Last month, the Government announced the much promised new 5-year renewable Parent Boost Visa, as outlined before the election.
Having experienced it firsthand as a migrant myself, I know how invaluable it is to have parents and grandparents by our side, passing on family traditions, culture, and heritage and not to mention the very welcome home help in bringing up our tamariki!
This new visa expressly permits parents and grandparents to remain in New Zealand for up to five consecutive years. It is renewable for another five and includes a multiple re-entry provision during its validity.
I hate to be the one to pop the bubble here, but the media hasn’t mentioned the tax reporting obligations that come with these extended visits. Only an accountant would think about tax!
Despite these parents or grandparents not being residents for immigration purposes (because they hold visitor visas), they can inadvertently become residents for tax purposes.
Tax Residence
For income tax purposes, Inland Revenue doesn’t consider a person’s immigration status.
Anyone can become a tax resident in New Zealand if:
a) They have a permanent place of abode in New Zealand, or
b) They are present in New Zealand for 183 days or more in a 12-month period.
That 183-day count doesn’t need to be continuous. It can be accumulated over multiple visits.
Becoming a tax resident means they are required to pay income tax in New Zealand on their worldwide income.
More importantly, unless their home country has a Double Tax Agreement (DTA) with New Zealand that exempts certain income types, all overseas income becomes taxable here, regardless of whether it was taxed overseas or not.
For example, some Asian countries don’t tax investment income or offer generous tax exemptions for spousal or parental support. New Zealand does not recognise these provisions and applies its own tax law, meaning that even previously tax-exempt income could now be taxed.
Transitional Resident Tax Exemption
There is one potential concession: the Transitional Resident Tax Exemption.
This exemption relieves new tax residents from paying New Zealand tax on most overseas passive income for a period of 48 months. After that grace period ends, typically from year five onwards, they are fully taxable on their worldwide income.
So What’s the Real Cost?
Before making any decisions, we strongly recommend calling us and booking a pre-migration tax planning consultation to fully understand the true costs of bringing your parents here.
Dare I say it, paying for local childcare might actually turn out to be the less costly option for the family.