Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Recognition of accounting treatment

EG 1: Election to use balance date used in foreign country

You could also call this:

“Choose a different date for reporting foreign income and expenses in your New Zealand tax return”

You can choose to use a different date for your foreign income and expenses if you pay income tax in another country. This applies when:

  1. You have income or expenses from another country that you pay income tax on there.
  2. You’ve included this income or expenses in a tax return in that country.
  3. The tax year end date in that country falls within your New Zealand income year.
  4. Without this choice, you would have to include the income or expenses in your previous New Zealand tax year.

To make this choice, you include the foreign income or expenses in your New Zealand tax return for the year that matches the foreign tax year. This applies to all your foreign income and expenses, except for some special types like dividends or income from foreign investments.

If you make this choice, it will apply for future years too, unless you ask the Commissioner to change it back or your foreign income is more than $100,000.

If you stop being a New Zealand resident or become one, these rules still apply, but with some extra conditions.

The Commissioner can decide if this choice can apply to income from financial arrangements or dividends. They will consider things like how much it might cost you to follow the normal rules and if it might affect the tax you pay.

Section BD 1(5)(c) of the Income Tax Act 2007 has more information about income tax for non-residents.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514791.

Topics:
Money and consumer rights > Taxes
Previous

EF 6: Different tax years, or

“This provision about different tax years was removed in 2011”

Next

EG 2: Adjustment for changes to accounting practice, or

“How your tax is adjusted when you change accounting methods”

Part E Timing and quantifying rules
Recognition of accounting treatment

EG 1Election to use balance date used in foreign country

  1. This section applies when—

  2. a person has foreign source income or foreign expenditure that is taken into account in determining the income tax, not merely the withholding tax, payable by them in a foreign country or territory; and
    1. the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and
      1. the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and
        1. if the person did not make an election under this section,—
          1. the foreign source income would be allocated to their previous income year; or
            1. the foreign expenditure would be a deduction allocated to the previous income year if the only income of the person were foreign source income to which this section applies.

            2. If the person has not already included the foreign source income or foreign expenditure in their return of income for the previous tax year, they may choose to allocate the foreign source income or the foreign expenditure to the income year referred to in subsection (1)(c).

            3. The person makes the election by including the foreign source income or foreign expenditure in their return of income for the income year referred to in subsection (1)(c).

            4. The election applies to all the person’s foreign source income and foreign expenditure to which subsection (1) applies, except for—

            5. income or expenditure under the financial arrangements rules, unless the Commissioner notifies the person that the election can apply; or
              1. dividends, unless the Commissioner notifies the person that the election can apply and the person is not a company; or
                1. attributed controlled foreign company (CFC) income; or
                  1. foreign investment fund (FIF) income or income derived from an attributing interest; or
                    1. in the case of foreign expenditure, foreign expenditure that would be allowed as a deduction if the only income of the person were income to which paragraphs (a) to (d) apply.

                      1. The foreign source income and foreign expenditure to which the election applies is allocated to the income year referred to in subsection (1)(c).

                      2. An election made by a person under subsection (2) applies for the income year referred to in subsection (1)(c) and all later income years, unless—

                      3. the person seeks the Commissioner’s agreement to revoke the election, and the Commissioner notifies them that they may revoke the election; or
                        1. the person’s net income for the relevant income year would be more than $100,000 if their only income in the income year were foreign source income.

                          1. If subsection (6)(b) applies,—

                          2. foreign source income and foreign expenditure is allocated to the income year referred to in subsection (1)(c) only if it was derived or incurred in that year; and
                            1. foreign source income and foreign expenditure to which the election would have applied if subsection (6)(b) had not existed is allocated to the previous income year; and
                              1. if necessary, the previous tax year’s return is amended.

                                1. In deciding whether to agree to an election applying to income or expenditure under the financial arrangements rules or dividends, the Commissioner must consider—

                                2. whether the person is likely to incur significant compliance costs if the Commissioner does not agree to the election; and
                                  1. the risk to the revenue if the Commissioner agrees to the election; and
                                    1. any other factors the Commissioner considers relevant.

                                      1. If the person ceases to be, or becomes, resident in New Zealand, this section applies in the same way as for other persons except that—

                                      2. it does not apply to income or expenditure that is allocated, other than under this section, to a period when the person is not resident in New Zealand; and
                                        1. if it allocates foreign source income derived or foreign expenditure incurred while the person is resident in New Zealand to a period after the person has ceased to be resident in New Zealand,—
                                          1. the foreign source income is assessable income in the income year in which the foreign source income is allocated under this section, despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income); and
                                            1. the foreign expenditure is allowed as a deduction in the income year to which the foreign expenditure is allocated under this section.

                                            2. In this section,—

                                              annual income tax balance date includes a date that is substantially equivalent to an annual income tax balance date

                                                foreign expenditure means expenditure that is incurred in deriving foreign source income

                                                  foreign source income means income that does not have a source in New Zealand and that is not exempt income.

                                                  Compare
                                                  Notes
                                                  • Section EG 1(4)(a): amended, on , by section 16(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                                  • Section EG 1(4)(b): amended, on , by section 16(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                                  • Section EG 1(6): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 69(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                  • Section EG 1(6)(a): replaced, on , by section 16(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                                  • Section EG 1(10) foreign source income: amended, on , by section 55(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                  • Section EG 1 list of defined terms derived from New Zealand: repealed, on , by section 55(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                  • Section EG 1 list of defined terms notify: inserted, on , by section 16(4) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                                  • Section EG 1 list of defined terms source in New Zealand: inserted, on , by section 55(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).