If you’re reading this, it probably means that you, or somebody close to you, is…
I’ve sometimes thought that perhaps Australia needs to make a few things right with our trans-Tasman cousins.
I’m sorry about the underarm incident. It’s embarrassing to think that we’d resort to cheating like that. Sorry that our recent cricketers show such embarrassing sportsmanship (and I originally wrote that part pre-sandpaper).
Also, sorry for all those predictable sheep jokes and for trying to get you to say “fish and chips”.
And, while we’re being honest, most of us don’t even know how rugby works. Outside of New South Wales, Queensland and the Australian Capital Territory, we really don’t get it.
You’re allowed to step on somebody’s head if you’re trying to clear the ball out, as long as it looks accidental… but if you go past 180 degrees in certain circumstances, then that’s a penalty? Geometry and getting beaten up. It sounds ominously like school to me.
I kid you not, for years I thought a “line out” was where the police get five suspects to stand in a row and get a witness to identify them. Only later did I find out what a “line up” was and that a line out was a bizarre arrangement where two grown men lift another grown man on their shoulders as you might do with your toddler.
And, admittedly, we steal a lot of Kiwis and call them Australian: Phar Lap, Crowded House, Russell Crowe… Then we stop liking people and call them Kiwis once more (i.e. Russell Crowe).
But, I think we’ve made up for it with our tax legislation because the Aussie tax system gives Kiwis an advantage over every other nationality. Actually, you even get a better deal than we do.
Tax rules for New Zealand citizens living in Australia
If you are a New Zealand citizen who has moved to Australia, you will most likely be considered a “resident” of Australia for tax purposes. You only need to have the intention of making a home here even if it’s only for 6-12 months. A resident of Australia pays lower rates on their salary than a non-resident does.
If you are here for a short term holiday, you might still be considered a non-resident.
Medicare for NZ citizens living in Australia is also available. You may as well get a Medicare card because we are going to slug you for a “Medicare levy” between 1.5% and 3% of your total income.
But you might also be considered a “temporary resident” and this is where the rules give you a big advantage.
You see, temporary residents are generally exempt from tax on their overseas income.
Contrast this with permanent residents or Australian citizens. As long as we remain residents for tax purposes we have to pay tax on any source of income, foreign or domestic, whereas a temporary resident living and working in Australia generally will only need to pay tax on Australian income and employment income overseas.
Any bank interest, share dividends, rent from a property and capital gains are usually disregarded (that is, tax-free).
Let’s compare my situation with an NZ citizen living in Australia
I am an Australian citizen and my family has been in Australia for over two centuries (my dodgy ancestor makes an interesting story for the history buffs among you).
Let’s say I buy an investment property in New Zealand for AU$300,000 and sell it for AU$400,000. As a resident for tax purposes, I would pay about $19,500 in tax on that transaction, not to mention paying tax on the rent throughout the whole period I owned it.
A temporary resident, on the other hand, would pay $0 tax on the same transaction and because New Zealand has no capital gains tax (so I’m told – I’m no NZ tax expert) then you don’t pay tax in NZ either.
So temporary residents can often be better off than permanent residents in the Australian tax system.
That’s the thanks my family gets for contributing to Australian society since 1790, albeit part of that “contribution” was convict labour and criminal activity!
The point is, New Zealand citizens who live and work in Australia need to know if this generous tax break applies to them.
Temporary resident for tax purposes
It isn’t just Kiwis who can be classed as “temporary residents” for tax purposes. Anybody can, as long as they fit the technical definition. This includes holding a temporary resident visa.
Many Kiwis tell me “I can’t be a temporary resident, then, because I don’t have a visa.”
Not true. Since the 1990s, the law says that everybody visiting Australia has to have a visa. It’s just NZ passports can be automatically issued with an electronic visa, which can then make them temporary residents.
Temporary residents from other countries don’t usually stay temporary residents for long. They either apply for a permanent resident visa or return to their home country.
Once they are permanent residents, they lose the tax exemption on foreign income. The big advantage that Kiwi’s have is that their special visas allow them to stay in Australia as long as they like, effectively, and so the tax break can continue indefinitely.
As long as a Kiwi remains a “temporary resident” for tax purposes, they could have 5 investment properties, all earning rent and making capital gains. The Australian taxman can’t touch a cent.
You could say that the situation for Kiwis in Australia is “sweet as, bro” but that would be a predictable Kiwi joke and I won’t stoop to that.
The ATO doesn’t understand the tax issues for New Zealanders
I called the ATO recently to get clarification on the tax status of an NZ client of mine. I got through to their “tax advice” area. I explained that my client was an NZ citizen and a temporary resident for tax purposes.
Not only would the ATO representative refuse to acknowledge that a Kiwi could be a temporary resident for tax purposes, he never even agreed that the idea of a temporary resident existed in the tax law, even when I quoted the legislation to him.
When I look into this issue for clients, they ask me “why didn’t my previous tax agent tell me anything about this?”.
My reply is “don’t be too hard on the tax agent… even ATO ‘experts’ don’t know how the rules work”.
So it is really important that you know where you stand. You may be eligible for these tax breaks, or you may not. It can depend on where your assets are, what kind of visa you hold, and the residency status of your spouse or partner.
That’s where we come in. Beyond Accountancy is based in Melbourne but we have helped clients in every state of Australia to sort out their tax affairs. This includes many New Zealanders.
So if you:
- have just moved to Australia or have been here many years
- hold investment properties in New Zealand
- are a trustee of an NZ family trust
- have moved to Australia and have rented out your family home
We can help you work out where you stand. We can help you lodge your tax return, or simply provide advice on your circumstances.