Uncategorized
How to Choose the Right New Zealand Accountants & Lawyer
If you are not residing in New Zealand, but have dealings (or are about to have dealings) there, then picking the right New Zealand accountants and lawyers will be important.
In New Zealand there can be a fair degree of cross over between the services that lawyers and accountants offer.
That’s why when picking a professional, it makes sense to choose someone who for the large part possesses skills of both a lawyer and an accountant.
That’s what we at Gilligan Rowe & Associates (GRA) do and why we have staff solicitors and accountants working together under one roof.
What does this mean to you?
It means faster service, higher quality advice, better value and the peace-of-mind knowing that your affairs are being handled in the best way possible.
Here’s an example of why we provide both of these services…
An offshore investor or a potential migrant to New Zealand will want three things from a professional:
- Advice on the tax implications of moving to New Zealand or investing in New Zealand
- Advice on the best ownership options available to them
- Advice on the asset protection merits of ’structures’ to help minimise tax.
Typically tax advice is provided by an accountant, whereas asset protection and relationship property advice is provided by a lawyer.
There are however a select group of professionals based in New Zealand such as GRA, who can straddle both disciplines.
Following this, when choosing a professional you want a New Zealand company who specialises in helping people with financial interests outside of NZ. They could be migrants, Kiwi expats returning home, property buyers or investors, or business owners.
As recognised property accounting and investment experts, we at GRA are familiar with all the ins and outs to do with tax minimisation and compliance.
There are certain areas where the two disciplines do not intersect. Conveyancing is an example of this and generally should be handled by a lawyer. Conveyancing occurs when property is purchased or sold and involves transferring the funds from the purchaser or receiving them on behalf of the vendor as the case may be and dealing with the banks and the correct registration of the new ownership on the title.
You will also find that lawyers generally have limited knowledge when it comes to tax and accounting issues.
As a result, of this, offshore investors or new or returning migrants will choose GRA because we provide the core tax and accounting services PLUS broader asset protection and structure advice which you would typically get from a solicitor.
We’re ready to help. If you have a technical question, go ahead and use our free Ask the Experts service or for a free initial consultation by email, phone or Skype, please Contact Us now.
Foreign Tax Administration for Non-NZ Residents
Where a non-tax resident of New Zealand settles a Trust and there is no New Zealand resident making a settlement on the same Trust then the Trust is regarded as a foreign Trust for New Zealand tax purposes. A foreign Trust is not subject to tax in New Zealand on foreign income. This means that an offshore resident can establish Trusts under New Zealand law and have that Trust hold offshore assets and derive offshore income and there will be no tax to pay in New Zealand in regard of this. Often such Trusts will have Trustees based in
New Zealand that administer the Trust and in that instance there are disclosure requirements for that resident Trustee. They have to disclose to the Inland Revenue Department the name of the Trust, the name and contact details of any resident, foreign Trustees and disclose whether the settlor is resident in Australia.
Outside of these disclosure requirements there are no other tax obligations in New Zealand whilst the Trust remains a foreign Trust and its only source of income is offshore. If the settlor subsequently moves to New Zealand then the Trust needs to be converted to being a complying Trust by filing an election within 12 months of arrival. Note that this time frame is extended if you are a transitional resident to 12 months after the end of the 48 month period where you are exempt from tax on foreign income.
Non-Resident Withholding Tax: Rules
Where a New Zealand tax resident pays interest to an offshore lender there is a requirement to deduct non resident withholding tax or NRWT from the interest.
The default NRWT rate on interest is 15% but this can be reduced to 10% if the double tax agreement between New Zealand and the country of the lender says so.
NRWT is therefore a significant issue for people as in most cases it is the borrower that has to bear the cost. Whilst the tax is designed to be a New Zealand tax levied on the lender, there are not many lenders who will accept interest payments 15% below what is required. Why? Because part of it is being withheld and remitted to the New Zealand IRD here.
Following this, exceptions to NRWT are important and there are a number of exceptions that you should be aware of.
First, it is possible to apply for what is known as ‘approved issuer status’ which means that the interest payments are not subject to NRWT but are subject to a 2% approved issuer levy.
Further, if you qualify for the transitional migrant rules then during the 48 month period in which you have the exemption from accounting for offshore income you also have an exemption from having to account for NRWT.
