From 1 July 2023, New Zealand citizens living in Australia will have a direct pathway to Australian citizenship. All Special Category Visa (SCV) holders will now be able to apply directly for citizenship, without becoming permanent residents first, as long as they meet a four-year residence and other eligibility requirements.

This all seems nice and neighbourly, welcoming our Kiwi friends but is there something more to it?  The change has raised the question – will New Zealand citizens now be subject to more Australian tax?

Currently, New Zealand citizens holding a SCV who live in Australia (and meet certain other limited criteria) are considered temporary residents for Australian tax purposes. Temporary residents enjoy concessional tax status in Australia as whilst they are subject to Australian tax on worldwide employment income, only Australian source investment and capital gains are taxable.  In simple terms if temporary residents make ‘capital’ from selling shares in a US company or an investment property on Lake Como then they would not be taxable in Australia.

Under the new direct citizenship pathway, from 1 July 2023 New Zealand citizens holding an SCV will be considered permanent residents for citizenship purposes with varying effective dates depending on their individual circumstances.  The temporary resident status is determined by reference to the migration act and therefore an individual’s status under this Act can have a significant bearing on their tax position.

The ATO are yet to clarify if a permanent resident for citizenship purposes will no longer be eligible for concessional tax status. We’d like to suggest that New Zealander’s will only cease to be a temporary resident for tax purposes from the date they are granted Australian citizenship.

We expect further clarification on this matter in the coming months – stay tune for more information.

If you have questions on the impact this may have in your personal circumstances, please reach out to your ESV Engagement Partner