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I'm a NZ Tax Resident with Overseas Investment Property. Do I have to pay NRWT? Or AIL?

3/8/2015

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Good question. The best answer is: look at the flow-chart below (kindly provided by IRD).
Picture
Basically, if you have overseas investment property and you have a mortgage with an overseas bank, then you might have to pay NRWT.  

NRWT is Non-Resident Withholding Tax.  Essentially, if you're paying interest, dividends or royalties to people (and banks, e.g. a mortgage with an overseas bank) who aren't New Zealand tax residents, you'll need to deduct NRWT.  However, there are exceptions. We'll write some more about that soon, but here's a link to check out in the meantime.

The other alternative is to pay AIL (Approved Issuer Levy). If you pay interest to a (non associated) non-resident lender, and want to pay it at a zero rate of NRWT, you have to apply to Inland Revenue to become an approved issuer. Instead of deducting NRWT, approved issuers must pay a levy on the securities they register with Inland Revenue.

Again, we'll write some more about this later, but here's some bedtime reading on the subject.

Are You A "Cash Basis" Person?

What we refer to above is known as a financial arrangement, ie if you have overseas investment property and you have a mortgage with an overseas bank.  IRD says that if you are a "cash basis" person, you have to account for changes +/- in foreign currency as well!

Here's how to tell:

The criteria for a person to be classified as a Cash Basis Person are that the value of all financial arrangements of the person do not exceed certain values and that there is not a difference between accrual and cash recognition exceeding $40,000. This $40,000 is cumulative from year to year.

The rules under the first criterion are that one of the following is satisfied:   

  • income and expenditure under all financial arrangements for the income year does not exceed $100,000, or
  • the absolute value of all financial arrangements to which the person is a party on every day of the income year does not exceed $1 million with that value calculated on the basis of:    
  1. face value for a fixed principal financial arrangement
  2. the amount owing for a variable principal debt instrument, and
  3. the value determined under the old financial arrangements rules if they apply to the financial arrangement.   
And...
  • The overall $40,000 threshold requires the application of a formula to all financial arrangements to which the person is a party. The product (difference between the income on a cash and accrual basis) cannot exceed $40,000 if the person is to be a cash basis person.

Nope. No Idea!

Still stuck? Contact us or your tax professional
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    Garreth Collard

    Accounting for your rental residential investment property; specialised property tax advice.  Buy me a coffee! 

    View my profile on LinkedIn

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  • HOME
  • ABOUT
    • IN THE NEWS >
      • OWNERSHIP STRUCTURES
      • TURNING SKILLS INTO MONEY AND A BETTER LIFESTYLE
    • PARTNERS
    • SERVICES
    • TESTIMONIALS
    • WHY USE A PROPERTY ACCOUNTANT
  • FAQ
    • AML/CFT
    • ANTI-CORRUPTION
    • AUDIT SHIELD
    • DATA PRIVACY
    • FORMS
    • GETTING STARTED IN INVESTMENT PROPERTY
    • HOW TO CALCULATE RENTAL YIELD
    • INFO FOR NEW INVESTORS
    • INVOICES
    • NEW VS OLD VS LAND&BUILD
    • TAX RETURN FAQ
    • TAX POOLING
  • CONTACT
  • BLOG