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Employee Share Plans

These are taxed as employment income in New Zealand and are fully taxed at the time when the employee becomes entitled and economically exposed to the share gains. The rules regarding this in New Zealand have changed in the last few years to ensure that arrangements to protect the downside in value for an employee are no longer effective. Arrangements such as put options, forward sale agreements and the like which were used to ensure that employees could make gains but not losses, are generally not effective anymore.


New Zealand citizens returning to New Zealand with interest in foreign employment share schemes will need to take advice but will need to try to ensure that these gains vest in them from a taxation viewpoint prior to returning to New Zealand so that that income is not taxable here, noting that of course, even transitional residents are subject to tax on worldwide employment income in New Zealand.


Often people returning to New Zealand will seek to continue to work for their previous foreign employers, either on wages or as a contractor. Naturally, while that income is taxable in New Zealand, there are some nuances that need to be considered. Firstly as an employee, there is no ability to claim costs as a deduction against your earnings. Secondly, as an employee, if your non-resident employer does not deduct PAYE from your wages (which they are unlikely to) in New Zealand, then technically you are required to remit the PAYE from your own wage to the IRD each month. There are specific forms to handle this. It is also important to remember that foreign tax should not be deducted even if you are working for your old employer in your old country, where the services are physically provided in New Zealand.

Again, appropriate structuring can see significant benefits for you.

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Wages

New Zealand taxes wages on a cash basis. If you are a transitional resident, New Zealand will tax foreign wages that you are paid subsequent to returning to New Zealand. It is however possible that deferred gains relating to employment pre-return to New Zealand may be non-taxable.

Again specific advice should be taken.

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Pension Funds

There are specific rules around employment-related foreign pension funds which defer the taxation on these until when the payout occurs. Typically that means if you are returning to New Zealand with one that qualifies, you won't be paying tax in New Zealand until you start drawing the funds out. There is also a scaled percentage of these that are taxable when they do pay out, depending on how long you have been in New Zealand.


Other forms of pension funds not related to employment, or where you continue to contribute to foreign employment schemes after returning to New Zealand, will see the unrealized gain in value in New Zealand dollars of your foreign pension scheme subject to income tax each year after the expiry of the transitional tax residence period if applicable.


For this reason, we recommend that you obtain advice on your foreign employment scheme prior to returning to New Zealand. To the extent it is possible, these can be paid out prior to New Zealand even if you chose to reinvest them in an appropriate structured New Zealand scheme.

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Real Estate

If you continue to own real estate overseas then during the transitional residency period New Zealand will not seek to tax those rents or to require you to report any income or gains in New Zealand. At the expiry of the transitional residence period, or if you are not a transitional resident, then any foreign rents will be subject to income tax in New Zealand, even if they are taxable overseas, although a credit is allowed for any foreign taxes paid against the New Zealand tax payable. Care also needs to be taken as to whether a sale of residential property which was not a home is subject to tax here under the Brightline rules for residential property.

While the rents may be taxable, a deduction is allowed for costs incurred in producing that income, and certain items for depreciation (although residential dwellings are not subject to depreciation for the building component).

Adverse issues can also arise in relation to foreign loans used to fund foreign real estate. Unbelievably, the interest paid on these can be subject to withholding tax in New Zealand once you have returned, and the change in the value of those loans can be subject to income tax in New Zealand on potentially an unrealised basis depending on the amounts involved.

If you are not a transitional resident, then again the best advice is often to sell the real estate prior to returning to New Zealand. Again, advice should be taken.

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Shares/Unit Trusts

New Zealand operates a unique system to tax foreign shares and unit trusts. Instead of taxing the actual dividends or the capital gains, New Zealand has a deemed rate of return method whereby 5% of the market value on the first day of each income tax year in New Zealand is the deemed income that arises from those investments.

For a transitional resident, naturally, this will commence at the end of the 48-month transitional period, but for people that are not transitional residents, this is something to be cognisant of and again consideration can be given to disposing of foreign shares prior to returning to New Zealand.

There are some more tax advantage structures and schemes in New Zealand involving PIE funds and the like which should be considered.