NZ Taxpayers Warned Of Residence Pitfalls

by Mary Swire, Tax-News.com, Hong Kong

04 August 2010

The New Zealand Institute of Chartered Accountants (NZICA) has recommended that taxpayers leaving the country for an extended or indefinite period of time should seek professional advice before completing the residence questionnaire form IR886 from the Inland Revenue (IR).

NZICA says that the IR uses the information to decide whether a person remains a New Zealand resident for tax purposes, or becomes a non-resident; and that, if a taxpayer continues to be resident, he also continues to be taxable in New Zealand on his worldwide income.

Craig Macalister, NZICA’s tax director, said completing the form wrongly could have expensive consequences for taxpayers.

“People do not understand what factors are used by the IR in making the residence determination. As a result, they may inadvertently leave out or misrepresent material facts that may alter the outcome,” he pointed out. “Once the IR makes an interpretation on your residence status, it can be very expensive to challenge.”

NZICA disclosed that it has recently fielded a number of complaints from its tax agent members on this issue. The tax agents have been approached by people who have completed the form and then been told by the IR that they remain New Zealand residents.

“The IR reply is a legal document that, left unchallenged, may mean the taxpayers finds themselves bound to that outcome,” Macalister continued.

“We are aware of situations that have cost NZD2,500 (USD1,850) to challenge the IR’s reply,” he added. “We are also aware that the IR’s decisions are inconsistent: two taxpayers in very similar scenarios can be treated differently.”

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