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New Zealand law explained for everyone

Income Tax Act 2007

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

LJ 7: Repaid foreign tax: effect on income tax liability

You could also call this:

“How refunds of foreign tax affect your New Zealand tax”

This section talks about what happens if you get money back after paying foreign income tax. If you’ve already claimed a tax credit for that foreign tax, you might need to pay some money back to the New Zealand government.

If you get the refund before you work out your income tax for the year, you need to reduce your tax credit. You reduce it by either the amount of the refund or the amount of New Zealand tax you would have paid on that foreign income, whichever is smaller.

If you get the refund after you’ve already worked out your tax and used the credit, you might need to pay some money to the government. You’ll need to pay either the amount of the refund or the amount of New Zealand tax you would have paid on that foreign income, whichever is smaller.

If you do need to pay money back, you have to do it within 30 days of getting the refund or being told about your tax assessment, whichever comes later.

It doesn’t matter who actually gets the refund - whether it’s you, the person who paid the tax, or someone connected to either of you. The rules still apply.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518131.

Topics:
Money and consumer rights > Taxes
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“This outdated rule about repaid foreign tax and FDP liability was removed in 2017”

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

LJ 7Repaid foreign tax: effect on income tax liability

  1. This section applies to a person who has—

  2. paid an amount of foreign income tax, or in relation to whom an amount of foreign income tax has been paid, on a segment of foreign-sourced income in relation to which they are entitled to a tax credit under section LJ 2; and
    1. received a refund, amount, or benefit (the refund) determined directly or indirectly by reference to some or all of the payment of foreign income tax.

      1. If the person receives the refund before they assess their income tax liability for a tax year, the amount of the tax credit for the foreign income tax paid is reduced by the lesser of—

      2. the amount of the refund:
        1. the amount of New Zealand tax payable on the foreign-sourced income calculated under section LJ 5.

          1. If the person receives the refund after they have assessed their income tax liability for a tax year, have used an amount of foreign tax credit in satisfying that liability, and have not taken the refund into account in that assessment, the person is liable to pay the Commissioner the lesser of—

          2. the amount of the refund:
            1. the amount of New Zealand tax payable on the foreign-sourced income calculated under section LJ 5.

              1. In subsection (3), the date for payment is 30 days after the later of—

              2. the date on which the person receives the refund:
                1. the date of the notice of assessment in relation to which the person has used the credit.

                  1. For the purposes of this section, the refund is treated as received by the person, whether it is received by the person, a person who paid the foreign income tax, or a person associated with either of them.

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                  Notes
                  • Section LJ 7: substituted (with effect on 1 April 2008), on , by section 339(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                  • Section LJ 7(3)(b): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 117(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                  • Section LJ 7(4): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 102(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).