Tackling the trans-tasman tax conundrum

TAXING TIMES

Should people worry about their tax liabilities in New Zealand when undertaking Australian contract work? It can be tricky at times to work out where you should pay your taxes if you have a family home available in New Zealand and undertake business or contract work in Australia.

I have been questioned recently regarding the residency issues of a taxpayer who is a New Zealander, has a home available to him in New Zealand, and has been working on and off in Australia as a self-employed painter and decorator. Does his Australian income need to be included in his New Zealand tax return?

Whether the taxpayer needs to include his Australian income in his New Zealand tax return depends on whether the taxpayer is a New Zealand tax resident.

The Australian accountant is likely to have concluded that the taxpayer is a tax resident in Australia because the Australian residency tests are met. However, the taxpayer still needs to consider if he is also a tax resident in New Zealand. The taxpayer will be a tax resident in New Zealand as he still has a permanent residence in New Zealand.

If the taxpayer is a tax resident in both Australia and New Zealand, then the New Zealand/ Australia Double Tax Agreements (DTA) will determine in which country he is a tax resident – he cannot be a tax resident in both.

Without going into detail, in this instance, it is likely the taxpayer will be a tax resident only in New Zealand based on the various ‘‘tiebreaker’’ clauses contained within the New Zealand-australia DTA.

However, for completeness, it is useful to consider the appropriate treatment if the taxpayer is either deemed a resident in New Zealand or a resident in Australia:

If the DTA determines he is resident only in New Zealand, then the taxpayer’s New Zealand income should not be included in his Australian return. The taxpayer’s New Zealand tax return will include his worldwide income (and foreign tax credits if available). The taxpayer will include his Australian income in his Australian return.

If the DTA determines he is resident only in Australia, the taxpayer will need to determine if he qualifies as a ‘‘temporary resident’’ in Australia. If the taxpayer is a temporary resident, then only his Australian income needs to be included in his Australian return. His New Zealand income will continue to be included in his New Zealand return. The taxpayer’s Australian income will not be included in his New Zealand return as he is deemed to be a non-resident of New Zealand under the DTA and is subject to New Zealand income tax only on his New Zealandsourced income. However, it must be noted that the temporary resident exclusion does not include income from personal services, which his self-employed income may be considered to be. The taxpayer will need to raise this point with his Australian accountant. Also, there are New Zealand tax issues about which the taxpayer needs to be aware.

Tax residency and DTAS are a complex business at the best of times, so we would always recommend that people sourcing income from more than one country seek tax advice as early as possible.