Alright Kiwis, here it is, the boring tax stuff. Having said that, it is very important! Not complying with tax regulations can result in… well, the government chasing you and taking what you owe. For the past week I have been editing this post and whilst doing some final fact checking I came to the realisation that tax is so complicated and specific to the individual I actually deleted the post. Yes, I got so confused and lost in the labyrinth of bullshit that is tax, I decided to take it back to bare. Disclaimer: this is my personal tax situation, everyone is different, tax is a minefield and I have a very basic understanding of it so seek professional advice if you need to.
Firstly, to save you from reading an essay I have copied some information from IRD that makes it easier to read. If you are clued about this already feel free to skip and scroll down.
What you need to know
You become a non-resident taxpayer when:
- you’ve been away from New Zealand for more than 325 days in any 12-month period and
- you do not have a permanent place of abode in New Zealand.
In the tax year you become a non-resident taxpayer you need to tell us:
- the date your status changed
- if you are still getting New Zealand income.
Your tax residency status is back-dated to the day you left New Zealand. For example:
- you left New Zealand on 6 April
- you do not have a permanent place of abode in New Zealand
- you become a non-resident taxpayer 325 days later (on 24 February of the following year)
- 6 April is the first day of your non-residency status.
You might need to complete an individual tax return – IR3 – in the year your tax status changes.
If you are not getting any more New Zealand income
- Work out if you need to file an individual tax return – IR3.
- If you do, show the income you got from New Zealand and overseas between 1 April and the date you left.
- You can file your return early. You do not need to wait till the end of the tax year (31 March).
If you are still getting New Zealand income
You need to file an individual tax return – IR3 – showing:
- the income you got from New Zealand and overseas between 1 April and the date you left
- the income you got from New Zealand between the date you left and 31 March.
My personal tax situation
Ok, I have written and re-written this so many times and this is finally where I landed. For me being a non tax resident I am taxed at 28% on any income derived from NZ. So, take InvestNow (see Finance for Kiwis if you don’t know what this is) for example, I am invested in an international fund that has an allocation in NZ. What does this mean? Well, it means the fund has mostly worldwide investments but also has investments in NZ companies. A fund allocation could look like this, 60% US, 23% UK, 7% Japan, 1% NZ, 4% Germany, 2% France, 3% Australia – all this means is that the fund invests in companies in these countries. Now, because I am a NZ non tax resident yet my fund invests 1% in NZ, I am charged 28% of the dividends I receive from this 1%, I hope that makes sense.
With Simplicity (KiwiSaver alternative) however, it is structured slightly different. Simplicity is a NZ based platform as opposed to InvestNow that is merely a middleman that allows you access to funds whereas Simplicity provides the fund. So they charge me, a non tax resident 28% on ALL dividends received, no matter which countries/companies they invest in. A dividend is money you receive from an investment*.
One more thing, these platforms are Portfolio Investments Entities (PIE) which basically means that tax is deducted at source and taken care of by the platform. When you receive your dividends the tax has already been taken care of which means your dividends are post-tax dividends. Importantly, if you choose the incorrect prescribed investor rate (PIR) you do not have to fill out a tax return. However, you will not get back any money if you choose a PIR higher than what you are supposed to but you can be chased up if you choose a lower rate than you should and underpay your tax. Bullshit – I know.
Okay, yes, I have an accountant! But, she works on an ‘as needed’ basis only and although it is not a cheap service I personally find it well worth it if it means I am totally above board and legal. Plus, it means I don’t have to deal with the boring stuff. I deal directly with Isobel of Tyler Price accountants based in Auckland, http://www.tylerprice.co.nz/.
Readers, I cannot stress enough the importance to review your own tax status. Your tax status depends on whether or not you are returning to NZ, your financial goals, your investment timeline and many more factors. Due to my ever-changing goals I am currently considering if I should pull out my funds in InvestNow and move it all to my more tax friendly offshore investment firm, interactive brokers. Anyway, that’s for another day, I hope this all made sense and again, get in contact if you have questions.