Court of Appeal decision on tax residence provides more certainty

Certainty from Court of Appeal tax residence decision

The Court of Appeal found property which a person has never lived in cannot be their “permanent place of abode”, for tax purposes.

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In a case potentially impacting all New Zealanders who move overseas, the Court of Appeal has decided in favour of the taxpayer, finding that property which a person has never lived in nor intends to live in cannot be their “permanent place of abode”, for tax purposes.

The case centred on whether Mr Diamond, who worked as an overseas security consultant between 2003 and 2012 (and continues to live overseas), was New Zealand tax resident in a number of those years.

KPMG New Zealand’s head of Global Mobility Services, Rebecca Armour, welcomes the decision which has broad implications for many expat New Zealanders.

This is important, says Armour, as a permanent place of abode can give New Zealand taxing rights over a person’s worldwide income. Following a 2013 decision at the Taxation Review Authority level in favour of the Commissioner, a number of expats had significant concerns about their personal tax obligations in New Zealand, even where they had been out of the country for some time.

Inland Revenue argued that Mr Diamond had a permanent place of abode due to the fact he owned a New Zealand rental property, which was available to him, and also his wider connections to New Zealand. Mr Diamond argued that the rental property was not his home, as he had never lived in the property, and there was no intention to ever use the property for that purpose.

Mr Diamond was successful in the High Court, with that judgement in 2014 confirming that to have a permanent place of abode means essentially to have a home and, on the facts, Mr Diamond did not.

Pleasingly, the Court of Appeal upheld the view of the High Court in a pre-Christmas decision.

Armour says that this latest judgement contains a number of important principles:

  • The mere availability of a property in New Zealand is not sufficient by itself to create a permanent place of abode here. How that property is used or intended to be used is what is important. Based on the decision, a property which a person has never lived in and only ever intends to use as an investment will not constitute a place with which they have enduring and permanent ties.
  • The focus of the analysis should be whether the person, not members of their family, have a permanent place of abode. The fact the person provides a home for their family in New Zealand, while they live elsewhere, is not necessarily sufficient to establish a permanent place of abode for that person.
  • The Court recognised that the consequences of having tax residence in New Zealand could be serious and therefore an interpretation beyond the ordinary and natural meaning of “permanent place of abode” should not be adopted. In particular, the Court cautioned against widening connections establishing residence to protect the New Zealand tax base against erosion.

While the decision is welcome, Armour says that it doesn’t remove the uncertainty completely. For example, expats that have rented out their New Zealand family home while overseas or who buy property which could be used as the family home on their return are still at risk. Their status will depend on past and prospective ties to any New Zealand property, the time away as well as other links to New Zealand. Therefore, care still needs to be taken when applying the residence rules.

For more information on this, contact

Rebecca Armour
Partner, Head of Global Mobility Services
+64 9 367 5926
021 225 4946
rarmour@kpmg.co.nz

Alexandra James
Marketing and Communications Manager
+64 9 363 3634
+64 021 822 539
alexandrajames@kpmg.co.nz

© 2017 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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