Are you planning on venturing to the shores of New Zealand as a yacht crewmember for the coming summer months?
Many crew may find that when they come to New Zealand, they become a tax resident earlier than intended, whilst crew that have left New Zealand to work on a yacht overseas may still be a New Zealand tax resident.
Knowing what will trigger the New Zealand tax residency can help you reduce your tax obligations and allow you to work as yacht crew without being taxed on all your income, regardless of where in the world it is earned.
Firstly, income a non-resident crewmember earns by performing services in New Zealand relating to a pleasure craft (that meets the definition found in section 2 of the Maritime Transport Act 1994) will be exempt if certain conditions are met:
- The crewmember is not in New Zealand for more than 365 days in any two-year period.
- The crewmember is not a New Zealand tax resident according to the permanent place of abode test.
- The crewmember is not in New Zealand unlawfully for immigration purposes.
- The pleasure craft is a temporary import (within the meaning of section 136 of the Customs and Excise Act 2018), and
- The pleasure craft is not owned directly or indirectly by a New Zealand resident or a controlled foreign company.
If a crewmember does not qualify under this exemption, then an exemption may be available as a non-resident employee under the 92-day rule or the 183-day rule if a double tax agreement applies. The 92-day rule is designed for non-residents who are employed by a non-resident and perform professional or personal services in New Zealand.
However, if the crewmember does not qualify under the above exemptions, then you may firstly trigger a New Zealand tax residency if you spend over 183 days in New Zealand during any 12-month period and thus be deemed a New Zealand tax resident. Parts of days count as whole days towards the 183 days and these days do not need to follow each other.
You will secondly trigger a tax residency in New Zealand if you have a permanent place of abode in New Zealand. A permanent place of abode looks at whether you have a dwelling in NZ where you habitually reside and then considers all of your circumstances (including family ties, intentions, economic ties, and personal property in NZ).
If you trigger your New Zealand tax residence earlier than anticipated, the tax consequences can be significant. This is because New Zealand tax residents are subject to tax in New Zealand on their worldwide income.
Foreign tax credits may be able to be claimed to reduce the impact of any “double taxation” in your tax return and are limited to the lowest amount of the:
- tax paid to the other country
- tax you would need to pay to New Zealand on the same income
- amount allowed in any applicable double tax agreement
If you become a resident under the 183-day rule, you can subsequently terminate your residency by staying out of New Zealand for more than 325 days (not necessarily consecutive) in a 12-month period, as long as you don’t have a permanent place of abode in New Zealand.
As with much of New Zealand tax law, there are grey and subjective areas. Talk to your accountant if you have any questions about your tax residency status as a yacht crewmember and whether you are required to file a tax return in New Zealand.