Diamond case

Facts

Mr Diamond is a New Zealand citizen and he served in the New Zealand army in New Zealand and overseas until June 2003. After that, he left New Zealand for some jobs and holiday. His intention was to leave New Zealand permanently. Mr Diamond married to Mrs Diamond in 1981. Mr and Mrs Diamond separated in August 1994, but they were still closed to each other. He has provided child support to her and she had access to his oversea bank account. She also managed his financial affair in New Zealand. Mr Diamond owned a house in 24 Waikato Esplanade. In 1996, Mrs Diamond sold her previous house because it was too small and she purchased 24 Waikato Esplanade. Thus, Mr Diamond joined her to put his name on the title of the house, as she could not borrow alone. However, Mr Diamond did not live in that house. In 1998, Mrs Diamond bought another house and Mr Diamond bought her share in 24 Waikato Esplanade, so she could fund that house. After that, he used the property at 24 Waikato Esplanade as an investment property and rented it out.

Issue

The issue in this case is about Mr Diamond’s tax residency. Moreover, it related to his permanent place of abode and his house in 24 Waikato Esplanade.

Taxpayer’s argument

He argued that he was not a New Zealand tax residence for the period because he was overseas and his intention was to leave New Zealand permanently after finishing from the army.

Commissioner’s argument

They argued that Mr Diamond still has his home in New Zealand. Although he was overseas, Mr Diamond could go back and live in his house. Thus, they said he has a permanent place of abode in New Zealand and still a NZ tax residence.

Courts’ decision

The court stated that although Mr Diamond still has some connections with New Zealand, it is still important to look at his house in 24 Waikato Esplanade to make informed decision on his permanent place of abode’s position. Based on the facts of the case, they ruled that although he is the legal owner of the house, there are some other factors needed to take into account:
“It was not intended by him to be his home; it has never been lived in by him; the use he has made of the property has consistently been one of investment, and that use has continued for nearly 20 years.”
They looked closely at his intention and found no intention for him to come back to New Zealand. Thus he is not a New Zealand tax residence.

Lesson learned

When dealing with tax residence, it is very important to look at the “permanent place of abode” concept. In this concept, we need to pay attention to the house of the taxpayers and their purposes of using the house.

Reference

Diamond v Commissioner of Inland Revenue (2014) 26 NZTC 21-093