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The perils of a Permanent Place of Abode (PPOA)

It is important for individuals to correctly determine their residency status for tax purposes, as a New Zealand tax resident is taxed on their 'worldwide income'.

A person is considered to be a New Zealand resident for tax purposes if they have been physically present in New Zealand for more than 183 days in any 12-month period or if they have a 'permanent place of abode' (PPOA) in New Zealand. A person ceases to be a tax resident if they are physically absent from New Zealand for 325 days in any 12-month period. However, if a  person maintains a PPOA throughout the period they are absent from New Zealand, they are still considered a New Zealand tax resident.

A recent Taxation Review Authority decision has highlighted the importance of these residency rules, and in particular, the breadth of a PPOA.

The taxpayer, a sea captain, had an interest in his employer's superannuation fund, and in foreign investment unit trusts owned by him, which were all sold by August 2008.

The taxpayer was accused by Inland Revenue (IRD) of maintaining a PPOA in the income tax years ended 31 March 2005 to 31 March 2009 (inclusive), and was therefore liable to pay New Zealand income tax on his interest in the unit trusts and any deemed income under the Foreign Investment Fund (FIF) rules.

The taxpayer had been a mariner all his adult life, and under the terms of his employment, spent approximately eight months a year at sea. The taxpayer's wife typically accompanied him at sea. In 1998 he became a trustee and beneficiary of a trust which owned a property in New Zealand. The taxpayer returned to this house at least twice a year in the years from 1998 until October 2014, when the property was sold. The TRA found this property to be a PPOA for the taxpayer, supported by the following facts:

  • The property was not rented when the taxpayer was absent from New Zealand - friends and family were able to stay on occasion but otherwise the property was available for use by the taxpayer and his wife.
  • During the tax years in dispute, the taxpayer, on average, spent three and a half months in New Zealand, with credit card statements for these periods showing daily use in the suburb where the property is situated.
  • The taxpayer's salary was used to meet the trust's loan obligations, pay insurances, utilities and other expenses.
  • Vehicles belonging to the taxpayer, his wife, and the trust were registered to the property during the years in dispute.
  • A SKY subscription was maintained for the taxpayer's use when at the property.
  • The address was used for mail, including mail related to the trust's rental properties.
  • When not at sea, the taxpayer's payslips were sent to the property.
  • The taxpayer was registered on the Electoral Roll in 2008 at this address.

As a result, the TRA upheld the Commissioner's reassessments for each of the 2005-2009 income tax years, to tax the taxpayer's interest in the unit trusts and any deemed FIF income from the superannuation fund. Adding to the cost, a shortfall penalty for taking an unacceptable tax position was charged, calculated at 10% of the tax shortfall.