IR3 Question 17 Overseas income

If you’ve received a lump sum from a foreign superannuation scheme, have transferred your foreign superannuation scheme into a New Zealand or Australian superannuation scheme, or you have transferred a superannuation interest to another person you are liable for income tax unless you qualify for an exemption. You need to calculate the amount of taxable income from the withdrawal or transfer (refer below) and include this income in Box 17B, and tick Box 17C.

Lump sums received or transferred in the first four years of New Zealand tax residence are generally exempt from tax; see “Temporary tax exemption from foreign superannuation withdrawals”.

Lump sums and transfers are taxed using one of two methods:

• schedule method (default method)—this means a certain portion of your foreign superannuation withdrawal will be income, based on the number of years you’ve been a New Zealand tax resident and contributions you’ve made in that time (certain conditions apply).

• formula method (alternative method)—can be used if your foreign superannuation scheme is a defined contribution scheme and meets certain requirements. It taxes the actual investment gains that have accrued to your scheme while you’ve been a New Zealand tax resident.

KiwiSaver withdrawal facility for tax liability on foreign superannuation withdrawals or transfers

If you transfer a lump sum to a KiwiSaver scheme you may have income tax and student loan repayment obligations. You can request a withdrawal of funds from your KiwiSaver account to pay these obligations.

Your KiwiSaver provider will deal with your application.

For more information about foreign superannuation withdrawals or transfers see the guide Overseas pensions and annuity schemes (IR257) or go to www.ird.govt.nz (search keywords: foreign superannuation).

If, at any time during the 2019 income year you held rights such as shares, units or an entitlement to benefit in any foreign company, unit trust, superannuation scheme or life insurance policy, you may be required to calculate FIF income or loss. Generally, you’ll use the fair dividend rate (FDR) or comparative value (CV) method to calculate FIF income.

The main exclusions from an interest in a FIF are:

• investments in certain Australian resident companies listed on approved indices on the Australian stock exchange, that maintain franking accounts (a list of these companies is available on the Inland Revenue website (search keyword: IR871)

• interest in certain Australian unit trusts

• limited exemptions for interests in certain venture capital interests that move offshore (for 10 income years from the income year in which the company migrates from New Zealand)

• a 10% or greater interest in a controlled foreign company (CFC).

From 1 April 2014 the FIF rules generally no longer apply to interests in foreign superannuation schemes unless acquired when the holder was a New Zealand tax resident or the interest is grandparented. For more information see the guide Overseas pensions and annuity schemes (IR257).

There’s also an exemption from the FIF rules where the total cost of all the investment for FIF purposes is below NZ$50,000.

If you paid tax overseas on any foreign income derived, you may be able to claim it as a credit against your New Zealand tax payable. The amount of credit you receive may be restricted by any double taxation agreements and is the lesser of the actual amount of tax paid on the overseas income or the amount of tax you would pay in New Zealand on the foreign income.

To claim an overseas tax credit you must supply proof of the tax deducted, for example, an overseas tax deduction certificate. If you need one, you’ll have to request it from the overseas government agency concerned.

Attach a copy of the certificate to your income tax return.

Also, if you receive a dividend that isn’t taxed separately under the FIF rules, you can offset most overseas tax credit paid on the dividend against your tax payable.

For more information about foreign tax credits read A guide to foreign investment funds and the fair dividend rate (IR461) pages 25 to 29.

You can claim the tax paid up to the amount of New Zealand income tax payable on the FIF income associated with the attributing interest that has paid the dividend. If you used the FDR method you can use the overseas tax paid to reduce the tax payable on the FDR income associated with that attributing interest. Please note that Australian franking credits and tax on dividends from the United Kingdom cannot be claimed as overseas tax paid.

Tax paid overseas can only be used to cover your liability for income tax payable on your FIF income. If there is no New Zealand income tax payable on your FIF investment, no claim can be made for the overseas tax paid on any dividends received from that FIF.

You cannot get a refund of overseas tax paid, or reduce tax payable on any other income.

For more information read A guide to foreign investment funds and the fair dividend rate (IR461).

Generally, these are forfeited (lost).

You can’t carry forward unused overseas credits where you have used the FDR, CV, deemed rate of return or cost methods to calculate FIF income or loss.

You can claim New Zealand tax credits on overseas dividends as follows:

• If the credits are RWT, they are used to offset tax payable with any excess refundable.

• If they’re imputation credits, they are used to reduce tax payable. If your dividend exceeds your FIF income, the amount of imputation credit you can claim is calculated on the basis of your FIF income. If your FIF income exceeds your dividend, you can claim the entire imputation credit attached to the dividend.

