TAX when away from NZ for 2 to 3 years

[Beginner1]

Hi, Any advice would be apperciated. We (couple) are planning to go overseas for 2 to 3 years volunteering. No income from overseas. We will be receiving about $30k-$50k after expenses from our 5 x rentals. Any idea what TAX we should be paying? I know we will be non tax residents as we won't be in NZ for more than 40 days a year. 3 properties are under a LTC and other 2 under personal names. My accountant seems not an expert on this situation.

[Bobsyouruncle]

You will still be nz tax resident just pay your tax like normal. It is actually very difficult to become a non resident for tax.

[Minz]

You will still be nz tax resident just pay your tax like normal. It is actually very difficult to become a non resident for tax.

You can apply to be a non-resident but you must give up all of your "ties", including places you could live in, bank accounts etc. Also, your intention must to be "gone". Above it sounds like your intention is to be temporary. It may well be worth chatting to another accountant. We are overseas and while not tax residents in NZ, it makes little difference to our property profits as everything is in a NZ domiciled trust (including the company) and we pay tax on those profits. Advantageous at the start as we had losses but now we pay tax. Can't really argue as it is a NZ tax paying trust and we are getting a profit.

[Wellington Broker]

Try talking to an accountant who is an expert. They will charge for their opinion but a lot cheaper than paying tax!

I know one who is an expert at this stuff:

http://www.grantthornton.co.nz/meet-our-people/geordie-hooft/

[Bobsyouruncle]

Getting advice is a god idea. You definitely have no issue though. Just file NZ tax returns.

[Anthonyacat]

The tax residency tests are complex. It's not as easy to break residency as you seem to think, but it's not as hard as mentioned in this thread. Complex and never-totally-clear judgement calls, that will cost you to have assessed.

But good news for you! If you have no other income, it doesn't matter whether you are a resident or not. All your New Zealand income will be taxed in New Zealand whether you file an IR3 or an IR3NR. The main issue people have with tax residency is that NZ tax residents need to pay NZ tax on overseas earnings. But you've said this isn't an issue for you. So you may as well stay a tax resident.

If you end up earning a little income, safest thing is to just declare it in NZ and pay a little tax on it. A bit of extra tax will likely be cheaper than the fees to get your residency assessed.

[propertybuyingNZ]

Its not that complex guys, if someone leaves for more than 325 days, becomes non tax resident, so no need to declare any overseas income.

http://www.ird.govt.nz/income-tax-individual/filing-your-return/overseas/iit-overseas.html

Minz:
"You can apply to be a non-resident but you must give up all of your "ties", including places you could live in, bank accounts etc."

Obviously cutting ties to residential home is fine and accepted, but I see no reference to terminate bank accounts, how is it requirement? and what would happen to the mortgages?

[Bobsyouruncle]

Its not that complex guys, if someone leaves for more than 325 days, becomes non tax resident,

That is incorrect Prop. That is just one test. It is extremely difficult to become non resident unless you basically leave permanently. We gave up trying it is almost impossible. Keep a home here, even via trusts or even just own a car etc. they can and will disallow non residency. They want to keep the revenue in NZ.

[Anthonyacat]

Its not that complex guys, if someone leaves for more than 325 days, becomes non tax resident, so no need to declare any overseas income.

http://www.ird.govt.nz/income-tax-in...-overseas.html

It really is that complex. One of the least-clear areas of our tax law. See how the IRD site says Then you're likely to be a ...? That word likely, that's the complexity.

Obviously cutting ties to residential home is fine and accepted, but I see no reference to terminate bank accounts, how is it requirement?

There's nothing obviously about it. You see no reference to termination of bank accounts because you're not looking in the right place. There's a much more detailed page on the IRD website here: http://www.ird.govt.nz/international...ncy-index.html. Bank accounts come under 'economic ties'. You don't necessarily need to close your bank account, but it's a tie to the country, which works against you.

Again. It's not so simple.

[propertybuyingNZ]

ok, this is messed up!

so even if I let out my residential home, I declare that I never intend to come back to NZ, I could still be rejected based on the residential home (what is let on a Tenancy) and based on the existence of the bank account I have to pay the mortgage from.

