The trials of trans-tasman taxes
What do you do when the jobs and big money are on one side of the Tasman but home, school and family are ensconced on the other?
It seems a growing number of New Zealanders are commuting to Australian mines or office blocks, leaving houses, spouses and furniture behind.
Many last only a few months because of the strain on family relationships and the hours of flying, says Hays New Zealand Managing Director Jason Walker.
And that is before they face the pain of the dreaded double tax return.
Of course, the pull across the Tasman is approximately 30 per cent higher wages - a gulf not easily undone by an awkward bit of paperwork or a few thousands dollars in unexpected tax.
But Walker, whose company recruits for the mining industry, says "fly-in, fly-out" arrangements come with a health warning.
"After three months they are finding they have stopped doing it or moved fulltime to Perth because it is untenable for their relationships, or just for their long term health."
Migration to Australia hit record highs this year. There are no figures to count the numbers working in Australia while maintaining home bases in New Zealand.
The IRD can not yet accurately track the trend of New Zealand tax-resident Aussie earners because information-swapping between the countries is still too new and there is no consistent record, according to a tax department spokesman.
Massey University immigration researcher professor Paul Spoonley says the "fly-in, fly-out" culture is on the rise - one of two major job market hangovers from the global financial crisis. (The other is low job turnover domestically).
"People are quite risk averse in terms of migration so what they are tending to do is maintain a home in one country and a job in another," he says.
The trend increased "significantly" after 2009, he thinks.
"The interesting thing is that we first saw this with Asians. [A family] would maintain a home in New Zealand so the family could be here and be educated here, but typically the father would work back in Hong Kong or Taiwan or Shanghai, " says Spoonley. "We called it the astronaut family."
The trend is strongest in mining areas, being frequently less appealing places for partners and children to live. "They don't want to shift the kids and the partner might have a job here," says Spoonley. "It is a fairly remote and uninteresting part of Australia but the money is good."
It is not just miners: Construction supervisor and dad-of-two James Bunn was quoted in the Press saying he commuted weekly to Australia along with more than 30 other Cantabrians for a job on a gasfield development project paying twice his former wages. It was easier not to shift his family.
Then there are office workers. When the rest of us are sitting in motorway traffic balancing cups of takeaway coffee, Owen Harris flies to Sydney for an IT job for which he is technically employed in New Zealand.
He wanted to live in New Zealand after spending the last twelve years in the United States. But when he arrived in March he found a large software project for his employer required him to be in Sydney most weeks.
"I'm kind of living here (in Sydney) but I'm still a New Zealand employee so I've been suffering the dual indignities of being on the NZ dollar and living in Australia," he says. "I spend ten bucks and it is automatically $13."
Harris owns a house in Auckland with his sister and has just paid $7,000 to move his furniture and belongings here. But he is resigned to the fact he will soon become a full-time Australian.
New Zealand has the lifestyle, the extended family and the quality of surroundings he wants for his future kids. But it does not, for now, have his job.
"I know a lot of people are getting paid a fortune over here but I'd rather have the quality of life," he says. "My extended family is not getting any younger."
There are more mundane annoyances from straddling two countries. Dual tax residents must grapple with fluctuating exchange rates, divergent income tax brackets and tax years that end a full three months apart to work out what they owe the IRD annually.
The country of employment gets first dibs on taxing earnings, but a commuter is likely to remain a New Zealand tax resident, says tax consultant Murray McClennan.
"There is this concept of a permanent place of abode which is not defined in statute but there is a whole lot of case law. It talks about ties to New Zealand. One is a house being available to you, not necessarily a house you own even a family trust or rental house being available to you. Are you still a member of sporting clubs, what have you done with your furniture did you put it in storage or sell it?".
The array of overlapping tests on the IRD website does little to clarify things. Asked to explain the Trans-Tasman rules, the IRD replied it was "complex."
"New Zealand tax residents are assessed here, and if they do not have enough tax credits under the double tax agreement [with Australia] they may make need to make up the difference in tax owed in this country. However the rules are complex and each case would be treated on its merits."
Suffice to say, you might have to top up the IRD at the end of the New Zealand tax year. Much depends on the level of income and the exchange rate, which many people must calculate on a month-by-month basis.
Australia's steeper tax structure means people there pay nothing on income under $18,200 (compared with NZ's $14,00 threshold) but the top tax rate for the wealthiest is 45c compared with NZ's 33c. So someone earning $45,000 would pay about $700 less in Australia than they would in NZ. But because the Australian dollar is currently strong, the difference disappears in the currency translation.
Other times: "You could be talking a few thousand (top up)," says McClennan. That is why, globally, those with means are careful to not trigger tax residency in any country once they break tax ties with their homeland. The average commuter, sadly, is likely to have to cough up.
The rules can lead to some perverse outcomes. Owen Harris pays all of his tax in New Zealand despite working almost daily in Sydney.
In another example, one Australian-born, New Zealand resident pays all her tax in Australia despite living and schooling her children in Auckland. The woman didn't want to be named in case she had inadvertently broken the law. This is despite being possibly New Zealand's most diligent tax resident.
She kept her Australian job as a technical writer when she moved here three years ago with her partner, works from home on the internet two days a week and makes the flight to Sydney every so often.
"I couldn't get any sense out of Australian tax office about whether I needed to file a tax return or not. I tried to get them to give me a ruling ....but they wouldn't do that so I chose the most conservative pathway."
That means filing a tax return in both countries - one in New Zealand for the March end of tax year and one for Australia' June-end year.
"I have to convert all my invoices to New Zealand dollars before lodging taking the monthly average...It did my head in for a while but with an excel spreadsheet it is not that bad now."
"You end up paying the higher tax of either country."
"I feel a bit bad because I feel like I'm using services here."
There are other small tangles : for now, the woman's superannuation savings remain stuck in Australia - the Aussies have not yet passed the law allowing people to transfer them to KiwiSaver.
Harris - going the other way - will leave his KiwiSaver here. Both own New Zealand properties they say they could not have afforded where they were living in inner-city Sydney.
The technical writer said New Zealand would have no record of her earnings but she decided to play safe on filing returns.
It is probably just as well. McClennan says the IRD can easily access information about people regularly leaving and returning to the country.
" I've sat down at a meeting with IRD and the first thing they did was drop a file on the table and say we think your client became a tax resident back on this date."
A mere 40 days here in any twelve months is enough to keep someone within the IRD's reach. "It doesn't even matter if you haven't repatriated the money to NZ, you are still taxed on your foreign income," he said.
How does financial life compare over the Tasman?
Wages are up to thirty per cent higher in Australia and no gap in spending power or taxes can change that.
"If you spend $500 to eat you're spending $500 over there as well but the difference is you earning 30 per cent more," says NZIER economist Shamubeel Eaqub. "You've got that buffer that is much bigger there between earning and spending should you choose to." On the other hand most people erode the income gains by living a better lifestyle.
The purchasing power of an Australian dollar in Australia is fairly similar to what a New Zealand dollar can buy here, according to OECD and IMF calculations. The catchier Big Mac index, another measure of purchasing power by the Economist magazine, reckons Australia is about 17 per cent more expensive when measured using the cost of the ubiquitous takeaway burger. Of course, someone spending NZD in Australia will have less spending power because of the unfavourable exchange rate.
Low to median earners pay less tax on the same salary in Australia, while top earners pay more. Those who remain New Zealand tax residents (because of ties to New Zealand) may find they have to top up the IRD at the end of the year if they would have paid more earning the same amount on this side of the Tasman.
- © Fairfax NZ News
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