Somone posted this up for me on another forum which spells out pretty clearly. You need to do the sums but it could be really good for some people even with the loss of the family credits, i think if you take it you cant get the family credits for 4 years regardless, ie you cant opt back in again if you run out of savings abroad so you need to be sure its the right move for you:
Temporary tax exemption on foreign income for new migrants and returning New Zealanders
From 1 April 2006, people becoming tax residents in New Zealand may qualify for a temporary tax exemption on some of their foreign income. This temporary tax exemption is available to those who qualify as a tax resident in New Zealand on or after 1 April 2006 and are new migrants or returning New Zealanders (transitional residents) who have not been resident for tax purposes in New Zealand for at least 10 years prior to their arrival in New Zealand.
The exemption can only be granted once in a lifetime.
The exemption
The temporary tax exemption for foreign income is for four calendar years (up to 49 months). The exemption starts on the first calendar day of the month you qualify as a tax resident in New Zealand and is valid until the last calendar day of that month four years later. For example:
You qualify as a tax resident in New Zealand on 22 April 2006 and have one or more types of foreign income that are temporarily exempt for taxes in New Zealand (see list below). You are eligible for the exemption counting from 1 April 2006 until 30 April 2010, which effectively is 49 months.
Exempt types of foreign income
Types of foreign income which are temporarily exempt from tax in New Zealand:
Controlled foreign company income that is attributed under New Zealand's Controlled Foreign Company (CFC) rules
Foreign investment fund income that is attributed under New Zealand's Foreign Investment Fund (FIF) rules (including foreign superannuation)
Non-resident withholding tax (for example on foreign mortgages)
Approved issuer levy (for example on foreign mortgages)
Income arising from the exercise of foreign employee share options
Accrual income (from foreign financial arrangements)
Income from foreign trusts
Rental income derived offshore
Foreign dividends
Foreign interest
Royalties derived offshore
Income from employment performed overseas before coming to New Zealand, such as bonus payments
Gains on sale of property derived offshore (held on revenue account)
Offshore business income (that is not related to the performance of services).
When your tax exemption ends after four years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).
These types of foreign income are not tax exempt in New Zealand:
Employment income from overseas employment performed while living in New Zealand
Business income relating to services performed offshore.
If you have any of these types of income, you must declare them on your annual income tax return (IR3 for individuals) from the date of your arrival in New Zealand.
To be eligible
You must have become a tax resident in New Zealand on or after 1 April 2006, and
You must not have been a New Zealand tax resident at any time in the past 10 years prior to your arrival date in New Zealand. Read more about tax residency
This is a once in a lifetime exemption eg you can't extend your tax exemption or renew it after its expiry date
You or your partner cannot receive Working for Families Tax Credits while being tax exempt from foreign income, but will have to determine which is better for your situation, for example:
You and your partner have $1,000 worth of foreign interest per year, but are eligible for $5,000 per year Working for Families Tax Credits in New Zealand if you do not claim the exemption for foreign income. In this situation, it is in your family's best interest to waive the exemption and pay New Zealand tax on the foreign interest and receive Working for Families Tax Credits. You can inform us of your foreign income on your annual income tax return (IR3 for individuals).