The IRD is proposing to change its interpretation of "residence" and the change is likely to have important implications for New Zealanders living and working outside the country.
It is likely to increase the tax burden for both employees and employers.
If you own a house here, the IRD now wants to make that a key reason why you should still be taxed as a New Zealand resident.
Previously, it was only one of a number of other tests to see if you had a New Zealand tax liability.
Many Kiwis working overseas will be familiar with the 183-day and 325-day rules, both of which are subject to the permanent place of abode rule.
“Under the proposed interpretation, many people currently overseas, who believe they are not taxable in New Zealand, may have an unfortunate surprise because of the change in approach and weight placed by Inland Revenue on property retained in New Zealand," said Murray Sarelius, tax partner at KPMG.
Three key changes are being proposed:
Permanent place of abode:
The new statement provides that to have a permanent place of abode in New Zealand a person must have a particular place of abode that is an "available dwelling". In contrast, the current position (PIB No 180) considered the availability of a dwelling as just one factor in assessing the durability of a person’s connection to New Zealand.
The Commissioner’s new view, reflected in the statement, is that the term "available" in the context of the permanent home double tax agreement tie-breaker test is not based on mere occupation, or immediate availability for occupation. This is in contrast to the position in PIB No 180 which stated that where a person rents their house to non-related persons while they are overseas, that house will not be a permanent home which is available to them.
"The statement discusses Case 12/2011 (2011) 25 NZTC 1-012,  NZTRA 08 and the application of the habitual abode double tax agreement tie-breaker test. Specifically, if the circumstances of a particular case require, periods outside the period of dual residence may need to be considered. Where this is the case, the Commissioner considers that such periods can only be taken into account so far as they assist in, and are relevant to, determining whether the person had an habitual abode in New Zealand during the period of dual residency."
These changes come hard on the heals of changes to employer-paid living-away-from-home accommodation, which has caused a storm of protest.
"There are some aspects of [this new] draft that go too far to treat people as tax resident in New Zealand," said Sarelius.
"Residence is an important area that impacts on many businesses and internationally mobile employees."
"In its current form, the Interpretation Statement will make it more difficult to determine whether a New Zealander working abroad is still taxable here, and will tax some people who should not be taxed."
These latest proposals are not yet the IRD's position. They have issued them 'for comment and discussion only' among tax professionals, although anyone may submit a view. The deadline for comment is January 31, 2013.