Trans-Tasman Tax Issues

Australia and New Zealand have similar tax regimes, but the differences can cause some unexpected tax issues (noting, for example, one key difference is that Australia taxes capital gains whereas NZ generally does not; another is that Australia’s top marginal rate is 47% compared to 39% in NZ). This is particularly the case as the Trans-Tasman Travel Agreement (TTTA) effectively allows citizens of each country to freely travel to and live and work in the other country indefinitely.

The TTTA has been in place since 1973, and while it has undergone some tweaks since then, if effectively remains the same. However, it does create some interesting tax outcomes.

Consider a New Zealander (or Kiwi) travelling to Australia. The freedom that comes with the TTTA means that the Kiwi could be coming to Australia for a short holiday, relocating for a defined period, or taking the plunge and relocating to Australia to seek work and to live here indefinitely.

Tax Residency

Different tax issues arise depending on the tax residency status of the Kiwi while they are in Australia. By way of example, if a Kiwi came to Australia:

1. for a holiday, they would generally be treated as a non-resident of Australia for tax purposes;
2. to live and work on a more indefinite ongoing basis, they would likely be treated as a tax resident of Australia.

However, where an individual is a tax resident of Australia they may also be classified as a ‘temporary resident’, if certain conditions are met.

A person will become an Australian tax resident where it meets one of the residency tests in the Australian domestic definition. A person is a temporary resident if they hold a temporary visa, they are not an Australian resident as defined for Australia’s social security purposes, and they do not have a spouse that is an Australian resident (also as defined for Australia’s social security purposes).

This distinction is important as an Australian tax resident is subject to tax in Australia on their worldwide income and gains.

A temporary resident is generally only subject to tax in Australia on Australian-sourced remuneration income (i.e., remuneration income for employment undertaken or services provided, while a temporary resident). Generally foreign sourced income derived while a temporary resident is not taxed in Australia (it is non-assessable, non-exempt (NANE) income). However, an exception is that if the foreign sourced income is remuneration, for employment undertaken or services provided, while the person is a temporary resident in Australia, that income is not NANE under this rule. Also, broadly, temporary residents are not subject to tax in Australia on foreign sourced capital gains (but, again, there are some exceptions).

Assuming a Kiwi is not a resident as per the social security rules (and also does not have a spouse that is a resident per those rules), they are likely to meet the temporary visa rule. Subclass 444 Special Category Visa is a temporary visa that allows a New Zealand citizen (that meets the eligibility criteria) to visit, study, stay, and work in Australia. This visa is free and is usually granted automatically from the time the Kiwi arrives in Australia until they leave Australia (or cease to meet one of the conditions).

Entities other than Individuals

Things get interesting, however, where a Kiwi has interests in other entities, such as NZ Trust (including deceased estates) or a NZ company. We also note there is a Double Tax Agreement (DTA) between Australia and New Zealand, and the DTA has a residency tie-breaker when applying the terms of the DTA.

A NZ incorporated company that has its central management and control in Australia can become an Australian tax resident. If so, that company becomes subject to Australia’s tax rules on its income and gains (noting the company is likely to then be a dual resident and would also be subject to applying the terms of the DTA).

A trust is generally considered to be an Australian resident trust if, at any time during an income year, the trust has a trustee that is an Australian tax resident. A temporary resident is still an Australian tax resident. Therefore, if a Kiwi is in Australia and is a temporary resident for tax purposes, but they are also a trustee of a NZ trust, that trust will become an Australian resident trust. If that trust is also a NZ resident trust, the trust would be a dual tax resident (and would also be subject to applying the terms of the DTA).

A deceased estate is a trust that arises on the death of an individual. If, say, a NZ citizen/NZ tax resident dies, and the executor (or one of the executors) is a Kiwi living in Australia (resident or temporary resident), then that deceased estate would likely be treated as an Australian resident trust, and if so would be subject to Australia’s tax rules (subject to overlaying the operation of the DTA).

Capital Gains Tax

We noted earlier that a key difference is that Australia has a capital gains tax and New Zealand does not (NZ has a limited capital gains tax regime). Therefore, assets and investments in NZ that might ordinarily not be subject to capital gains tax in NZ, may, as a result of a residency change, be brought within the Australian tax net.

Conclusion

Noting the above, and the ease in which Aussies and Kiwis can travel and live in each other’s country, Kiwis should take care and pay attention to the potential tax implications when coming to and from Australia. We have seen plenty of situations where unexpected Australian tax issues arise. While some of these may have been unavoidable given the facts, others would have benefitted from some early advice and tax planning. In this regard, we would recommend seeking advice to clarify how the rules may operate for you (or your client’s) particular circumstances.

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