All quiet on the taxation front…
After a flurry of activity since we went into level four lock-down (what now seems like an eternity ago), last week was eerily quiet in the world of tax.
With Covid-19 still very much the topic of conversation (although walking down Queen Street you could be fooled into thinking it was just a bad dream), I thought I would use this week’s edition just to draw your attention to the IRD’s tax agents Q&A on Covid-19 website link, in case you were not yet aware of its existence.
The link is updated as new topics arise (the latest version now 2nd July), with the useful ability to simply scan the dates in the right-hand column to quickly ascertain where the latest updates fit into the document.
The 2nd July edition now includes commentary around IR’s interpretation of ‘when travel is practically restricted’ in terms of applying the 183 day presence test to tax residency determinations of those persons who may have had their travel plans disrupted due to Covid-19. With numerous borders around the globe having closed, and with that, multiple airlines cancelling international flights, travellers have found themselves stuck in New Zealand for longer than intended, one consequence of which, was risk of now breaching the 183 day presence threshold, which would deem the person to be a New Zealand tax resident.
You may recall in this regard, that towards the end of April, IR issued a public statement, advising that if a person left New Zealand within a reasonable time after they were no longer practically restricted in travelling, then any extra ‘presence’ days, when the person was unable to leave, would be disregarded, for the purpose of the 183 day test calculation.
As borders in a number of jurisdictions have begun opening, and more flights have become available, IR has now clarified its earlier statement, by publishing what factors may be considered when deciding if a person is ‘practically restricted’ in travelling, to include:
- Border controls or entry restrictions. A person is unable to practically leave New Zealand if they cannot enter a country of which they are a citizen or permanent resident or visa holder; and,
- The availability of commercial flights.
It should be noted that it is IR’s view that personal considerations or preferences are not factors that impact on whether a person is practically restricted in travelling.
Once there is no practical restriction on travel, then deciding to remain in New Zealand does not prevent days from being counted for the residence day tests. It does not matter whether the person decides to stay in New Zealand because of the level of Covid-19 infection in their home country, or for other reasons. This includes wanting to go to a different country where entry restrictions still exist. Choosing to stay in New Zealand will result in the person becoming tax resident under the ordinary application of the day tests.
In this regard, I had a person call me last week as a result of reading an article I had previously published on determining New Zealand tax residency, who did not want to leave New Zealand to go home to the United States, because of how bad things were there presently. I advised that while I could sympathise with their position, they needed to be on notice that IR would now consider their extra days in New Zealand to be one of personal choice as opposed to enforced restrictions, and consequently they were likely to be deemed a New Zealand tax resident, having now exceeded the 183 day threshold.
Now in a practical sense, those persons who have been on a travelling holiday in New Zealand and have not actually derived any New Zealand sourced income while here, are unlikely to be overly concerned as to whether they trigger a New Zealand tax residency status or not, as overriding the domestic legislation will be the residency tie-breaker test contained in the double tax treaty agreement most travellers home countries will have with New Zealand, application of which will dictate that New Zealand obtains no taxing rights over the travellers income sourced from outside of New Zealand, upon a New Zealand tax residency status having been triggered.
The tax agents link can be found here.
