Are you declaring your overseas income?
New Zealand tax law requires tax residents to pay tax on their worldwide income.
Inland Revenue is aware of New Zealand tax residents who may have taxable offshore income held in an offshore bank account and that this income may not be returned in New Zealand for income tax purposes.
As well as paying less income tax, people who conceal income offshore will also pay less for child support; decrease their student loan repayment obligation and may claim a larger entitlement to Working for Families Tax Credit.
Some New Zealand tax residents hold credit or debit cards issued by a foreign banks, servicing them through funds held in an offshore bank account.
We are concerned that these people may be accessing funds from an offshore bank account without accounting for these funds in the New Zealand tax system.
The types of funds deposited into these bank accounts vary and may include payments made by a non-resident employer, overseas life insurance policies, superannuation schemes or equity investments held in portfolio accounts.
The arrangement that concerns us typically entails:
- A New Zealand tax resident who has access to an offshore bank account
- Funds are held in or income is received into this offshore bank account
- Funds in the offshore bank account may be accessed using a credit or debit card issued by the foreign bank. This card can be used in New Zealand or overseas
- The funds or income in the offshore bank account are not returned in New Zealand for income tax purposes; and
- This may also mean that these funds and income are not accounted for when calculating that person’s child support liability, student loan repayment obligations, or entitlement to Working for Families Tax Credit
We have also found that some people are structuring their affairs by using entities such as offshore trusts, foundations and companies to make the income appear to be outside the New Zealand tax system.
New Zealand tax law requires residents to return and pay tax on all their income, including those sourced offshore and received into an offshore bank account, if they are New Zealand tax residents at the time that income was derived.
For tax purposes, a person may still be a New Zealand resident even though that person may be absent from New Zealand.
New Zealand tax residents who have failed to return their offshore income are likely to incur shortfall penalties. However, these penalties may be reduced if the person makes a full voluntary disclosure to Inland Revenue.
Further, those who qualify for Working for Families Tax Credit are required to declare all their income and make appropriate adjustments to their net income when calculating the amount of entitlement, including income received into the offshore bank account.
New Zealand tax residents, who deliberately divert their income into an offshore bank account to evade, avoid the payment of tax claim a greater amount of Working for Families Tax Credit, will be committing one or more criminal offences under the Tax Administration Act 1994.
These offences include knowingly providing altered, false, incomplete or misleading information (including on tax returns and forms) and tax evasion.
Those convicted of these offences may face a fine or imprisonment or both.
Inland Revenue is carrying out audits on a number of New Zealand tax residents who have offshore credit or debit cards and who have been found to hold offshore bank accounts or receive offshore income.
Shortfall penalties, late payment penalty and use of money interest will be imposed where appropriate.
We have signed Tax Information Exchange Agreements (TIEAs) with a number of jurisdictions, including tax havens.
Jurisdictions that have zero or low taxation rates and have been used by New Zealand tax residents in the past to conceal their income.
The TIEAs will enable Inland Revenue to obtain more information about international transactions and identify the existence of any offshore bank accounts held by a New Zealand tax resident.
New Zealand tax residents with income in an offshore bank account are encouraged to make a full voluntary disclosure to Inland Revenue or discuss with their tax advisor about making a voluntary disclosure.
We will continue to expand our network of TIEAs and work with our treaty partners towards global tax cooperation.
For more information, visit www.ird.govt.nz (search ‘voluntary disclosure’).
If you would like to attend one of our free tax seminars or workshops held throughout the country, register your name at our website.
Abdul Rafik is Inland Revenue’s Community Relationships Advisor based in Auckland. He is happy to answer readers’ queries, which should be sent to