According to the Chief Advisor – International Audit – IRD, the top ten errors associated with international tax compliance with respect to the taxation of NZ tax residents are as follows:
Error 1: NZ tax residents are taxable on income from NZ sources.
Fact: NZ tax residents are generally taxable on worldwide income.
Error 2: A resident who departs NZ automatically loses tax residency.
Fact: If a permanent place of abode in NZ is retained, the person will still be tax resident of NZ.
Error 3: Foreign income which is not repatriated to NZ is not taxable in NZ.
Fact: Foreign income can frequently be taxable in NZ even if left offshore.
Error 4: Income that has had withholding tax deducted offshore is not taxable in NZ.
Fact: Income that has had withholding tax deducted offshore is still generally liable to NZ tax.
Error 5: Claims for foreign tax credits are being made without regard to the limitations that exist.
Fact: Claims for foreign tax credits are subject to a number of limitations including that the foreign tax paid which is being claimed must be substantially the same in nature as NZ income tax and cannot exceed the NZ tax that would be otherwise payable on the foreign income being declared in NZ.
Error 6: Incorrect treatment of overseas pension payments received by NZ tax residents.
Fact: Some overseas pension payments may be taxable in NZ.
Error 7: Overlooking the effect of some of NZ’s international taxing mechanisms including the foreign investment fund (FIF) regime and the controlled foreign company (CFC) regime.
Fact: Some offshore investments are taxable in NZ.
Error 8: Overlooking the disclosure requirements that are required for CFCs and FIFs.
Fact: In some cases an exemption from disclosure is available.
Error 9: Incorrect treatment of employee benefits.
Fact: There is very little symmetry between the tax treatment of employee benefits in NZ and the tax treatment in other countries.
Error 10: Working for Families tax credits appear to be mistakenly claimed for transitional residents.
Fact: The Working for Families credit is not available during the transitional resident period.
Source: The Chartered Accountants Journal, December 2010.