There are many residents of Wānaka and Queenstown who are working for a remote employer but may not be paying their taxes in the right country. Let us explain why it pays to get this right.
With an increase in flexible working arrangements and global mobility for employees, people are migrating to New Zealand and remaining with their overseas employer. Often the salary they receive continues to be subject to an overseas employment tax-deduction similar to NZ’s Pay As You Earn (PAYE).
The trick is, most of NZ’s double tax agreements state that employment income should be taxed where employment is ‘exercised’. This means that NZ has the primary right of taxation when a person in Wānaka is performing work from their home or a shared office space.
You may think, “well tax is being paid somewhere, so who cares”, but unfortunately that view is not shared by Inland Revenue (IRD). Let’s say you’re living in Wānaka and being paid a salary by your employer is in Australia. The risk for you is that, if PAYG (the Aussie version of PAYE) is deducted from your salary, IRD will not give you a tax credit for that PAYG. This means that your salary will be taxed again in NZ with no tax credit for the PAYG. You would then need to seek a refund of the PAYG from the Australian Tax Office (ATO) which, trust me, is not easy to get.
The upside to having your salary taxed in NZ is that the rate is generally lower than the non-resident rate applied by other countries. There can be flow-on effects for compulsory superannuation contributions, but these can be worked through with your employer.
If this situation applies to you, it may be worth getting in touch. We can make sure you’re set up correctly. Drop Alex an email or give him a call on 022 525 0115.
Alex Cull, Tax Partner