Finally, interest payments to certain Australian based banks are not subject to NRWT if the bank is operating through New Zealand in a branch. The logic behind this rule is if you have a bank such as Westpac and you are making payment to Westpac Australia you are effectively making payments to the same company that operates in New Zealand (as Westpac New Zealand is a branch of Westpac Australia).
If all of this sounds confusing or involved, we understand. As New Zealand Accountants We specialise in helping clients all around the world to minimise their tax (legally) when dealing with their affairs in New Zealand.
How to Avoid “Double Taxation”
When investing from abroad into New Zealand or from New Zealand abroad you need to ensure that you have a structure that avoids ‘double’ taxation. As New Zealand Accountants we specialise in helping anyone outside of NZ with their tax and financial affairs.
While it is fair to say that most countries will recognise tax paid in other countries so you do not double pay tax there can be technical exceptions to this rule particularly when corporate structures are involved.
Take an example of a New Zealand investor who sets up a company to invest in Australia (it could also be UK or USA). The company is involved in property related activity and produces taxable profit that is subject to tax in Australia because it has a source there…
At the same time the company is regarded as being a tax resident of New Zealand so has to return the same income in New Zealand. Assuming the company tax rates in both Australia and New Zealand are 30% there would be no further tax to pay in New Zealand as the company would be able to utilise the Australian tax paid as a credit to prevent tax payable in NZ.
Whilst this on the face of it seems to prevent double taxation it is not the end of the story. Why? Because there will be a point in time when the
New Zealand investor wants to extract the profit from the company. When this happens the distribution would be regarded as a dividend and taxable to the New Zealand investor.
Typically dividends from a New Zealand company carry ‘imputation credits’ (which are a form of tax credits) but that is not the case in this example.
Imputation credits only accrue when New Zealand tax is paid, and as the company in this instance will have paid no New Zealand tax, there would be no imputation credits attached. This means the shareholder will be liable for full tax on the dividend…or double taxation!
Gilligan Rowe & Associates can set up low cost structures that are legal, which can prevent this double taxation situation from occurring.
To learn more you can use our free Ask The Experts service or Request a Free Interview by Skype, email or phone by clicking on the button below.
Temporary Migrant Rules
Transitional Resident Rules
On 1 April 2006 new legislation was enacted with the intention of making New Zealand a more attractive destination for skilled migrants or ex-pats looking to return.
Up until this date when you moved to New Zealand and assumed tax residency you were liable in New Zealand for all income irrespective of source. This means if you moved to New Zealand but retained offshore investments you were required to bring to account in New Zealand any gains on these offshore investments.
In some instances this will prove to be particularly onerous as in certain instances unrealised foreign exchange gains were brought within the tax net.
From 1 April 2006 a new migrant or a returning ex-pat who has not been tax resident inNew Zealand for 10 years has a 48 month window where they are exempt from having to account for tax in New Zealand on offshore income.
Note that there are exceptions to this such as income from employment, but it does cover a wide range of offshore income including rent from offshore property, interest on offshore accounts, dividends from offshore companies and exchange movements on offshore financial assets.
Some other points to note about these rules is that you are only eligible for them once. That is, you cannot take advantage of them for 48 months, leave New Zealand for 10 years and return and apply them again.
And needless to say it is a temporary exemption so that once the 48 month window has closed offshore income needs to be bought to account under the ordinary tax rules.
Asspecialist New Zealand Accountants, we are involved every day with helping people who live in the US, AUS, UK, Canada (or anywhere) do business with New Zealand.
As New Zealand Accountants, we can help you to navigate through these issues so you can avoid the stress and cost of paying tax where not required.
To learn more you can use our free Ask The Experts service or we would be happy to arrange a Free Interview by phone, email or Skype.
Tax And Legal Structures For Asset Ownership In New Zealand
Gilligan Rowe & Associates (GRA) are New Zealand Accountants based in Auckland, New Zealand. They specialise in structuring migrants’ asset ownership and taxation affairs. We are also Trust and taxation specialists working for a large NZ client base of businesses and private individuals.
Helping international clients that have business dealings in NZ is our specialty. They may be Kiwi expats or migrants to NZ or non-NZ residents with investments in New Zealand.
In this blog post Matthew Gilligan, Director of GRA, discusses what asset planning is and issues that expats and migrants to NZ should consider when migrating or returning to New Zealand.
For personal (no-obligation) assistance, please contact us by clicking the button below.
