If you receive income from overseas sources, sometimes working out the tax can be tricky. Here are twelve points to consider.
#1 Declare rental income from overseas properties.
You can claim deductions for rental-related expenses, and you may also be able to claim a credit for tax paid in the other country on that income. It can be complex if you hold loans and mortgages overseas. Call us if this applies to you.
#2 Do you receive income from an overseas trust or deceased estate?
The New Zealand tax treatment depends on where the settlor of the trust lives. An estate can also become a trust after a period of time. As a trust does not have a legal personality, there is no concept of residency for trusts. However, a trust is recognised as a taxpayer, so New Zealand generally verifies the residency of the trustee to determine which income of the trust is subject to New Zealand tax. New reporting requirements for trusts have been introduced, so talk to us on how this may apply to you and trusts you are involved with.
#3 If you own shares in a foreign company, you must pay tax in New Zealand on foreign share dividends unless:
- You are a transitional resident, or
- The shares are subject to foreign investment fund (FIF) or controlled foreign company rules for calculating taxable income.
Dividends paid by overseas companies to transitional residents or FIF income are not taxable in New Zealand for the transitional period. Non-residents are not taxed in New Zealand on income from outside of New Zealand.
The rules for FIFs and controlled foreign companies are complex. Get professional advice on the taxation of offshore investments, whether from us or your financial advisor.
#4 Having offshore: bank accounts, bank loans, term deposits and credit or debit cards may trigger New Zealand tax obligations. Even if foreign withholding tax has been deducted on foreign income, it doesn’t necessarily mean the income is no longer taxable in New Zealand.
#5 Do you have interests in a foreign superannuation scheme?
If so, any payments received from such schemes (including transfers into KiwiSaver) will need to be considered for New Zealand tax. As with other tax rules on foreign investments, these rules are complex. Please talk to us to ensure these are accounted for correctly.
#6 Have you made a gain on the sale of a foreign residential property?
Gains made on the disposal of any residential property situated in New Zealand or abroad might be taxed in New Zealand under the bright-line test.
#7 Do you receive royalty payments from offshore?
If you are a New Zealand tax resident you will be taxed in New Zealand on your worldwide income, even if the funds don’t make it into a New Zealand bank account. This would also include royalty income, however a foreign tax credit can be claimed for any withholding tax deducted offshore.
#8 Do you receive any foreign pension or annuity payments?
These must be included in your New Zealand tax return.
#9 Do you receive salaries, wages, commissions or Directors fees from offshore?
These sources of income must be included in your New Zealand tax return, regardless of whether the funds are received in New Zealand.
#10 Do you receive business, self-employed or consultancy income from offshore?
These sources of income must be included in your New Zealand tax return.
#11 Do you have any foreign life insurance policies?
These types of policies can result in taxable income under the FIF rules. It can be complex to calculate income under the FIF rules. Call us if this applies to you.
#12 Have you traded in precious metals or hold any crypto assets?
Generally gains made on the disposal or utilisation of such assets are taxable in New Zealand even if the assets are held offshore.
If you’re not sure about any or all of these as they relate to your tax position, please get in touch – we are here to help.