Overseas Investments – What Are Your Tax Obligations?

If you have made overseas investments recently, have you given any thought to what this means when it comes to paying tax?

In late June the IRD released its offshore tax transparency package to clarify the tax compliance for overseas investments. In short- New Zealand tax residents are required to pay taxes on their worldwide income, regardless of whether taxes are paid overseas and whether the income has been brought back to New Zealand.

Inland Revenue spokesperson John Nash said “New Zealanders have become increasingly involved in overseas investment. They’re taxed on their worldwide income including things like rental income from a property overseas, interest from an offshore bank account, and returns from a portfolio of overseas shares”.

Inland Revenue’s “Top 10 facts about international tax”

As part of the educating taxpayers, particularly those new to New Zealand, Inland Revenue have noted the following:

1. Your tax residency status in New Zealand is different from your immigration status.
2. In general, New Zealand tax residents pay income tax on their worldwide income while-non-residents pay on income from New Zealand.
3. Your worldwide income can include foreign income even if you have not repatriated it to New Zealand or you have paid tax on it in the other country or the income is exempt in the other country.
4. Some rules in New Zealand may tax capital gains and may do so even though the gain has not been realised. Examples include the foreign investment fund and financial arrangement rules.
5. New tax residents and former tax residents returning after 10 years may qualify for a temporary tax exemption on most, but not all, forms of foreign income.
6. New Zealand will usually give a credit for tax paid to another country, capped at the amount of tax payable here on the foreign income.
7. [Inland Revenue] advise you to consult a tax agent knowledgeable in international tax if you’re not sure how the law applies to your situation as some of the rules can be complex.
8. If New Zealand has a double tax agreement with another country, it may affect how your income is taxed.
9. There are shortfall penalties for not declaring income but they can be reduced by up to 100% if you make a voluntary disclosure.
10. Inland Revenue exchanges financial information about taxpayers annually with many other countries and matches it to tax returns.

As some of the tax rules can be complex, it is best to refer to the guides that have been created from the IRD or to get in contact with your Walker Wayland Accountant. It is key to know to include in your New Zealand return so that you can be in the right position for overseas investing.