt from US taxes (but would be taxed by the NZ govt) if they are earned in NZ (not sure if this is single income, or joint income?).

There is a "whole nother" question of state taxes in America too. If you continue to own property in a state that collects income taxes, you may need to file a return there and pay some state taxes. Well worth checking into before you go (or move here to Washington where we have no state income tax!).

[Oregonkiwi]

My understanding of American tax laws is that you are taxed as a citizen, no matter where you live you MUST file a tax return. Your first 80K US dollars are exempt from US taxes (but would be taxed by the NZ govt) if they are earned in NZ (not sure if this is single income, or joint income?).

yes, that's how I understand it too, and I think the US$80K exemption is per person, so a couple filing jointly could earn US$160K in NZ before having to pay US taxes on their NZ income. Anyway, have a look at the IRS website that Montana gave the link too, all the info is there and there are some very helpful publications you can order or download.

[Trigirl]

Surprised you don't have to put that income on your NZ tax return - you are normally taxed on your worldwide income???

There is a 4 year exemption for migrants arriving after April 06. So anyone arriving now does not have to declare rental income (or interest etc) for 4 years. After that you are dead right - it would have to be declared and taxed in NZ.

[jess]

I think the term double tax is a bit misleading as my understanding of it is that if you are earning money in another country then you pay the tax there. If the tax in the other country is for example 10% and in NZ the tax rate is 15% then as the money comes into the country you would have to pay the extra 5% in NZ to bring it up to the NZ tax level. If this isn't right could someone please set me straight as this is just as I understand it.

WORK INCOME

Veronica - you are right with regards to work income earned in the US (or another country with a tax treaty with NZ). If you are earning work income from a company in the US as I am, you pay the US taxes first and then only pay NZ the difference of any additional taxes you would owe NZ based on the higher tax rate. You don't double pay.

(So if you earned $1000 (for a small example) and owed $100 in taxes in the US on it but would have owed $300 if you were paying in NZ -- you end up paying the $100 the US wants and then after claiming the exemption for the $100 already paid, you would pay NZ $200 instead of the full $300. So you never end up paying more than the tax rate of the country that charges a higher % (presumably NZ).

I got this email from Inland Revenue when I first asked about it...Dear Sir/ Madam

Thank you for your e-mail.

If you have been in New Zealand for 183 days in any twelve month
period and have a permanent place of abode you will be classified
as a New Zealand tax resident. Please note you can be a
resident of both countries.

As such you will need to declare any overseas income on an IR3
income tax return at the end of the financial year.

With the double tax agreement with the United States you can
claim a credit here in New Zealand for any overseas taxes paid
but only to the New Zealand equivalent of tax to pay.

The US - NZ Tax Treaty (http://www.irs.gov/pub/irs-trty/newzld.pdf) (pdf file) is online if it's helpful for anyone. It says "United States tax paid under the law of the United States and consistently with this Convention, whether directly or by deduction, in respect of income derived by a resident of New Zealand arising in the United States (excluding in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against New Zealand tax payable in respect of that income..."


INTEREST INCOME

Interest or rental income from investments overseas are exempt for four years if you arrived after 1 April, 2006 and if you choose the exemption instead of family assistance during the 4 years (you can't have both). Some people are better off paying the interest tax and getting family assistance.Example from the IRD site: "You and your partner have $1000 worth of foreign interest per year, but are eligible for $5000/year Family assistance 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 Family assistance. You can inform us of your foreign income on your annual income tax return (IR3 for individuals)."
The IRD has further exemption info here (http://www.ird.govt.nz/yoursituation-ind/earning-income/temp-tax-empt-foreign-inc.html).

[tigerlily]

Thanks for that helpful post Jess!

[westies]

Does anyone have any idea if we pay tax on a current uk pension which is currently paid into our uk bank acount, are we excempt form tax on that for so many years aswell?????
Or once we have completed our tax return here will they bill us for the amount??? We really have no idea!
Thanks

[Trigirl]

westies - looking at your previous posts it looks as though you arrived in NZ before the exemption came into existence so it wouldn't apply to you. Therefore you will have to declare your overseas pension in your NZ tax return.

[jess]

Coming from the US I am used to one rate based on my total income, so I thought I'd add that if you earn $65,000, for example, you don't pay 39% on the whole thing. The tax rates here are charged on portions of your income so that if you earn $65K-- the first 38K will be taxed at 19.5%, the next 22K is taxed at 33% and the last 5K is taxed at 39%.

The official explanation is here (http://http://www.ird.govt.nz/how-to/taxrates-codes/itaxsalaryandwage-incometaxrates.html).

[Trigirl]

Coming from the US I am used to one rate based on my total income

you know i never knew that the US did that! in the UK we had the same type of system as NZ.

[jess]

you know i never knew that the US did that!

So the UK does it like NZ. The other odd thing for Americans to get used to in NZ (that isn't a change for those from the UK) is that you can't put outgoing mail in your mailbox here like you can in the US. I had a letter sit in my mailbox for days before I figured out that no one was going to deliver it. :laugh

[Ana&Steve]

Coming from the US I am used to one rate based on my total income, so I thought I'd add that if you earn $65,000, for example, you don't pay 39% on the whole thing. The tax rates here are charged on portions of your income so that if you earn $65K-- the first 38K will be taxed at 19.5%, the next 22K is taxed at 33% and the last 5K is taxed at 39%.
Wow, that's pretty cool! Wish they did that here!
The other odd thing for Americans to get used to in NZ is that you can't put outgoing mail in your mailbox here like you can in the US. I had a letter sit in my mailbox for days before I figured out that no one was going to deliver it.
Good to know! So mailboxes in NZ don't have little red flags on them? Also, can you hand mail to the mailman if you catch him on his route?
Apologies about OT...
Ana

[jess]

Sorry still OT -- Ana you have to put outgoing mail into post boxes you find all over. (on the streets, in front of grocery stores, etc... like the big blue one in the states). You don't hand it to the carrier, and the mailboxes don't have flags here.

[Ana&Steve]

Thanks jess!
Ana