If the partnership or LTC received overseas income, for example, from interest or financial arrangements, show this at Question 16.
Convert all overseas income and qualifying overseas tax paid to New Zealand dollars. You can do this by:
using the rates available on ird.govt.nz/tools-calculators
contacting the overseas section of a trading bank and asking for the exchange rate for the day you received your overseas income.
Tax paid overseas is distributed to the partners or owner(s) and the tax credit limit is calculated on the partner’s or owner’s income tax return. Keep evidence of overseas tax paid with your tax records for seven years.
For more information about foreign tax credits read A guide to foreign investment funds and the fair dividend rate (IR461).
If the income was received from a financial arrangement, please read the Tax Information Bulletin (TIB), Vol 20, No 3 (April 2008).
There are two situations covering the treatment of overseas dividends. Each owner or partner will need to determine which of the following applies to their share of foreign investments:
If the shares have FIF income or loss calculated, don’t include any dividends paid from these shares on the IR7 return. Instead, show the calculated FIF income or loss at Box 16B.
If the shares are covered by one of the FIF exclusions (see Foreign investment fund (FIF) income or loss), show the dividends at Box 16B.
Each owner or partner will need to advise their individual amount of either the FIF income or loss (or their FIF calculation method) or the dividend, to be included on the IR7 return. Show each owner’s or partner’s individual amount, plus any other allocation of overseas income, at Box 16B on the IR7 return and at Box 26F on the IR7L or IR7P form—see IR7 Completing your IR7L or IR7P. This information is also used in determining the income amount at Box 4 at IR7 Completing your IR7L or IR7P of this guide.
In either situation, include any qualifying overseas tax credits attached to the dividends at Box 16A. Some Australian dividends can have New Zealand imputation credits attached. Include these at Box 12. Please note you can’t claim Australian franking credits. If the partnership or LTC received dividends from an overseas company through an agent or trustee who deducted RWT in New Zealand or dividends treated as interest, show the New Zealand RWT deducted at Box 12A.
If you’ve shown an imputation credit in Box 12 or an RWT credit in Box 12A and there is no income associated to these in Box 12B, you’ll need to attach a note to the top of page 3 of your return with the details.
If at any time during the 2020 income year the partnership or LTC held rights like shares, units or an entitlement to benefit in any foreign company, foreign unit trust, foreign superannuation scheme or foreign life insurance policy, the partners or owner(s) may be required to calculate FIF income or loss in their own income tax return(s).
Generally, the partners or owner(s) will use the fair dividend rate to calculate FIF income. The partners or owner(s) may also need to file an additional FIF disclosure form. See Question 27 at IR7 Question 27 Additional disclosure of foreign investments ..
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. Investments covered in the list are available in the Australian share exemption list (IR871)
interest in certain Australian unit trusts
limited exemptions for interest 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 CFC
an individual or trustee of certain trusts, who is a partner or owner and holds, at all times in the income year, FIFs with a total cost of $50,000 or less.
You can find more information on the exclusions and the FIF rules at ird.govt.nz/foreign-investment-funds and in the Tax Information Bulletins (TIBs)—see the online index for relevant issues.
If at any time during the 2020 income year the partnership or LTC has attributed CFC income or loss, the partners or owner(s) 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 partners or owner(s) may also need to file an additional CFC disclosure form. See Question 27 at IR7 Question 27 Additional disclosure of foreign investments.