New Zealand: A Tax Oasis after the 2026-27 Budget?

The 2026-27 Federal Budget, delivered on 12 May 2026, contained two announcements that will reshape Australian tax planning for high net worth individuals and private business owners.

The first is the abolition of the 50 per cent CGT discount, replaced from 1 July 2027 with cost base indexation and a 30 per cent minimum tax on net capital gains for individuals, trusts, and partnerships.

The second is a 30 per cent minimum tax on the taxable income of discretionary trusts from 1 July 2028.

For Australians with significant unrealised gains, holdings in discretionary trusts, or portable service businesses, these changes have re-opened a question that we have not had to think about seriously for some time:

‍Is it time to leave?

Perhaps unexpectedly, New Zealand offers the most practical answer from an Australian view. This article sets out the framework for ceasing Australian tax residency, becoming a New Zealand transitional tax resident, and the structuring opportunities that arise for  business owners who keep their Australian company in place after they leave.

Why New Zealand: The Transitional Tax Resident Scheme

New Zealand offers a four-year exemption from tax on most foreign-sourced income for individuals who become tax residents after a ten year absence, called a transitional tax resident.

The exemption is available to new migrants and returning New Zealanders who meet the qualifying criteria. New Zealand also does not have a general capital gains tax, so for an Australian leaving with substantial offshore investments, the four-year transitional period offers a meaningful planning window.

During the four-year period, New Zealand will not tax:

• Foreign dividends
• Foreign interest
• Foreign rental income
• Foreign trust distributions
• Foreign capital gains

The exemption does not apply to:

• Employment income
• Income from the supply of services performed by the transitional resident personally

The other practical attraction is the Trans-Tasman Travel Arrangement. Australian citizens can move to New Zealand without a visa and live there indefinitely. This removes the immigration friction that complicates moves to most other low-tax jurisdictions.

The investor case

For investors with substantial portfolios, the transitional resident regime is the headline benefit. Investment income that would be taxed at marginal rates of up to 47 per cent in Australia can fall outside the New Zealand tax net for four years.

Practical examples of income that benefits:

• Dividends from a private company in Australia that you own
• US, UK, European, or other foreign-listed shares (with some catches)
• Interest from bank accounts and bonds
• Rental income from property held in Australia, the US, UK, Europe, or Asia
• Capital gains on the disposal of many assets

For an investor planning to realise a significant capital gain on a foreign holding, the New Zealand transitional resident period is one of the most efficient legal strategies available to an Australian citizen only if it suits your circumstances. There is no Australian tax (provided the asset is not taxable Australian property and the deemed disposal on departure has been managed), no New Zealand tax during the window, and no need for complex offshore structures.

Australian-sourced income is a separate question. Australian dividends, Australian interest, can all be minimally taxed in Australia i.e. franked dividends are subject to zero withholding taxes.

Australian rental income and gains on taxable Australian property remain subject to Australian tax even after departure, generally as a non-resident which has harsher rates.

The business owner case: an Australian company under a NZ resident shareholder

For Australians who own a business they can run from a distance, there is a structuring opportunity that does not require relocating the business at all.

A business operated through an Australian proprietary limited company that qualifies as a base rate entity pays Australian company tax at 25 per cent. That company can be owned by an individual who has departed Australia, ceased Australian tax residency, chooses to obtain the CGT event I1 exemption (not triggering exit tax) and become a New Zealand transitional tax resident.

The flow looks like this:

• The Australian company earns profits and pays Australian company tax at 25 per cent
• Profits are paid out as fully franked dividends to the non-resident shareholder
• Fully franked dividends to non-residents are exempt from Australian dividend withholding tax
• In New Zealand, during the four-year transitional resident period, those dividends are foreign-sourced income and exempt

The end result is that the worldwide tax cost on profits extracted to the shareholder during the four-year window is 25 per cent, paid in Australia. There is no top-up tax in either country.

This is particularly effective if either:

• The company would qualify for the Small Business CGT Concessions (untouched in the budget) or
• The shareholder has large director loans and wishes to clear them out by declaring a dividend while a non-resident.

This works because the Australian company remains an Australian tax resident regardless of where the shareholder lives. A company incorporated in Australia is automatically an Australian tax resident. It does not stop being a resident merely because its sole director and shareholder has moved to Wellington, though the DTA may have some effect.

The strategy fits well with:

• E-commerce and online businesses with staff or contractors handling operations
• Investment companies and corporate beneficiaries holding passive assets
• Professional services firms where the owner has built out a team and can manage it virtually
• Trading companies where the owner is the controller rather than the producer
• Holding companies sitting above operating subsidiaries

The structure is best suited to a business where the proprietor has stepped back from day to day delivery. A business with employees doing the work in Australia, where the proprietor is the owner-director rather than the producer, is the natural fit. A solo consulting business where the proprietor personally performs the services is not.

