Returning Kiwis are being hit by unexpected tax bills if they continue to work for an overseas employer. Photo / File
Returning Kiwis are being hit by unexpected tax bills if they continue to work for an overseas employer. Photo / File
Kiwis who return to New Zealand but continue to work for an overseas-based employer or have businesses or investments overseas are being stung by unexpected tax bills.
More than 50,000 New Zealanders have returned home since the outbreak of Covid-19 last year and surveys predicts a further 250,000 to 500,000could come home in the next few years.
But Spencer Smith, a director and tax expert with Baker Tilly Staples Rodway, said it was seeing an increasing number of returnees facing double taxation and confusion about how much they owe and to which government.
"Ordinarily, returning Kiwis would have spent some time planning in advance and winding up their affairs overseas, but the pressures of Covid mean many are now booking their spot without having done their homework first.
"That means major implications for people with trusts or companies based overseas, but it will also catch many regular income earners unawares at tax time."
Kiwis who are resident in New Zealand but working remotely for an overseas-based employer need to be paying tax on their income in New Zealand.
Smith said often foreign employers were not set up to pay tax in other countries and continued to deduct tax in their home country.
"The downside is the IRD won't recognise your foreign tax credit. So you have earned say $100,000 and paid tax in the UK - you get no credit here in New Zealand.
"Then you get a tax bill here and they say we don't care about the fact you have paid tax in the UK, you need to get that refunded."
Smith said one way to solve the problem was to get the employer to pay the gross amount and set the employee up to pay their own tax to the IRD.
"And that often takes our assistance because the employer is sceptical about the advice they are getting from their employee. They don't want to get into trouble with their own tax authority."
Others who were running into tax challenges were those continuing to run overseas-based businesses from New Zealand or who had overseas investments or superannuation schemes.
Kiwis returning home are being stung by unexpected tax bills. Photo / Janna Dixon
Kiwis who have lived outside New Zealand for more than 10 years are able to take advantage of transitional residency rules, which means they won't be taxed on overseas income from assets such as rental properties, pensions or shares for the first four years after arriving in New Zealand.
But the rules only apply to individuals which means income from companies or trusts aren't covered. Salaries and payments for services performed in New Zealand are also not covered by these rules.
Smith said those who received a dividend from their overseas-based business would need to pay tax in New Zealand on the payout.
"If you have got a company overseas and it pays corporate tax overseas you get no credit for that in New Zealand.
"So if your company pays you a dividend, you have to pay tax in New Zealand on that, so now you are getting taxed as corporate and as a individual shareholder and often that is over 50 per cent."
He said business owners might need to consider the best structure for their assets.
Many of those returning were also retirees with overseas superannuation schemes.
"They can be particularly complex. First of all to explain to them how these rules actually work and then to deal with their foreign superannuation provider or investment provider to try and iron out where tax should be paid."
Smith said often the money was locked up and couldn't be brought back to New Zealand, but in some cases like Australian superannuation schemes they could be transferred to a New Zealand KiwiSaver provider.
"There are rules that allow for portability from Australia. But the UK don't let you move it to KiwiSaver. The rules for how you tax it are complicated - they need expert advice.
"Each country has its own rules around super and pension and then we have tax treaties with each of these countries and they treat these pensions slightly differently. There is just no one size fits all."
And finally, don't be tempted to think that overseas bank accounts, credit cards or investments are out of sight of the New Zealand tax department.
Smith said tax authorities were exchanging information around the world.
"People are not as aware as they should be that the tax authorities are working very closely and exchanging a huge amount of information.
"We have had people come in the last 12 months who have had a letter from the IRD about stuff they have neglected to mention and having to make voluntary disclosures."
Smith urged people to get tax advice as soon as they arrived in the country or if they could to get advice before they arrived.
