Investment Advice for New Immigrants

For any new immigrant coming into New Zealand and for returning New Zealanders who have been out of the country for some years there are important financial decisions to be considered.  We deal with many new immigrants and assist them in a number of areas. The rules and regulations change regularly and we endeavour to keep abreast of these changes.  In particular we are helping clients with investments issues with regard to tax exemptions and also new immigrants coming into New Zealand under the Migrant Investment Policy.

Income Tax Exemption

Legislation was passed through Parliament on 22nd March 2006, which introduced a new income tax exemption for new migrants and returning New Zealanders.  These rules apply from 1 April 2006.

Exemption Details

  • A person who qualifies to be a “transitional resident” will be exempt from income tax for four calendar years on most forms of foreign sourced income other than employment income and income from the supply of services.
  • 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.
  • 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:
  • The exemption can only be granted once-in-a-lifetime.  The exemption does not have to be approved by the Inland Revenue and is automatically granted if you qualify. However, we recommend that you get specialist tax advice, thereby making sure you qualify.
  • Our understanding is that the exemption is only applicable to natural persons with family trusts not qualifying for the exemption.

Investment Planning Opportunities

  • “transitional residents” need to be made aware of this exemption and therefore have time to plan their affairs correctly and take full advantage of the exemption.
  • There is the opportunity to structure investment portfolios, thereby taking advantage of the exemption.
  • Investment details:
    1. Monies can be transferred to New Zealand and then invested back offshore through the use of a custodial service, which currently looks after over $5 billion.
    2. Multiple currency accounts are available including, Sterling, Australian Dollars, US Dollars and NZ dollars.  Despite some of these accounts being in offshore currencies, they are deemed as New Zealand-based and therefore tax is deducted at source.  To maximise the tax benefits, it is not wise to hold large amounts of cash in these funds.
    3. The investments can be monitored from New Zealand yet still taking advantage of the tax exemption.
    4. Online access is available to view the investments and a full tax report is prepared at the end of the year.
    5. It is important to access investments that have little or no tax deducted at source.  Whilst “transitional residents” may qualify for an exemption, if tax is deducted at source, it is very unlikely the local tax jurisdiction is going to rebate the tax deducted. An example of this would be leaving funds in a UK bank account which was taxed in the UK.
    6. We have access to various investments overseas, including UK-based and Australian investments that have little or no tax deducted at source.  These include fixed interest, property and equity investments.
    7. It is also important to maintain most of the investments offshore, as any New Zealand-based assets will pay tax at the person's marginal rate

It is important that independent tax advice is obtained before any investment decisions are made.  This is particularly relevant for US citizens. For more information, see the NZ IRD site.