Ceasing Australian residency cleanly

The first and most important step is actually ceasing to be an Australian tax resident. This is not optional, and it is not casual. If a client retains Australian residency under the domestic tests, the exercise fails before it begins, because Australia will continue to tax them on worldwide income.

Australia has four tests for individual tax residency:

• The resides test
• The domicile test
• The 183-day test
• The Commonwealth superannuation test

The Commissioner’s view on these tests is set out in Taxation Ruling TR 2023/1. A client must fail all four tests.

Critically, a client who is relying on the New Zealand transitional resident regime cannot rely on the Australia-New Zealand DTA tiebreaker to override Australian residency. The transitional resident regime treats the individual as a non-resident for treaty purposes in respect of foreign-sourced amounts during the exempt period. The tiebreaker is not available as a backup. Residency must be ceased on the domestic Australian tests alone. This is the central trap.

In practice, ceasing Australian residency cleanly means:

• Selling the Australian principal place of residence, or putting it on a clearly commercial arms-length lease with a meaningful term
• Establishing a permanent place of abode in New Zealand, with a leased home of meaningful term, utilities in the client’s name, and personal effects shipped over
• Moving the immediate family (spouse and dependent children)
• Cancelling private health insurance and suspending Medicare
• Removing oneself from the electoral roll
• Updating ASIC director addresses
• Transferring bank accounts to non-resident status
• Ceasing Australian club memberships and other social ties

Half measures fail. A client who keeps their Sydney house available for weekend trips, leaves their family in Brisbane while they live in Queenstown, or maintains a substantial Australian social and professional life will probably be found to remain an Australian resident.

The deemed disposal: CGT event I1

When an individual ceases to be an Australian tax resident, CGT event I1 happens. The individual is taken to have disposed of each of their CGT assets that are not taxable Australian property at market value at the time they cease residency.

In other words, leaving Australia triggers a deemed sale of the global portfolio, including:

• Australian shares
• Foreign shares
• Cryptocurrency
• Foreign real estate
• Intellectual property
• Any other non-TAP asset

There is a way out.

An individual can choose to disregard CGT event I1. The cost of that choice is that all of the assets are then treated as taxable Australian property until they are actually disposed of, or until the individual becomes an Australian resident again. The deemed disposal is deferred, but the assets are caught in the Australian CGT net for as long as the client holds them.

This can be palatable in some cases, for example private company shares that pay you dividends.

The trade-off depends on the client’s circumstances:

• A client with substantial unrealised gains on assets they intend to hold for the long term should consider letting CGT event I1 happen, paying the CGT under the current 50 per cent discount regime before 1 July 2027, and resetting their cost base to current market value. This is especially so if the client can qualify for the Small Business CGT Concessions.
• After 1 July 2027 the discount is gone, replaced with cost base indexation and a 30 per cent minimum tax on trusts and capital gains (we are unclear how this will actually work)
• Clients who can crystallise gains under the existing regime should think hard about whether deferring is really in their interest, because if they later dispose of the asset while non-resident, they will be caught by whatever Australian CGT regime is then in force

The interaction with the new post-1 July 2027 regime has not been fully fleshed out in the Budget materials, and the exposure draft will need to be read carefully. But the broad point is that the election to disregard preserves the Australian CGT net at the cost of the present-day tax, while accepting whatever future regime change Australia decides to impose.

Companies and trusts: leave them as Australian residents

It is important to distinguish what happens to the individual from what happens to their entities.

Companies remain Australian residents automatically. Australian-incorporated companies remain Australian tax residents regardless of where their shareholders or directors live. A Pty Ltd is an Australian resident by incorporation. It does not stop being a resident when the shareholder moves to New Zealand. The company can continue to operate from Australia with the same ABN, the same Xero file, and the same tax compliance obligations.

This is what makes the franked dividend structure work.

Trusts require active preservation. A trust is an Australian resident trust if a trustee is an Australian resident at any time during the year, or if the central management and control of the trust is in Australia at any time during the year. If the trustee is an Australian-resident corporate trustee, and the directors of that trustee are Australian residents who actually manage the trust from Australia, the trust remains Australian resident.

We want to preserve Australian trust residency. If a trust stops being a resident trust, CGT event I2 happens, with a similar deemed disposal of all non-TAP assets at the trust level.

The practical consequence is that for a HNW client departing Australia:

• The corporate trustee directors should remain Australian residents
• The trust should continue to be administered from Australia
• The trust should not be repatriated offshore

The client becomes a non-resident beneficiary of an Australian resident trust, which has its own tax consequences, but the trust itself stays put.

There is some complexity that can arise from the double tax treaties, outside the scope of this article.

The discretionary trust problem

The Budget’s 30 per cent minimum tax on discretionary trusts from 1 July 2028 is one of the most significant integrity measures introduced into the Australian tax system in a generation. It will apply to the taxable income of discretionary trusts, with non-corporate beneficiaries entitled to non-refundable credits for the tax paid by the trustee.