Asset Planning In Brief
Asset planning is the process of structuring the ownership of assets, to maximise the taxation and legal benefits available to private individuals. It looks at asset protection, estate planning, taxation and matrimonial issues as part of the process. For migrants and expatriates, asset planning becomes more complex due to cross border tax issues. The taxation rules of the country of origin, intermingled with optimised ownership structures in New Zealand, often creates taxation challenges for migrants.
A key point to note is that a migrant coming to NZ has tax planning opportunities available to them before they migrate. Advice in advance of arrival into NZ is key to getting these benefits, as the opportunities are not always available once a migrant has landed here.
Discretionary Trusts
Discretionary Trusts are often used as asset protection vehicles in NZ, because New Zealand’s tax and regulatory environment make Trust ownership of assets extremely advantageous. In short there are few (if any) tax or legal disincentives of Trust ownership in NZ, but many advantages. This is quite different to, say, Australia where Trusts have all sorts of taxation complications that make Trusts an unattractive ownership option in many circumstances.
Some Taxation Benefits of Trusts In New Zealand
1. The Trust tax rate at time of writing is 33%, which is lower than the top individual marginal tax rate. It is therefore possible to shield income from the upper marginal rates in NZ utilising Trusts. Similarly business ownership via companies owned by Trusts shields business income from the marginal tax rates, upon distribution of income from companies.
2. Discretionary Trusts allow private investment income and potentially business income to be apportioned across the beneficiaries. This concept often referred to as income spreading, allows income to be efficiently taxed at the lower marginal rates of family members ( say 12.5% to 21% ) rather than at Trust, corporate or upper marginal tax rates ranging 30-38%.
3. In certain circumstances Trusts can be utilised to stop the double taxation of income earned by companies on cross border income. This is a critical consideration for those intending to maintain international business interests.
There are many other tax considerations of Trusts, but for the purposes of this article it is sufficient to say that from a tax perspective, Trusts in NZ provide flexibility and taxation planning options for migrants that individual ownership of assets does not. Trust structures which are mainstream in NZ law, can be kept relatively simple and provide significant benefits if set up correctly.
Asset Protection
In addition to taxation benefits, Trust ownership of assets puts a wall between any potential creditor of a private individual and their assets. Risks may include prospective business ventures, claims stemming from personal liabilities and matrimonial property claims. For this reason GRA encourage their clients to utilise Trusts for asset protection purposes, in addition to the taxation benefits.
Estate Planning In NZ & Trusts
One more matter to consider when migrating or returning to NZ is your estate plan. Preparing a new Will binding under NZ law, that takes into account your current state of your (domestic and international) affairs is a prudent detail to cover off on arrival. GRA have an estate planning practice that can assist you with advice in this area. Generally where a Trust is involved, the Will directs your private estate to pass to your NZ Trust for the benefit of your surviving beneficiaries. Control can also vest to them via the Trust at your discretion.
In addition to the structure of the estate, careful consideration needs to be given to taxation considerations for foreign and domestic assets in this process. Foreign tax jurisdictions crystallise taxable disposals of assets on death that often do not apply in New Zealand. For example, NZ (at the time of writing) has no capital gains tax regime, thus greatly reducing the impact of taxation duties on death. As many migrants will be aware, this is not the case internationally for most OECD countries and careful cross border consideration needs to be given in this area of a migrant’s affairs to avoid unwanted bills to beneficiaries.
Setting Up Trusts In New Zealand
Broadly speaking, there are two legs to successfully protecting your assets in a Trust. Firstly, you need to get the assets out of your personal name and into a Trust. Secondly, once they are in the Trust you need to ensure that they are safely protected there. Looking at each of these issues in turn we discuss below.
Transfer Of Assets to Trust In NZ
In order to get assets out of your hands and into a Trust, you need to transfer the assets to the Trust at market value. NZ law taxes the transfer of wealth between related and non related parties that are in the nature of a gift, where the gift exceeds certain thresholds. For example, on the transfer of assets to a Trust, if the transfer of wealth exceeds NZ$27,000 (per spouse, per annum), or NZ$54,000 (per married couple, per annum), gift duty applies at sliding marginal rates peaking at 25% for gifts exceeding $70,000.
This makes the process of wealth transfer difficult for returning expats and migrants once they have arrived in NZ, due to the lengthy delay in wealth transfer under a gifting programme to avoid gift duty. A key point is that you can avoid gift duty and this lengthy wealth transfer process, before you become domiciled in NZ. This is discussed below in more depth.
