Immigrant tax break plan for employees only

By BRIAN FALLOW

Tax breaks under consideration for immigrants and returning expatriates will be restricted to those coming to work as employees.

A Government discussion document says the proposals are intended to reduce the tax-related costs to New Zealand businesses in recruiting internationally mobile labour.

"It would not be available to people coming here to retire or to start up their own business because there are no analogous costs for New Zealand business associated with those groups."

The exemption would relate to foreign-sourced income of people who had been non-residents for tax purposes for at least 10 years.

The rationale of the changes is that New Zealand's tax laws treat foreign-sourced income more stringently than many other jurisdictions, with the result that firms recruiting internationally have to pay more as compensation for that or settle for second-best recruits.

The narrow option under consideration would provide exemptions only where New Zealand tax rules are more rigorous than international norms, in particular, rules that tax unrealised capital gains as they accrue. That would last for seven years.

The alternative broader option would apply to all foreign-sourced income including rents, interest and other investment income. It would last only three years.

PricewaterhouseCoopers tax partner John Shewan described the narrow compass of the proposed changes as an opportunity lost.

"They need to shake the tree much harder if they are serious about attracting the right people."

The review, chaired by Rob McLeod, had recommended a broader measure to attract wealthy immigrants.

"In our experience would-be immigrants in the form of wealthy retired people are quite heavily put off by aspects of our tax system," Shewan said. "I also question the wisdom of a system that would rule out attracting entrepreneurs."

In practice, however, the restriction to employees would be easy to get around.