Income Tax Liability

Who is liable to pay income tax?

Your country of domicile determines whether you’re liable to pay New Zealand income tax.

New Zealand residents are taxed on their worldwide income, while non-residents are subject to income tax only on income derived from New Zealand.

To determine ‘domicile’ the tax authorities apply what’s known as the ‘permanent place of abode test’, although this is arbitrary and isn’t enshrined in New Zealand tax law. Usually anyone who’s present in New Zealand for more than 183 days in a 12-month period is considered resident there and liable to pay taxes.

You don’t need to be a permanent resident to be liable, and the existence of financial and social ties (including bank accounts and club memberships) may be taken as evidence of domicile. You can usually be considered exempt from New Zealand taxes only if you aren’t present in New Zealand for 325 days in a 12-month period. However, if you maintain a home in the country, you cannot be considered non-resident, no matter how brief your stay. If you decide to leave New Zealand, you should inform your local IRD office. Note that the 325-day time limit doesn’t start until the IRD has confirmed that you’ve ceased to be a resident.

Income that’s subject to tax in New Zealand includes commissions, dividends, interest, profits or gains from a business, rents, royalties, salary and wages, and trust distributions.

Double Taxation

New Zealand has double taxation treaties with 29 countries: Australia, Belgium, Canada, China, Denmark, Fiji, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, Korea, Malaysia, the Netherlands, Norway, the Philippines, the Russian Federation, Singapore, South Africa, Sweden, Switzerland, Taiwan, Thailand, the UAE, the UK and the USA.

Double taxation treaties are designed to ensure that income which has been taxed in one treaty country isn’t taxed again in another. A treaty establishes a tax credit or exemption on certain kinds of income, either in the taxpayer’s country of residence or in the country where the income is earned. Where applicable, a double taxation treaty prevails over local law.

This article is an extract from Living and Working in New Zealand. Click here to get a copy now.

Further reading

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