Foreign Exchange Transactions 13 Dec 2011
New Zealand Tax and Legal considerations
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Naturally, you are keen to set up your new bank account and transfer your cash. Then there is finding a place to live, working out where to send the kids to school, settling into your new job, the list goes on. The last thing on your mind will be your tax and estate planning.
Slow down! The New Zealand government has put in place tax exemptions to encourage you to move to New Zealand. Make the most of them.
A little forward planning can ensure your cash ends up where you want it and that you gain the full benefit of tax exemptions available to you.
Transitional Resident Tax Exemption Do you need the cash onshore?
The first and most important step is to consider whether you qualify for a tax exemption on foreign sourced income. If you are new to New Zealand, or are returning after an absence of ten years or more, you are likely to qualify for the transitional resident tax exemption.
Foreign sourced income, other than salary or income from the supply of services, will be exempt from tax in New Zealand for four years.
If you qualify for the transitional resident tax exemption, consider whether you really want to bring your money onshore. If you place funds in a New Zealand bank account, you will derive interest income which is taxable in New Zealand.
Consider if you can derive the same return offshore at a lower tax rate. That income would be exempt from tax in New Zealand.
Of course, in the current economic climate it may be better to take advantage of New Zealand’s comparatively high interest rates, rather than leave funds offshore deriving nothing. Paying tax on income is generally better than no income at all! Please consult your foreign exchange advisor to advise you of your options.
Holding Foreign Currency Will the tax on foreign exchange gains negate the deferral benefit?
The New Zealand dollar is strong and you may have been advised or decide to keep holding your funds in US dollars, pounds sterling or your home currency and wait for the rate to improve. Beware of the financial arrangement rules!
Exchange rate gains can be taxed, even if unrealised, wiping out any benefit available from holding the foreign currency amounts.
The rules also apply to certain foreign currency mortgages. An exemption may be available if your investments fall below certain thresholds. Those who qualify for the four year exemption on foreign sourced income will not be subject to these rules for foreign currencies held in off shore accounts during the period of the
exemption. Be sure to seek professional advice if holding substantial foreign currency investments or borrowings.
Funding Your New Zealand Trust Are you making the most of your gift duty exemption?
Purchasing a family home is often one of the first major steps taken by families new to New Zealand and it is usual to protect such an investment within a family trust. Even if you are not purchasing a family home in the near future, it may still be worth establishing a trust for asset protection reasons.
If you are new to New Zealand, chances are that you are not yet domiciled here. There are no set timing rules. The concept is nebulous and will depend on your intentions in relation to settling in New Zealand permanently. Please seek advice on your domicile status.
Being prepared can shave years off a long gifting process or can save thousands in foreign exchange fees.
Please contact us for a no obligation discussion.
We invite you to view our landing page: www.jones-law.co.nz/movingtonz which covers some of the key planning issues relevant to new migrants to New Zealand.
The above article is provided for general information purposes and does not constitute legal advice. Please contact us to obtain a legal opinion on your specific circumstances.
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