Tax decision helps expat landlords

Rebecca Armour, head of KPMG’s international executive services tax team, said Kiwis living in other countries and renting out properties here should welcome a decision to overturn a 2013 Taxation Review Authority (TRA) decision that a New Zealander living and working overseas for more than 10 years was tax resident in New Zealand and had taken an unacceptable tax position by claiming that he was not.

At the TRA, the ownership of a New Zealand investment property was considered a sufficiently strong tie to New Zealand to establish his tax residence under New Zealand’s residence rules. This was despite the fact that the taxpayer had been living outside New Zealand for a significant period and had never lived in the investment property.

The TRA found that the rental property investment was an available dwelling and was near where the taxpayer’s  ex-wife and children lived.

In contrast, the High Court focused on the use of the investment property and his intentions in relation to that property, finding that as he had never lived there it could not be considered his home in New Zealand.

Armour said the TRA decision to uphold IRD penalties on the taxpayer for taking an unacceptable tax position had been alarming.

Armour said it was pleasing that the high court had recognised the complexity of the residency rules meant it would have little difficulty concluding he had not taken an unacceptable position in regarding himself as not tax resident.

Armour said the decision was consistent with the approach being taken by the Inland Revenue in its recent Interpretation Statement on Tax Residence.

“That Interpretation Statement acknowledges that investment properties and holiday homes will not generally be treated as a person’s permanent place of abode, although the existence of such properties in New Zealand could still be taken into account in considering the strength of a person’s ties to New Zealand.”

She said it was unclear whether the IRD’s guidance would be updated to reflect the decision.

But she said it should give New Zealanders living and working overseas additional comfort, particularly if they had never lived in the property. “Caution will still need to be exercised by expats if their investment properties were ever their primary residence, or if they intend to return to New Zealand and use the property as a home in the future.”