The New Zealand government has signed up to a global initiative to combat tax evasion, called the Automatic Exchange of Information or AEOI. More than 100 countries have joined AEOI so far. Led by the OECD, AEOI is designed to prevent people with overseas accounts or investments from evading tax.
AEOI means that, if you're a New Zealand tax resident with a bank account or investment overseas, your information may be shared with Inland Revenue. For most people, that's not a big deal. But if you have a lot going on overseas – financially speaking – it might be a good idea to talk to a tax agent or accountant to make sure you're getting your tax right.
Let's take a look at some AEOI examples to see if your situation matches one of them.
Jane did her OE in the UK. She's been back for a year, but still has a couple of pay cheques sitting in her UK bank account earning interest. She meant to transfer this money home and close the account ages ago, but never got around to it.
New Zealand tax residents pay tax in New Zealand on income they earn in New Zealand and other countries. So Jane will have to include the interest she earns on her UK account in her annual New Zealand income tax return. In this case, since it's not a large amount, the easiest thing for Jane to do might be to close her UK bank account.
But what if you have a more complex financial situation? Take Sam for example: he's a New Zealand tax resident with substantial investments in other countries. These include funds in a bank account as an investment, a rental property, an interest in a business and retirement savings overseas.
Sam's situation is complex. There can be different tax rules for different types of investment. To make sure he's paying the right amount of tax here in New Zealand, Sam needs to figure out the tax to pay for each investment. That way he'll avoid getting caught with an unexpected tax bill down the track – especially now that there's global information sharing. The best thing for Sam to do could be to contact a tax agent or accountant for advice and support.
If, like Sam, you have an overseas bank account, investment or financial interest, now's a good time to make sure you're paying the right amount of tax in New Zealand.
At the end of the day, AEOI or Automatic Exchange of Information is about making global tax evasion even harder and helping to ensure people pay the tax they should.
If you want to find out more about AEOI or tax residency, visit ird.govt.nz/infoshare for more information.