The measure carves out a number of trust types:

• Fixed trusts
• Widely held trusts, including fixed testamentary trusts
• Complying superannuation funds
• Special disability trusts
• Deceased estates
• Charitable trusts

It also excludes some types of income:

• Primary production income
• Certain income relating to vulnerable minors
• Amounts to which non-resident withholding tax applies
• Income from assets of discretionary testamentary trusts existing at the announcement

Two structural points fall out of this.

Fixed trusts are not caught. Clients who can sensibly restructure a discretionary trust into a fixed trust before 1 July 2028 will avoid the minimum tax it seems. The Budget materials provide expanded rollover relief for three years from 1 July 2027 to support restructures out of discretionary trusts into other entity types such as companies or fixed trusts.

The challenge is that the flexibility of a discretionary trust, in particular the ability to stream income to lower-rate beneficiaries year by year, is what most family groups value about the structure. Converting to a fixed trust crystallises beneficial interests and removes the streaming flexibility. The decision is not just a tax decision.

The interaction with franking credits is unresolved. A discretionary trust that receives fully franked dividends streams those dividends and the attached franking credits to beneficiaries. Beneficiaries claim the franking credit offset and, if entitled, refunds of excess franking credits. How does the new 30 per cent minimum tax interact with this?

• Does the trustee pay 30 per cent on the franked dividend at the trust level?
• Do beneficiaries receive credits for the trustee’s tax separately from the franking credits?
• Does the franking credit offset the trustee’s minimum tax liability?
• Are excess franking credits refundable to the trust under the minimum tax regime?

The Budget materials do not address this, and the exposure draft will be critical reading for any practitioner advising trusts that hold Australian equities.

For HNW clients with discretionary trusts holding meaningful franked dividend portfolios, this uncertainty is itself a planning trigger. The 1 July 2028 commencement date provides time, but not unlimited time, to work out whether the discretionary trust structure remains fit for purpose.

The departure checklist

For a client who is going to do this, the execution is unforgiving. The matters that need to be cleanly dealt with include:

Property and family

• Sale or commercial leasing of the Australian principal place of residence
• Establishment of a permanent place of abode in New Zealand
• Relocation of immediate family

Australian administrative ties

• Cancellation of Medicare and private health insurance
• Removal from the Australian electoral roll
• Updating of ASIC director address details, finding an Australian ordianrily resident director.
• Notification of Australian banks and brokers of non-resident status

Tax filings and elections

• Lodgement of a departing Australia tax return covering the part-year period of Australian residency
• Decision on whether to make the election to disregard CGT event I1
• Establishment of a New Zealand IRD number
• Election treatment under the New Zealand transitional resident regime, noting that an election out is irrevocable and that applying for Working for Families tax credits is treated as an election out

Entity structure

• Restructuring or governance review of any discretionary trust the client controls to ensure the trustee remains Australian and the trust does not inadvertently lose residency
• Review of any controlled foreign companies, because the Australian CFC rules apply to an individual only while they are an Australian tax resident
• Confirmation of the Australian company’s continued tax residency and proper Australian governance

None of this is a weekend project, it requires substantial investment for an actual move and assistance from experienced practitioners.

A clean departure typically takes six to twelve months of planning to execute properly, and the timing of the actual cessation of residency matters significantly for the CGT event I1 valuation and for the four-year transitional resident window in New Zealand.

When this strategy is the right answer

This is not a strategy for everyone. The four-year window is finite. After year four, the New Zealand transitional resident exemption ends, and the client is a full New Zealand tax resident taxed on worldwide income at progressive rates that top out at 39 per cent.

A relocation back to Australia is a good startegy after the four-year window. Cost bases are reset to market value, and you had four years of tax-free growth.

The window is best used for clients who have a specific event in view:

• Realising a large capital gain on an investment
• Receiving a large distribution from a foreign trust
• Taking profits out of an Australian business through fully franked dividends
• Building wealth from a foreign-sourced investment portfolio
• Completing an exit from a business holding

Clients who intend to be in New Zealand for the long term need to think hard about whether they want to be New Zealand tax residents for the rest of their lives. New Zealand has its own complexities, including the Foreign Investment Fund rules and a bright-line test for residential property.

The exemption window is a transition, not a destination, and you may need to transition away after the four years.

For HNW clients with substantial unrealised gains, investment portfolios with offshore exposure, businesses that can be operated through an Australian company, or discretionary trusts that face an uncertain future under the 30 per cent minimum tax, the combination of departing Australia, becoming a New Zealand transitional resident, and structuring around an Australian base rate entity company can deliver materially better outcomes than staying.

The execution risk is high, and the residency tests are unforgiving, but done properly, it can work wonders.

This material is produced by Cadena Legal, an NSW-registered legal practice, and Harrison Dell, a New Zealand solicitor and barrister. It is intended to provide general information and opinions on legal topics, current at the time of first publication. Specific tax advice to your circumstances should be obtained before taking any action. Contact Cadena Legal to discuss whether this strategy is appropriate for your circumstances.