Tax residence questionnaire has expensive consequences

The New Zealand Institute of Chartered Accountants (NZICA) recommends that people leaving the country for an extended or indefinite period of time seek professional advice before completing Inland Revenue’s residence questionnaire form IR886. Inland Revenue uses the information to decide whether a person remains a New Zealand resident for tax purposes, or becomes a non-resident. If you continue to be resident, you continue to be taxable in New Zealand on your worldwide income.

Craig Macalister, NZICA’s tax director, said completing the form wrong could have expensive consequences for taxpayers.

“People do not understand what factors are used by Inland Revenue in making the residence determination. As a result, they may inadvertently leave out or misrepresent material facts that may alter the outcome. Once Inland Revenue makes an interpretation on your residence status, it can be very expensive to challenge,” said Mr Macalister.

NZICA has recently fielded a number of complaints from its tax agent members on this issue. The tax agents have been approached by people who have completed the form and then been told by Inland Revenue that they remain New Zealand residents.

“The Inland Revenue reply is a legal document that, left unchallenged, may mean the taxpayers finds themselves bound to that outcome. Further, if the affected people want to challenge that decision, it will cost considerably more than if they had sought professional advice in the first place. We are aware of situations that have cost $2,500 to challenge Inland Revenue’s reply. That is a lot of money to pay for an innocent error,” said Mr Macalister. “We are also aware that Inland Revenue’s decisions are inconsistent: two taxpayers in very similar scenarios can be treated differently.”

Mr Macalister is concerned that this is an example of Inland Revenue unnecessarily putting taxpayers to additional costs.

“This issue was can be very easily addressed, but Inland Revenue seems to be quite content with the current practice. If you are thinking about filling in this form, we recommend you seek professional advice,” he said.