Once your assets are in Trust, you then need to make sure that the Trust is appropriately administered so that it is not vulnerable to challenge as a sham by potential creditors or taxation authorities. To this end we recommend the inclusion of a Professional Independent Trustee who can help you with the administration of your Trust. While you retain full effective control of the Trust, the independent Trustee greatly improves the integrity of the Trust in the eyes of the law in NZ. GRA offer this service and you can contact us to discuss this further.
No Gift Duty On Offshore Assets Gifted Before Migration
If you are a potential migrant thinking of moving to NZ or an expatriate returning, then you should be aware that there is an opportunity to transfer wealth and assets that you may have outside of NZ into Trust protection prior to your arrival in NZ without gifting restrictions applying. (We note that this is subject to the rules of your current place of residence). In NZ gift duty is payable if:
• The donor is domiciled in New Zealand; or
• The asset that is being gifted is situated in NZ at the time the gift is made.
Following this, if neither the donor is domiciled in NZ nor the asset that is being gifted is situated in NZ, then you have an opportunity to transfer an unlimited amount of assets into a Trust and there would be no gifting restrictions or gifting programme required to be undertaken. This is a one-off opportunity as once you arrive in NZ with an intention of remaining here indefinitely, you eventually (and quickly) become deemed to be domiciled here. At that point the NZ gift duty rules apply.
If you are migrating/returning here or just arrived, the key is to seek advice as soon as possible. Based on that advice you will likely be best off to set up a Trust and look to transfer assets into that Trust prior to arrival. If possible you should try to avoid gift duty on the transfer of wealth, which many migrants and expats can, even if they have visited our shores already.
A word to the wise – there are very specific rules surrounding migrating foreign Trusts to NZ, and for this reason it is essential that you get advice that is correct. For example, if the migration process is not completed correctly, you may avoid gift duty but in turn have the Trust deemed a non qualifying Trust with all investments and capital taxable on distribution at 45%, – this would only happen if the migration process of the Trust was not handled correctly. If set up correctly it is not taxed on distribution.
GRA routinely give advice in this area and encourage you to contact us about these matters if they are of interest.
Tax Exemptions for new Migrants
There are also some different income tax rules that apply to new migrants, as well as returning NZ residents. In order to encourage immigration to NZ both by new migrants and also expat New Zealanders there are concessionary tax rules that apply for a four year period following arrival in New Zealand. Before we discuss the concessions it is useful to note what the tax implications of moving to NZ used to be before these new rules came into play on 1 April 2006.
If you arrived in NZ prior to 1 April 2006, and became a tax resident of NZ as a consequence, you were then expected to include all offshore income in your NZ tax return. You would get a credit for the tax paid in the foreign jurisdiction, but would then have to pay tax in NZ if there was any shortfall. On top of this there could be income that would be taxable in NZ that would not be regarded as income and taxable anywhere else. An example of this was foreign exchange gains on loans or cash savings. Where a NZ tax resident has loans or deposits denominated in a foreign currency, with certain exceptions, the movements in exchange on that are taxable. This means that if there is a gain experienced because of the movement in the exchange rate, that gain is taxable. Finally, we note that there is a requirement to deduct non-resident withholding tax (NRWT) from interest paid to non-resident lenders. Although this is a tax on the lender’s income, it is a cost that is often borne by the payer of the interest and is often an unexpected tax cost of becoming a NZ tax resident.
New Rules From 1 April 2006
If you put all of these rules together you can see assuming NZ tax residency can lead to significant and unexpected tax costs. In order to mitigate this, on 1 April 2006 a new set of rules was enacted which allows new migrants or returning migrants, whom have not been tax residents for a period in excess of 10 years, to have a four year tax holiday from having to return foreign income in their NZ tax return.
Although this is not an open-ended exemption, it is useful one and should be considered prior to arriving in New Zealand. For example, it may be advantageous to move offshore investments into low tax jurisdictions where they bear minimal tax in the country in which the investment is made and then benefit from the four year tax exemption in New Zealand.
Summary
Trusts in NZ have advantages from both a taxation and legal perspective. Migrants and expats should consider setting up Trusts in NZ and should try to take advantage of pre-migration tax planning opportunities. There are many taxation, commercial and legal ramifications of migrating assets across borders. It is important to get the right advice to avoid costly mistakes to protect wealth.
Whether a returning expatriate or new migrant, if you are considering a move to NZ or have just arrived here, we invite you to contact us directly for advice by clicking on the button below.
Thank you for reading this.
New Zealand Tax
