IR6 Question 13 Overseas income
If the trust received overseas income, for example, interest or financial arrangements, show this at Question 13.
Convert all overseas income and qualifying overseas tax paid to New Zealand dollars. You can do this by:
using the rates available on www.ird.govt.nz (search keywords: overseas currency)
contacting the overseas section of a trading bank and asking for the exchange rate for the day you received your overseas income.
Include any overseas income and credits which you received from a partnership, Look-through company (LTC), estate or trust here.
Include gross income before deducting any tax credits at Box 13B. Credit for tax paid overseas will be limited to the amount of New Zealand tax payable on that income.
How overseas income of an estate or trust is taxed
In New Zealand, overseas income is taxed according to the residency of the settlor. The rules for the three most common situations are described over the page.
New Zealand resident trustees and income derived outside New Zealand
As a general rule, where a trustee is resident in New Zealand, and the trustee derives an amount from outside New Zealand, that income will be income of the trustee.
The amount will be exempt income of the trustee if:
no settlor of the trust except a transitional resident is resident in New Zealand at any time during the income year,
that trust is not a testamentary trust (trust created by a person under their will) or an inter vivos trust (trust created by the settlor during their lifetime) where any settlor of the trust died resident in New Zealand, whether in that income year or otherwise.
Non-resident trustees and income derived outside of New Zealand
A non-resident trustee is also liable for New Zealand income tax on income derived from outside New Zealand where:
any settlor is resident in New Zealand at any time during the income year, or
any settlor of an inter vivos or a testamentary trust died while they were resident in New Zealand, and a trustee is resident in New Zealand at any time during the income year.
Exceptions to the general rule for non-resident trustees and income derived outside New Zealand
There are two situations in which a non-resident trustee is not liable for income tax on trustee income derived from outside New Zealand. These apply where the trustee is resident outside New Zealand at all times during the income year and either:
no settlement has been made on the trust since 17 December 1987, or
the only settlements made on the trust were by settlors who were not resident in New Zealand at the time of settlement and who have not been residents in New Zealand since 17 December 1987.
Neither exception applies where an election to pay tax on trustee income has been made by the trustee. These exceptions do not affect the liability to income tax for any settlor of the trust, for example, where the settlor elects to pay tax on trustee income.
The trustee income remains liable for income tax for the purpose of determining whether the trust is a complying trust (formerly qualifying trust).
Overseas dividends
If you are a New Zealand resident trustee and at any time during the 2019 income year you held rights such as shares, units or an entitlement to benefit in any foreign company, foreign trust, foreign superannuation scheme, or foreign life insurance policy, you may be required to calculate foreign investment fund (FIF) income or loss on those investments and include this amount in Box 13B.
Generally, you will use the fair dividend rate to calculate FIF income. The trustees may also need to file an additional FIF disclosure form. For more information read the guide to Question 23 at Additional disclosure of foreign investments.
You will not need to do this if the investment is covered by an exclusion. The main exclusions from an interest in an FIF are:
investments in certain Australian resident companies listed on approved indices on the Australian stock exchange, that maintain franking accounts. Investments covered in the list are available in the Australian share exemption list (IR871)
interest in certain Australian units
limited exemptions for interests in certain venture capital interests that move offshore (for 10 or more 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).
A limited number of trusts are also excluded from the rules if the attributing interests are below $50,000. These are:
a testamentary trust
a compensatory trust
where the settlor of the trust is the Accident Compensation Corporation.
If the exclusions apply and the trust is under the threshold, include dividends received in Box 13B and any qualifying overseas tax credits in Box 13A.
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.
Please note you can’t claim Australian franking credits.
For more information about the FIF rules read A guide to foreign investment funds and the fair dividend rate (IR461), Tax Information Bulletin (TIB) Vol 19, No 3 (April 2007) page 28, Tax Information Bulletin (TIB) Vol 20, No 3 (April 2008) page 110, or go to www.ird.govt.nz/toii/fif
CFC income or loss
If at any time during the 2019 income year the trust has attributed CFC income or loss, the trustees or beneficiaries may be required to calculate this in their own income tax return(s).
A loss from a CFC can’t be used to offset domestic income or be included in domestic losses that are carried forward to the 2020 income year. Generally, these losses can only offset income or future income from CFCs that are resident in the same country as the CFC that incurred the loss.
The trustees may also need to file an additional CFC disclosure form. See Question 23 at IR6 Question 23 Additional disclosure of foreign investments.
Investments in portfolio investment entities (PIEs) and portfolio investor attributed income/loss
If you receive dividends from a PIE that is a listed company and doesn’t use your prescribed investor rate (PIR), you may choose whether to include the dividends in your return.
The attributed PIE income/loss is included in the estate or trust’s return for the period that includes the end of the PIE’s income year. PIEs usually have a 31 March balance date.
The amount of income derived by the estate or trust as a distribution by a PIE is excluded income of the estate or trust other than fully imputed dividends from a PIE that is a listed company and doesn’t use your PIR.
Further information is available in the guide Information for trustees who invest in PIEs (IR856).