New Zealand expats who have retained property in their home country have found themselves on shaky ground over the last few months. An ongoing investigation by the New Zealand Taxation Review Authority (TRA) has sought to clarify the situation of taxation on real estate income for expatriates.
For New Zealand expats who relied on their property holdings as a major source of their income, the future was looking decidedly unpredictable. If successful in their battle, the TRA could have forced expats to pay far more tax than they do at present, leading to potential financial shortfalls.
Last year the TRA took action against a New Zealand expat, claiming he had taken an ‘unacceptable position’regarding his taxation reporting. The TRA claimed that income earned by Mr Diamond as a result of his New Zealand property portfolio was taxable within New Zealand itself.
In contrast, Mr Diamond claims that he paid tax in his adopted country. In addition, lawyers representing the accused made it clear that as Mr Diamond had not lived in New Zealand for over 10 years he should be considered resident for taxation purposes.
Now, at last, a ruling by the High Court of New Zealand has helped to clarify the situation and enabled thousands of Kiwi expats to breathe a little easier about their real estate holdings.
Further to Mr Diamond’s appeal, the High Court has ruled that investment properties and holiday homes will generally not be considered an expats main abode, and as a result any income earned from the property shouldn’t be taxed at residential rates.
This is good news for the many New Zealand expats who have leveraged their healthy property portfolios as a source of regular, low-tax income. These property owning expats have been able to live an enviable life overseas, safe in the knowledge that their property investments would continue to produce for many years to come.
It should however be mentioned that these latest findings may apply only to those expats who maintain a portfolio of property investments. For Kiwis who are earning an income from what was their primary residence when living in New Zealand may still find themselves taxed higher than they would like.
Any New Zealand expats who retain one or more properties back home are advised to speak to their local tax advisor as soon as possible to ensure they are paying the correct amount of tax and are not subjected to closer inspection by the Tax Review Authority.