Has a client of yours, that is a New Zealand citizen (or member of a related entity), purchased residential-related property or land in New South Wales (NSW)? Are your New Zealand citizen clients considering becoming an Australian citizen?
If so, there are certain new/revised measures and interpretations of the law and associated guidance which may have a significant impact on their Australian taxation position.
First, the good news for NSW land
A New Zealand citizen, effective immediately, will no longer have to pay:
- surcharge purchaser duty; and
- surcharge land tax,
on the purchase of residential-related property or certain land in New South Wales, Australia.
These changes came about through a determination by Revenue NSW that the surcharge purchaser duty and land tax legislation and provisions in NSW were inconsistent with the international tax treaty entered into by the Australian Government with New Zealand.
These changes are not applicable just to individuals i.e. corporations, trusts or partnership purchase structures may also be affected.
Further, if your client has already paid surcharge purchaser duty and/or surcharge land tax refunds on or after 1 July 2021 on applicable transactions, they may be eligible for a refund.
It is noted for completeness that these surcharge purchaser duty and land tax concessions also apply to citizens of Finland, Germany and South Africa who enter into such transactions.
What is the less positive news?
On 22 April 2023, the Australian Government announced a new direct pathway to Australian citizenship for eligible New Zealand citizens.
These were welcome changes after certain amendments in 2001 that made it more difficult for New Zealanders in Australia to attain citizenship.
Whilst this is certainly welcome news, the less positive news comes in the form of changes that have the potential to trigger significant Australian (and potentially, New Zealand) residency and taxation implications for affected individuals.
Some tax considerations
The change in Australian citizenship pathways may have a wide-ranging spectrum of Australian income tax implications such as and including:
- affected individuals may go from being temporary residents to Australian residents for Australian taxation purposes.
o As a result, the tax profile and methodology for preparing and lodging income tax returns will change for these individuals.
o There is potential for the loss of reporting and financial concessions available to temporary residents e.g. a requirement to report New Zealand or other worldwide income in the Australian tax return (e.g. trust income, rental income from New Zealand property, etc) may arise;
- capital gains tax (CGT) implications including the use of the CGT discount, main residence exemption, etc;
- the potential requirement to report and pay tax on New Zealand trust distributions;
- the potential ability for New Zealand trusts to become Australian resident trusts for income tax purposes;
- controlled foreign company and section 99B ITAA36 ‘receipt of trust income not previously subject to tax’ issues;
The above is a small subset of potential income tax implications that may arise and as such, careful consideration of these implications should be undertaken by affected New Zealand citizens if they are considering becoming Australian citizens.
Ajay is a Special Counsel within McInnes Wilson Lawyers‘ Taxation and Revenue practice, with a particular focus on Goods and Services Tax, State Taxes (including duties and payroll tax) and tax governance. He has more than 14 years of experience in taxation and revenue matters and has worked with a range of clients, from large Australian and multinational companies to small to medium enterprises, private clients and Government organisations. Ajay is a Chartered Tax Advisor. Prior to joining McInnes Wilson Lawyers, Ajay worked for a Big 4 professional services organisation and brings across valuable experience in the areas of technical indirect tax advisory and consulting, due diligence, transactional structuring and agreement drafting, ATO engagement and dispute resolution, and indirect tax technology and governance matters. Connect with Ajay via LinkedIn.