• Any excess imputation credit can't be carried forward to the next year or converted to a loss.

The full amount of these New Zealand tax credits can be entered in the return even where the FIF income is reduced to zero or there is an FIF loss.

These credits will only be attached to Australian company or unit trust dividends.

If you’ve shown a tax credit and there is no income in the associated panel, you’ll need to include a note in your return setting out the details.

If you’re currently claiming the four-year temporary tax (transitional resident) exemption for certain types of foreign-sourced income, you don’t need to declare this income in Box 17B, unless it’s foreign employment or services income. When your tax exemption expires, you must include all your worldwide income when you file your income tax return.

Go to www.ird.govt.nz for further information about the temporary tax exemption qualifying criteria and types of exempt foreign-sourced income.

This four-year exemption period is similar to the temporary tax exemption from foreign income and applies to foreign superannuation withdrawals during the period. The exemption doesn’t require you to be non-resident for a minimum period.

This exemption applies if you:

• first acquired your interest in a foreign superannuation scheme while a non-resident for New Zealand tax purposes, and

• haven’t previously had this exemption.

Foreign superannuation withdrawals during the four-year exemption period do not need to be declared as income in Box 17B.

Go to www.ird.govt.nz for further information about the foreign superannuation temporary exemption or read the guide Overseas pensions and annuity schemes (IR257).

If you received Australian dividends, your dividend statements may show all or some of the following:

• the franked/unfranked amount

• Australian withholding tax

• imputed credit or franking credits

• New Zealand imputation credits.

Add up the amounts of Australian withholding tax deducted and print the total in Box 17A. Dividends paid by Australian companies may have a New Zealand imputation credit.

To calculate the gross dividend, add together the franked and unfranked amounts, along with the New Zealand imputation credits and print the total in Box 17B. Don’t include any Australian imputed or franking credits. Claim New Zealand imputation credits in Box 14.

If you received an overseas social security pension, convert the amount into New Zealand dollars. Print the total in Box 17B.

You may also have received other types of overseas pensions, such as foreign private annuities or foreign investment funds. For more information, please read the note about IR3 Question 36 Foreign rights disclosure. Under most of the tax treaties New Zealand has with other jurisdictions, you cannot claim a tax credit for tax deducted overseas on pensions. If you paid tax on the pension overseas, generally you need to claim a refund or tax credit from the overseas tax authority, not from Inland Revenue in New Zealand.

For more information, please read the guides Overseas pensions and annuity schemes (IR257) and Overseas social security pensions (IR258) or go to www.ird.govt.nz/international/residency/dta/

If you received dividends that are treated as interest or that are from an overseas company through an agent or trustee, who has deducted RWT in New Zealand, show the tax credits and overseas income in Boxes 17A and 17B. Show New Zealand RWT deducted in Box 14A.

Attach a copy of the dividend statement to the top of page 3 of your return.

Certain PIEs attribute the net income/loss and tax credits they derive across their investors. Individual investors generally don’t include the attributed income or loss in their tax return. You can only claim a loss when it has the zero rate applied. In all other cases you cannot claim a loss from your PIE.

Each year, the PIE is required to provide an investor statement, setting out the details of the income/loss and the tax it has paid on the income it has attributed to you.

Where your PIE has calculated the tax using a prescribed investor rate lower than your correct rate or you have exited a PIE that doesn’t calculate tax when an investor exits, you may need to include the income in your return to pay the tax.

Where you’re required to include attributed PIE income in your return, show the income and tax paid/ credit where the rate lower than your correct rate has been applied. Include any tax credits shown on your PIE’s investor statement where you’ve exited from a PIE that zero-rates exiting investors. You can show the net income or loss (after adjusting for the investor level fees) in Question 17B and the general tax credits shown at 17A. Where any specified tax credits (for example, RWT) are shown, include these in the appropriate question on the return.

If you have a student loan or if you’re eligible for Working for Families Tax Credits you now have to declare PIE income on an Adjust your income (IR215) form, except if the PIE is a superannuation fund or a retirement savings scheme (for example, KiwiSaver) where the funds are locked in.

If you have declared PIE income in your return and it is from a

• non-locked in PIE it will be taken into account

• locked-in PIE you need to show the amount on the IR215 so Inland Revenue can exclude it from your income.

If you have non-locked in PIE income or dividends from a listed PIE that are not included in your return you may need to declare it on the IR215 for either or both student loan and Working for Families Tax Credits.

For more information go to www.ird.govt.nz (search keywords: adjust your income).