Let’s talk about tax.
Or more particularly let’s talk about tax residence.
There is currently is a big to do about Peter Thiel both here and in the foreign press about exactly how did a US billionaire become a New Zealand citizen. Soz can’t help with that. But on my Facebook feed this morning is coming the question – so is this guy tax resident? Now that I can do off the public stuff and is pretty much probs yeah/nah. But citizenship – scmitzerzenship – really not relevant much at all.
There are many concepts of residence used in the bureaucracy. The main one is permanent residence – an immigration concept – which pretty much gives the recipient the rights of a citizen except maybe you can’t stand for Parliament.
Tax residence however – who would have thought – is a completely different concept. While in practice most New Zealand permanent residents and citizens will be tax residents. It is by no means a dead cert.
Now why tax residence matters is that residents are taxed on any foreign income earned and fully taxed on New Zealand income. Tax non-residents are not taxed on foreign income and have concessionary rules on how New Zealand income is taxed. Think Google.
For an individual there are two ways – you can become tax resident and a number of ways you effectively lose it.
The two ways are:
- Being here – an individual who is physically in New Zealand for 6 months in ANY 12 month period becomes New Zealand tax resident.
- Connections to New Zealand – even if you are here less than 6 months in any twelve month period if you have a house you live or have lived in while you are here AND you have other connections you will become subject to tax in New Zealand on your foreign income.
So looking at Mr Thiel. According to reports the dude has two houses in New Zealand. Combined with his New Zealand citizenship and the stuff wot he did to demonstrate commitment to NZ – not free from doubt but – I would say there was a pretty high chance he would hit the connections to New Zealand test. And yes tax friends I am talking about a permanent place of abode but there are non tax people who read this and we’d all agree as terms go it is not the most intuitive.
Now you might be thinking dear readers – woohoo – New Zealand can tax his foreign income. Hello mega surplus and Scandinavian levels of public services.
Ah but not so fast there is now the small matter of the US/NZ tax treaty.
On the basis that he is a ‘naturalised American’ he is also tax resident of the US and they will also claim taxing rights on his foreign income. And here the treaty will sort that out:
- First question is which is the country where he has a home available to him? Ah probs both. Next question.
- Second question which country is where his personal and economic ties are stronger? Mmm tough. A late forties ‘naturalised American’ with business interests there and a confidante of the President v really likes NZ and invests in tech companies. Tricky but I think we can call it for the US.
Now is this tax dodging or tax avoidance? Should we feel aggrieved as New Zealanders that he is a citizen but unlikely to be a tax resident?
I defo don’t think this is tax dodging or tax avoidance as there is nothing cute or clever or structured in being taxed where your stuff is and where your links are stronger. Given the NZ diaspora who are NZ citizens – not all of them will be residents under the two tests and even if they are they will also have the benefit of their treaty. And in theory anyway he should be paying tax on his foreign income in the US.
But I can only hope that when the ‘exceptional circumstances’ were being weighed in Mr Thiel’s application the Minister knew that while we were getting a citizen – given how international tax works – it was unlikely we were getting a taxpayer.