So this place is literally a trap? you can not just relocate to, lets say Monaco and pay no tax, as in that case NZ IRD would deem you tax resident in NZ and would slap you with a 33%. Mental!

[Anthonyacat]

Yes, you could still be rejected based on the residential home. But you wouldn't necessarily. If you're letting it short term and it'd be available to you if you wanted it, that counts against you. If you actually use it in between tenancies, that counts against you. Having a bank account to pay the mortgage won't act against you. Having a bank account you use personally, would - but probably not much.

It's a test to see how non-resident you are. The rules are made out to be intentionally vague. There is rarely a hard-and-fast, certain judgement.

Good news is, once you've broken tax residency, it's very straightforward how you stay non-resident.

[propertybuyingNZ]

Some encouraging points here. Thanks Anthony.

What concerns me is how can I be sure about it?
So I could adjust my circumstances accordingly. I will have no car or any possessions left behind apart from the properties. All will be let on a standard long term Tenancy and managed by an agent or a friend. Maybe rather an agent just in case a friend would not favour my case.
Bank accounts can be closed, some at least, but obviously loan, RC and saving accounts I would keep open.

So, is there a way to make enquiry to IRD and get their exact position?

Thanks much

[Minz]

ok, this is messed up!

so even if I let out my residential home, I declare that I never intend to come back to NZ, I could still be rejected based on the residential home (what is let on a Tenancy) and based on the existence of the bank account I have to pay the mortgage from.

So this place is literally a trap? you can not just relocate to, lets say Monaco and pay no tax, as in that case NZ IRD would deem you tax resident in NZ and would slap you with a 33%. Mental!

We kept our bank accounts even though the guidelines indicated it would work against us. OVERALL, our picture was non-resident; no car, no home (residential let out), no children or immediate family members in NZ, no income (rent all through the company and trust), work contract long-term and nothing to do with NZ. Our INTENT and ACTION was that of non-residents - it also means, for example, when we come back to NZ for visits and go to the doctor we pay full fees, we are non-residents and behave as such. I suggest you see a new accountant, then apply, the worst that can happen is not bad. Problems only come when you have regrets or are not honest. Sounds like you can easily avoid regrets and you have no intention of misleading anyone so you will be fine.

[Bobsyouruncle]

So, is there a way to make enquiry to IRD and get their exact position?

You can but honestly there is no point. Just file NZ tax returns. My former accountants business was assisting people to become non residents because it was so problematic. It is very, very difficult. IRD do not care, they want the tax on your world wide income. There is no issue for you to worry about at all.

[Anthonyacat]

What concerns me is how can I be sure about it? So I could adjust my circumstances accordingly.
...
So, is there a way to make enquiry to IRD and get their exact position?

This is one of my points - it's very difficult to be sure. The law is not clear, purely so people can't just adjust their circumstances accordingly.

To make another point clear, people here talk about 'applying to become non-resident' - there is no such thing. New Zealand has a self-assessment tax system. If you assess that you're a non-resident, you simply ask the IRD to send you an IR3NR instead of an IR3 next year. Chances are, they just accept your assessment and move on. The problem is if they decide to check, and turns out you've assessed yourself incorrectly, there's nasty penalties to pay - especially because they're not quick, so you've probably already filed three or four years already, and penalties are backdated.

There is a form, the IR886, that you can fill out and send to IRD to get their view on your situation. You're then free to accept or ignore their view, because we have a self-assessment system. The IRD are bound by their response to your IR886 request, but only if you've filled in the form truthfully, and completely, and accurately, and nothing in your situation has changed since filling in the form. That's a lot of caveats, so in truth it's not a terribly valuable exercise. It also alerts them to your desire to be a non-resident, and gives them a whole bunch of information about your situation. Private information is valuable, and I'm not a fan of giving value away unnecessarily.

However, got to go against Bob's view that there's no point in filing as non-resident. If you're genuinely non-resident, you'd be crazy to give the IRD the tax on your worldwide income. Except, as I've mentioned previously in the thread, if you're not going to earn any outside NZ, then it's a moot, and a totally pointless exercise.