Migrant tax law changes are extended and made simpler

New immigrants are to be exempt from New Zealand tax on most foreign income for four years, but returning expatriates will need to have been away for 10 years to qualify.

A tax bill, reported back by the finance and expenditure select committee on Monday, extends and simplifies proposed law changes. Originally, a two-tier system with a five-year exemption for employees and three years for all new migrants was proposed.

Changes were first foreshadowed by Finance Minister Michael Cullen 2 1/2 years ago.

The original was seen as discriminating against the self-employed and the select committee has scrapped it in favour of four years for all new migrants.

The exemption originally would not have included interest or dividends or employment-related bonuses. Now it does.

And the clock starts running only from when a migrant established permanent abode in New Zealand.

PricewaterhouseCoopers tax director Steve Camage said the changes were positive.

But by limiting the exemption for expatriates to those who have been continuously absent for 10 years, a golden opportunity to reverse the brain drain was being missed.

"Ten years is too long," he said. "Kiwis abroad for 10 years or more are probably well established in their new life and less likely to return home just for a tax break."

For most people, the law change, effective next month, will mean New Zealand tax will apply only to employment and investment income on New Zealand-based assets.

Camage said employers should be relieved by the introduction of the new rules, as previously, they had borne the brunt of additional liability incurred by new migrants.

KPMG tax partner Murray Sarelius said it was unfortunate officials explicitly rejected the plight of immigrants already in New Zealand and employers' efforts to retain them.

Officials had told the select committee that those who arrived in New Zealand before April 1 would not be sensitive to New Zealand tax, as they had already chosen to come here.

"We cannot simply assume that international executives now in New Zealand are here to stay - assignments need to be extended, contracts need to be renewed."