Immigration consultants and lawyers say recent changes to our visa laws and the Overseas Investment Act mean it is easier than ever for wealthy non-residents to purchase a residential property in New Zealand without spending a large amount of time here. For example, the Active Investor Plus (AIP) Visa category now allows a wealthy non-resident to purchase a home in New Zealand while allowing them to spend as few as 21 days here across a three-year period. 

However, this entitlement can bring unexpected tax risks. 

New Zealand has a notoriously ambiguous tax residence test and a residential property purchase can trigger tax residence even if the non-resident doesn’t spend more than 183 days in New Zealand across a 12-month period (which is the more well-known tax residence test). This means their worldwide income can become subject to New Zealand taxation. While the transitional resident tax exemption could apply for the first four years, triggering the start date early is very unhelpful. 

To eliminate the risk of a tax residence dispute, we regularly apply to Inland Revenue’s Binding Rulings team to confirm that our non-resident clients – who have a property in New Zealand and are present here for no more than 183 days in a 12-month period – will not be classified as New Zealand tax resident. 

The benefit of a binding ruling is that it provides a written guarantee from Inland Revenue (based on the fact pattern set out in the ruling) that the client is not a tax resident of New Zealand. 

A number of ruling options are available including: 

• Short-process rulings: These are a cost-effective and quicker option. Inland Revenue’s costs are capped at NZD$2,000 and the ruling takes approximately six weeks. However, these rulings are not available where a person’s annual gross income exceeds NZD$20m or the New Zealand tax at stake is NZD$1m or more. 

• Standard rulings: Inland Revenue typically charges approximately $7,500 and takes three months to complete these rulings. 

In addition to Inland Revenue charges, our fees would be approximately $8,500 to provide advice, manage the process and prepare the ruling application.  This includes relevant statements of fact, tax legal analysis and discussions with Inland Revenue. 

For high-net-worth clients we typically recommend a standard rulings approach – partly due to the dollar thresholds referred to above and because the applications are processed by an independent specialist rulings team within Inland Revenue (as compared to the audit / operational team that processes short-process rulings). 

If you’re a wealthy non-resident who wants to check that you can buy a New Zealand residential property without creating these tax risks, our team is happy to obtain a tax binding ruling on your behalf. Get in touch with one of our specialists today.