For a transitional resident, there is a temporary tax exemption for oversea income. However, the tax exemption can only be claimed only once in a lifetime. The temporary tax exemption for foreign income lasts for 4 years (up to 49 months). It starts on the first day of the month you become a New Zealand tax resident and ends on the last day of that month four years later.
The requirements to be a transitional resident as below:
- A person must become tax resident in New Zealand (NZ tax residence tests must be satisfied) on or after 1 April 2006.
- A person must be a new migrant or returning New Zealanders who have not been resident for tax purposes in New Zealand after the 10-year non-residence period.
- Employment income from overseas employment performed while living in New Zealand.
- Income from supply of services offshore.
Only a certain income derived by transitional resident is exemption income. The income below is not exempt income for transitional resident:
If a transitional tax resident has any of these incomes above, he/she must file an IR3 returns declaring those income from the date of arrival in New Zealand.
Moreover, while being a transitional resident, the taxpayer cannot receive Working for Families Tax Credits. Therefore, some transitional residents decide to make an irrevocable election to not be a transitional resident.
Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.
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