Purchasing Property and becoming a Tax Resident

[diallta]

I know this is a complicated matter, and the best bet would be to contact a tax professional, but I was hoping that some other members might have some experience in this area and could maybe provide some guidance or insight, however anecdotal.

Earlier this year I was granted a Permanent Residency Visa based on my relationship with a NZ Citizen, who has been out of the country for many years and is not currently considered "tax resident" in New Zealand. Now that we are planning to make the move, we are considering buying a home prior to actually relocating. (Yes, I'm aware of the recent change in legislation regarding homeownership, I've read the policies, and it shouldn't be an issue for us as she is a full NZ citizen.)

My question is, if we buy a house in NZ before we actually relocate there, with the intention of making it our permanent abode--does that constitute establishment of a "permanent place of abode" and make us tax resident? Or would that not happen until we actually relocate to New Zealand?

Is this the kind of question I could just ring up IRD and ask with a reasonable expectation to get an answer?

I am also aware of the 49-month worldwide tax exclusions available to new immigrants and long-absent returning citizens. This question is more about the acquisition of "tax residency" status itself, not whether or not I'll be effectively subject to tax.

Thanks in advance,

[JandM]

I don't know an answer for you, and I haven't seen any similar stories on the threads.

However...

Is this the kind of question I could just ring up IRD and ask with a reasonable expectation to get an answer?

...in your place, I would try phoning them to see if you get an answer, as, if you do, that could save time consuming and possibly costly research elsewhere.

[Super_BQ]

My question is, if we buy a house in NZ before we actually relocate there, with the intention of making it our permanent abode--does that constitute establishment of a "permanent place of abode" and make us tax resident? Or would that not happen until we actually relocate to New Zealand?

From the view of tax authorities, the facts speak more than 'intentions'. Many non-residents have bought houses in NZ with no intention of living in them. I am quite certain that your residency doesn't start until you actually relocate over and establish a factual adobe. That is having opened bank accounts, local clubs / discount cards, NZ driver's license, having a family doctor, a permanent job, etc. Saying that you "intend" to have these to establish a case that you're a resident doesn't hold any water.

On a side note, it would be worthy to know about the new "Common Reporting Standard" and "Automatic Exchange Of Information" established by all the OECD nations in the aspect of those who are 'non-resident'. Banks are required to fill these forms out and forward the bank account information to the resident country where the person lives. So if you don't want the hassles, it would be easier for non-residents coming to NZ to wait and get their IRD# and residency status before trying to open up a new bank account. The new anti-laundering laws also come into effect Jan 1st which many professionals in banking, accounting, lawyers, and real estate agents have to conform to.

[diallta]

From the view of tax authorities, the facts speak more than 'intentions'. Many non-residents have bought houses in NZ with no intention of living in them. I am quite certain that your residency doesn't start until you actually relocate over and establish a factual adobe. That is having opened bank accounts, local clubs / discount cards, NZ driver's license, having a family doctor, a permanent job, etc. Saying that you "intend" to have these to establish a case that you're a resident doesn't hold any water.

Well it's quite the opposite--I'm trying to avoid becoming "tax resident" prematurely. My understanding of the law is that someone is tax resident if they're in the country for more than 184 days in the year, or if they've established a "permanent place of abode." IRD published a paper with some explanation and examples (don't have the reference just now, but can post it later), and the spirit of them seems to be rooted in if you own property that you could conceivably live in. This included examples of those who live overseas but own and maintain a property that they could show up and live in at any time, and I even recall one example of a student with a room at their parents home that was still considered tax resident. I think it even extends to those who rent out a residential property for some or part of the year, but could come back to it.

(But, I don't recall reading there anything about having a drivers licence or bank account coming into the consideration. Certainly my citizen partner [and now myself!] have both of these items, but neither of us are currently NZ tax residents: we don't own a home, and we don't have any physical possessions or property in NZ--yet.)

Based on my interpretation of the law, it does seem certain that if we were living in the country, owned a personal home, then left and rented it out--we'd remain tax residents for as long as we owned the house. The question really is, as neither of us are currently tax resident and outside the country, would buying the house now, and renting it out until we do arrive permanently, make us tax resident from the time we buy the home? Certainly our intention would be to live in it, it's most certainly not as an investment property, and I'm more than happy to pay taxes where they're due, but let's face it, this is a financial decision, and I'm trying to understand what would make the most sense. The 49-month exemption from worldwide taxation is a valuable benefit. It might make more sense to defer buying the house and accepting some risk with respect to the property market.