Tax Exemption for
New Migrants

Article published in New Zealand, September 2011

New migrants to New Zealand and New Zealanders who have been away for at least ten full tax years qualify for a 48 month exemption on foreign sourced income. I asked Kevin Jones of Jones Law to provide some insight into what this might mean for migrant families, and how they should best make use of this attractive concession.

The “new migrant tax exemption” was introduced with effect from 1 April 2006 to attract new migrants (and those who have been away for more than ten years) to New Zealand by offering them an incentive by way of a four year tax reprieve on most foreign sourced income.

The residual rule, as most readers will know, is that a New Zealand tax resident is taxed on worldwide income. This brings into the tax net not just direct income, but also foreign held shares, pensions and even insurance policies all of which, as a general rule, are taxed on an unrealised basis.

As a result the 48 month reprieve is understandably attractive, and those who qualify for the exemption would be remiss not to capitalise on the opportunities.

Firstly, it is critical to determine the exact commencement and termination dates of the 48 month exemption period.

Secondly, any income or capital receipts which but for the exemption would be taxable must be managed so as to be received during the exemption period.

Thirdly, and this applies particularly to overseas pensions, a clear understanding of the tax treatment of an offshore investment post the exemption period must be crystallised well in advance of the expiry of the 48 month period. A “pension-transfer” either prior to 1 April 2006 or after the expiry of a new migrant’s exemption period can be more vulnerable to adverse New Zealand tax consequences.

We encourage you to seek professional advice on your particular circumstances.

The above article is provided for general information purposes and does not constitute legal advice.

We invite you to contact us at info@jones-law.co.nz to discuss your specific circumstances.

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