New Zealand: NZ Tax Update - May 2006 - Income Tax Changes of Interest to Non-Residents

Last Updated: 5 June 2006
Article by Lynette Smith

This update comments on two areas of recent change in New Zealand’s income tax law, which will be of interest to nonresidents of New Zealand:

  • the introduction of new exemptions from income tax for 'transitional residents'; and
  • the introduction of disclosure requirements for foreign trusts.

The changes were contained in the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Act 2006 (the Amendment Act), which received royal assent in April 2006. It is a lengthy document and makes amendment to the Income Tax Act 2004 (the 2004 Act) and the Tax Administration Act 1994 (the TAA), in particular.

Transitional residents

The introduction of the ‘transitional residents’ concept is designed to make New Zealand more attractive to skilled migrants. The Amendment Act in essence introduces certain exemptions from income tax for new residents to New Zealand and returning residents to New Zealand. It does this by the inclusion of sections FC 22 to FC 24 to the 2004 Act (Subpart F deals with apportionment and recharacterised transactions).

The new sections introduce a concept of ‘transitional residents’. The underlying idea is that a transitional resident is treated as being a non-resident in relation to foreign sourced amounts that the person derives. The result of having foreign sourced income treated as being derived by non-resident means that such amounts will not be subject to income tax in New Zealand in the hands of the transitional resident.

The requirements for being a transitional resident are that:

  • the person has a permanent place of abode in New Zealand; and
  • immediately before acquiring that permanent place of abode the person was continuously non-resident for at least 10 years (non-residence period); and
  • the person was not a transitional resident before that non-residence period.

Given the requirements relating to a permanent place of abode, by implication, a transitional resident must be a natural person. A company could not be a transitional resident.

The transitional resident status will last for a four year period ending the last day of the 48th month after the month in which the person (re-)acquires a permanent place of abode in New Zealand. Following the expiry of this period, the person is treated as a resident and their foreign-sourced income becomes liable to income tax in New Zealand.

The trust rules, which are contained mainly in subpart HH of the 2004 Act, also are amended to introduce the concept of a transitional resident. In essence, these changes delay the time at which the settlor of a trust who is a transitional resident is regarded as becoming a New Zealand tax resident. The time at which the settlor becomes a tax resident impacts upon the status of the trust for tax purposes, which in turn impacts upon, for example, how distributions from the trust to beneficiaries are taxed.

Disclosure requirements for foreign trusts

The second area of change which is of particular interest to non-residents is the introduction of disclosure requirements in relation to foreign trusts. In simple terms, a foreign trust is one where no settlor of the trust has been tax resident in New Zealand from the time the trust was settled until the time at which the status is being assessed (usually, when a distribution is being made from the trust). The New Zealand resident trustee of a foreign trust (the resident foreign trustee) must disclose:

  • the name and other identifying particulars of the foreign trust (for example, the date of settlement);
  • name and contact particulars of the resident foreign trustees;
  • whether the settlor is a resident of Australia;
  • if the resident foreign trustee claims to be a 'qualifying resident foreign trustee';
  • the name of the 'approved organisation' and the name and contact details of the natural person whose membership of the approved organisation meets the requirements to be a qualifying resident foreign trustee; and
  • if the resident foreign trustee has been appointed by another resident foreign trustee as an agent, the name of the trustee appointed as agent and the name of the appointing trustee.

Any changes to the above particulars must also be disclosed to the Commissioner. The disclosure requirements come into force on 1 October 2006. Differing timeframes apply to foreign trusts where the trustees are all offshore and one of them then becomes a New Zealand resident, and, to foreign trusts which already have a New Zealand resident trustee.

A ‘qualifying resident foreign trustee’ is a person who is a resident foreign trustee and who:

  • if a natural person, is a member of an approved organisation; and
  • if not a natural person, has a director (or other natural person in a position allowing significant influence over the management of administration of that person) who is a resident and a member of an approved organisation.

As the name suggests, ‘approved organisations’ are required to be approved by the Commissioner and the members must typically provide trustee services in the course of the business activities or satisfy other criteria acceptable to the Commissioner. The natural person members of that organisation must be subject to a professional code of conduct and subject to a disciplinary process intended to enforce compliance with the code.

In discussion documents that preceded the Amendment Act, the Commissioner indicated that the New Zealand Law Society and the New Zealand Institute of Chartered Accountants would classify as approved organisations. This definition allows the Commissioner to approve further organisations, although at this point in time it is difficult to predict which organisations would qualify.

A point of interest in relation to the disclosure requirements is the specific reference to Australia. Whilst the discussion documents that preceded the Amendment Act indicated the rationale underpinning the reform was to enable New Zealand to comply with its obligations under mutual assistance provisions (in various double tax agreements), the specific reference to Australia suggests that Australia had sought or wished to seek information in order to detect avoidance by its tax residents through using the New Zealand foreign trust regime and thereby to protect its tax base. Certainly, the Commentary and the Explanatory Note to the Bill (from which the Amended Act resulted) make it clear that the Inland Revenue Department will automatically provide the information received to the Australian Tax Office.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.