The global COVID-19 pandemic has caused havoc for everyone and the economic effects are being felt. The hidden impact of this pandemic will still come to light for many. Prudent business owners and individuals will have a tax strategy in place, including the impact on any employees not resident in New Zealand.

This pandemic may have inadvertently tampered with this: travel restrictions impact not only freedom of movement but can impact tax residency. The travel restrictions have changed how people do business. This will not only impact the individual who travels globally but may also impact their business’ tax residency.
Importantly, “residency” has distinct meaning for immigration and tax purposes. It is possible to have residency status for immigration purposes, but not be a tax resident, and vice versa.
There are two tests for tax residency, the primary test being the “permanent place of abode” test and the 183-day rule test. The permanent place of abode test looks at a person’s duration and frequency of return to a country, economic and social ties, intentions and living arrangements. It is possible for an individual to have a permanent place of abode in more than one country.
The second test, the days count test, states that under ordinary circumstances, a person will become tax resident of New Zealand if they are present in New Zealand for more than 183 days in a rolling 12-month period.
When New Zealand went into lockdown, a large number of visitors and visa holders were prevented from leaving the country. Immigration New Zealand permitted an automatic extension of all visas until 25 September 2020.
On 22 April 2020, Inland Revenue (”IR”)  issued a public statement for tax agents relating to the unintended and unprecedented consequences for the tax residence rules caused by the COVID-19 pandemic. These consequences are particularly relevant for people stranded in New Zealand who were not intending to be a tax resident. In relation to individuals, the public statement states (our emphasis):
In normal circumstances, an individual will become tax resident in New Zealand if he/she is personally present in New Zealand for more than 183 days in total in a 12-month period. The COVID-19 emergency could result in individuals having to stay in New Zealand longer than 183 days despite their plans to leave. An individual will not become a tax resident in New Zealand under the day-test just because he/she is stranded in New Zealand. The extra days when a person was unable to leave will be disregarded if a person leaves New Zealand within a reasonable time after they are no longer practically restricted in travelling. The day-tests are based on normal circumstances when people are free to move.

This echoes the OECD guidance on cross-border issues arising from the pandemic. The OECD Secretariat has issued guidance on implications of the COVID-19 crisis on cross-border workers and other related cross-border matters. The OECD notes that tax issues have arisen where there are cross-border workers or individuals who are stranded in a country that is not their country of residence. These issues have an impact on the right to tax between countries, which is currently governed by international tax treaty rules that delineate taxing rights. The OECD Secretariat’s general view is that under Double Tax Agreements between countries, an individual should not become resident in the country they are stranded in.

The IR statement assists individuals who actively manage their travel movements, are relying on the transitional tax residency exemption period, to control or manage a business. This will also assist short-term business visa holders relying on a 92-day tax exemption.
Therefore, if an individual leaves New Zealand within a reasonable period of time after the lockdown was lifted and it was practical for them to travel, then the extra days spent in New Zealand due to the travel restriction would not count towards the days count test and their tax residency status will not be impacted.
If an individual does not leave New Zealand as soon as is practical after lockdown is lifted, they may run the risk of being deemed a tax resident of New Zealand and will be subject to tax on their worldwide income (with some qualifying for the transitional residency exception).
Travel restrictions under COVID-19 significantly disrupted the business travel between countries. For those individuals who are company directors, their personal tax residency may impact the tax residency of the company if they are exercising management and control.
Hopefully tax authorities will be pragmatic about the travel restrictions and look at the operational model of businesses before making decisions based solely on director control and management.
For New Zealand directors stranded elsewhere, it would be prudent to check what the rules around extended stays in that country, especially if the director finds themselves restricted from travelling for some time and the country does not have a Double Tax Agreement with New Zealand. More articles on tax residency can be found at www.bellinghamwallace.co.nz.
By Graham Lawrence (Director)
and Carla Cross (Senior Tax Manager)