Tax Breaks for Migrants and Returning Kiwis
Monday 13 March 2006
Tax Breaks for Migrants and Returning Kiwis Will new tax changes help reverse the brain drain?
New migrants and certain returning Kiwis will be able to claim a 4-year exemption from tax on most types of foreign income from 1 April 2006, following today’s release of long awaited draft legislation.
Steve Camage, a director at PricewaterhouseCoopers, said it was a positive and proactive development in the area of tax for individuals.
“These changes will enhance New Zealand’s status as a destination for skilled people, and help to reduce employment costs,” he said. “The new rules will lower the cost of doing business and allow New Zealand employers to remain competitive in attracting skilled migrant labour, particularly given Australia is proposing similar rules.”
He said that in the past New Zealand’s comprehensive taxation regime has deterred many individuals from coming to New Zealand. This includes thousands of highly skilled Kiwis who departed years ago on their OEs. Many individuals that do come to New Zealand are often shocked at the additional taxes paid on actual and “notional” foreign investment income.
Steve Camage said employers should be “relieved” by the introduction of these new rules.
“Previously they have often borne the brunt of the additional tax liability incurred by new migrants,” he said. “Employers commonly indemnify these workers for any tax on their foreign investment income.”
The exemption effectively only applies to first-time residents, or returning New Zealanders who have been absent for a continuous period of at least 10 years.
Mr Camage said the Government had missed a golden opportunity to reverse the brain drain.
“Ten years is too long - it would have made more sense for the criteria for returning Kiwis to have been reduced to five years,” he said.
“Kiwis who’ve been abroad for 10 years or more are probably well established in their new life and less likely to return home just for a tax break. But if you’re a New Zealander who’s been overseas for less than 10 years and you want to come back to the southern hemisphere, then it’s probably more attractive to head to Australia because you may qualify for their proposed exemptions straight away.”
More about the exemption
The exemption is valid for up to 48 months and is available for those coming to New Zealand for full-time employment, self-employment, retirement or for any other reason.
The new rules apply from 1 April 2006 and the exemptions extend to interest and dividend income, certain foreign equities and foreign superannuation interests; debt instruments (e.g. deposits and mortgages) particularly those denominated in foreign currency; non-resident withholding tax obligations; and employment income in respect of employment or service before coming to New Zealand.
For most individuals, this will mean New Zealand tax will only apply to employment income and investment income on New Zealand based assets for the first 4 years.