Tax Residence and the Government Service Rule

IRD has released a new interpretation statement, IS 25/17: “Tax Residence – Government Service Rule,” offering updated guidance on how the government service rule in the Income Tax Act 2007 applies. It also provides insight into how New Zealand’s double tax agreements (DTAs) may interact with this rule in cross-border situations.

This latest statement replaces earlier documents IS 16/03 and CS 21/02, both of which addressed the tax treatment of individuals working abroad in government roles.

Why Tax Residence Matters

Tax residence is a cornerstone of income tax law, as it determines the scope of a person’s tax obligations in New Zealand. Under the Act:

New Zealand tax residents are liable for income tax on worldwide income, other than exempt or excluded income. They may also be eligible for a credit for foreign tax paid.
Non-residents are only taxed on New Zealand sourced income, other than excluded or exempt income.

In situations where an individual is considered tax resident in both New Zealand and another country, DTAs help resolve potential conflicts by allocating taxing rights between the two countries.

What Is the Government Service Rule?

One of the overlooked residence rules is the government service rule, which deems individuals to be New Zealand tax residents if they are overseas in service of the New Zealand Government. This rule applies even if the person would be considered a non-resident under the general residency criteria.

Interpretation Statement IS 25/17 explains how this rule should be applied in practice and outlines how relevant DTA provisions may affect the outcome in international contexts.

Staff Changes

Janine will be leaving us in June as she is moving to Whangamata, to embark on a new and hopefully more relaxed chapter in life. She will be taking up a role Pauanui Club, so do go and see her if you are in the area. Whilst she will truly be missed, we wish her well and hope to see her soon.

May 2025