Inland Revenue recently expanded its guidance on claiming foreign tax credits for overseas tax paid.
Interpretation Statement IS 21/09 Foreign tax credits – how to claim a foreign credit was issued on 22 December 2021 and sets out how to claim a foreign tax credit on tax paid to another country.
The statement is one of a series of three Interpretation Statements issued by Inland Revenue concerning credits for overseas tax paid. The earlier two statements are:
- IS 14/02 Income tax – foreign tax credits – what is a tax of substantially the same nature as income tax imposed under s BB 1?
- IS 16/05 Income tax – foreign tax credits – how to claim a foreign tax credit where the foreign tax paid is covered by a double tax agreement (DTA).
IS 21/09 compliments the two earlier Interpretation Statements. It explains the application of subpart LJ of the Income Tax 2007 with detailed examples.
It should be read in conjunction with IS 14/02 and IS 16/05. Pivotal to the initial stages is to work through the nature of foreign taxes paid. This is done through the application of IS 14/02. Also, it is necessary to establish whether a double tax agreement is in force between New Zealand and the country to which the overseas tax has been paid. This step is done through the application of IS 16/05.
If there is a DTA then that DTA will govern how credit is to be applied in the New Zealand tax return. Articles in the DTA provide the road map as to which country has taxing rights, sole, or primary.
Experience in interpreting DTAs is essential to ensure that the correct Inland Revenue Interpretation Statement is applied when claiming a credit for taxes paid to a foreign country. We have in-depth knowledge and expertise in this arena.
Background
New Zealand residents are taxed on their worldwide income. A New Zealand resident who derives assessable income from a foreign source may be entitled to a foreign tax credit for foreign income tax paid on that income. The process for calculating a foreign tax credit is set out in subpart LJ of the Act.
Special Offer for 2022 Clients.
Complementary to clients who have signed with us for a 2021 U.S. Federal income tax return we have available a detailed guide prepared by Gina on how to claim a credit for overseas taxes using IS 21/09[1]. It provides examples that are relevant to U.S. citizens and residents residing in NZ.
To receive your free guide, or to inquire about a 2021 U.S. tax return please email gina@nzustax.com.
Do you require assistance with claiming credits for foreign taxes in New Zealand?
If you require New Zealand tax assistance please email gina@nzustax.com.
[1] Terms and conditions apply.