Key findings
- New Zealanders living in Australia for 4 years+ will soon have a direct path to Australian citizenship
- However, accepting citizenship can lead to a loss of certain tax concessions
- Retrospective tax implications may impact those granted a special category visa prior to July 2022
On 22 April 2023, the Australian Government announced a direct pathway to Australian citizenship for New Zealand citizens living in Australia.
While this policy change will be great news for New Zealanders keen to take up Australian citizenship, for some it will come at the cost of tax concessions they currently enjoy in Australia.
What are the changes about?
From 1 July 2023, New Zealanders living in Australia will have a direct path to apply for Australian citizenship. This significant change will allow these individuals access to numerous benefits, including the permanent right to live in Australia, access to additional government benefits and eligibility to vote.
Currently many New Zealand citizens living in Australia, (particularly those who are not eligible to receive certain social security benefits) are considered ‘temporary residents’ which entitles them to certain tax concessions. In broad terms, temporary residents are not liable to pay tax in Australia on funds which aren’t sourced in Australia, unless such amounts are employment related. By contrast, Australian resident citizens are taxed in Australia on their worldwide income.
Therefore, if a New Zealand citizen becomes an Australian citizen, they will lose their temporary resident status and have to pay tax in Australia on income which was not previously assessable, such as capital gains and rental income on foreign property.
Such tax changes could also have retrospective effect. New Zealanders will be eligible for this direct citizenship pathway if they have been living in Australia for at least four years. Those who were granted a special category visa (issued to New Zealanders upon arrival to Australia upon presentation of their passport) prior to 1 July 2022 will be deemed permanent residents from 1 July 2022.
Like citizens, permanent residents cannot be temporary residents for Australian tax purposes. Therefore, if such deemed permanent residency flows through to tax status, then many New Zealanders may find themselves with unexpected tax issues as from 1 July 2022.
It is important that the government legislates this change to Australia’s migration rules carefully so that New Zealanders who are not intending to utilise this citizenship opportunity are not exposed to retrospective tax charges.
What are the next steps?
We strongly encourage any New Zealanders who have temporary resident status to monitor these changes closely and contact your Pitcher Partners expert if you have any concerns or questions.
We look forward to the release of draft legislation and the opportunity to consult with government to ensure that these changes do not have unintended consequences.
