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Income Tax Act 2007

Tax credits and other credits - Tax credits for foreign income tax

LJ 2: Tax credits for foreign income tax

You could also call this:

“How to claim tax credits for overseas income tax paid”

You can get a tax credit for foreign income tax you paid on money you earned from outside New Zealand. Here’s how it works:

If you’re a New Zealand resident and you pay tax on income from another country, you can claim some of that tax back in New Zealand. The amount you can claim is based on how much foreign tax you paid and how much New Zealand tax you would have paid on that same income.

You can’t claim more in tax credits than the amount of New Zealand tax you would have paid on that foreign income. The tax credit might be adjusted up or down depending on your situation.

If you’re a citizen or resident of another country and you paid tax there, you can still claim a credit. But it’s limited to the amount of tax you would have paid if you weren’t a citizen or resident of that country.

There are special rules for certain types of investments and for people who earn money through personal services that are attributed to someone else.

Remember, these tax credits are designed to prevent you from paying tax twice on the same income - once in the foreign country and once in New Zealand.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518102.

Topics:
Money and consumer rights > Taxes
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LJ 1: What this subpart does, or

“This part explains how to get tax credits for foreign income tax”

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LJ 3: Meaning of foreign income tax, or

“What counts as tax paid in another country”

Part L Tax credits and other credits
Tax credits for foreign income tax

LJ 2Tax credits for foreign income tax

  1. A person described in section LJ 1(2)(a) has a tax credit for a tax year for an amount of foreign income tax paid on a segment of foreign-sourced income, determined as if the segment were the net income of the person for the tax year. The amount of the New Zealand tax payable is calculated under section LJ 5.

  2. The amount of the person's credit in subsection (1) must not be more than the amount of New Zealand tax payable by the person in relation to the segment calculated under section LJ 5(2), modified as necessary under section LJ 5(4).

  3. The amount of the person’s credit in subsection (1) may be reduced or increased if either section LJ 6 or LJ 7 applies.

  4. A person described in section LJ 1(2)(a) who has, because they are a citizen or resident of, or are domiciled in, a foreign country, paid foreign income tax on their assessable income, has a credit under subsection (1). However, the amount of the credit is limited to the amount of foreign income tax that would have been paid in the foreign country if the person were treated as not a citizen or resident of, or domiciled in, that foreign country.

  5. For a multi-rate PIE and an investor in a multi-rate PIE, the amount of a tax credit is limited to the extent allowed under subpart HM (Portfolio investment entities).

  6. Subsection (7) applies to a person who derives an amount from an attributing interest in a FIF when the amount is treated as not being income under section EX 59(2) (Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method).

  7. The person has a tax credit under this subpart for foreign income tax paid on or withheld in relation to the amount. The calculation of the maximum amount of the tax credit is made under section LJ 5(2), modified so that the item segment in the formula is the amount of FIF income from the attributing interest that the person derives in the period referred to in section EX 59(2).

  8. Subsections (9) and (10) apply when a person (the associated entity) resident in New Zealand derives an amount (the attributed amount) that—

  9. is assessable income of the associated entity that is sourced from outside New Zealand; and
    1. is attributed under sections GB 27 to GB 29 (which relate to the attribution rule for income from personal services) in an income year to another person (the working person) who is resident in New Zealand when the associated entity derives the attributed amount.

      1. Despite section LJ 1(2)(a), the working person has a tax credit under this subpart for foreign income tax paid on the attributed amount by the associated entity or withheld in relation to the attributed amount. The calculation of the maximum amount of the tax credit is made under section LJ 5(2), modified so that the item segment in the formula is the attributed amount for the income year.

      2. The associated entity does not have a tax credit under this subpart for foreign income tax paid on or withheld in relation to the attributed amount.

      Compare
      Notes
      • Section LJ 2(2): substituted (with effect on 1 April 2008), on , by section 336(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(5) heading: substituted, on (applying for the 2010–11 and later income years), by section 336(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(5): substituted, on (applying for the 2010–11 and later income years), by section 336(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(6) heading: added (with effect on 1 April 2008), on , by section 336(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(6): added (with effect on 1 April 2008), on , by section 336(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(7) heading: replaced (with effect on 1 April 2008), on , by section 159(1) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(7): added (with effect on 1 April 2008), on , by section 336(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2(8) heading: inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(8): inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(9) heading: inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(9): inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(10) heading: inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2(10): inserted (with effect on 1 April 2008), on , by section 159(2) (and see section 159(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2 list of defined terms attributing interest: inserted (with effect on 1 April 2008), on , by section 336(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms FIF: inserted (with effect on 1 April 2008), on , by section 336(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms FIF income: inserted (with effect on 1 April 2008), on , by section 336(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms income: inserted (with effect on 1 April 2008), on , by section 336(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms income year: inserted (with effect on 1 April 2008), on , by section 159(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2 list of defined terms multi-rate PIE: inserted, on , by section 336(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms portfolio tax rate entity: repealed, on , by section 336(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
      • Section LJ 2 list of defined terms resident in New Zealand: inserted (with effect on 1 April 2008), on , by section 159(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
      • Section LJ 2 list of defined terms tax credit: inserted (with effect on 1 April 2008), on , by section 336(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).