Good question. The best answer is: look at the flow-chart below (kindly provided by IRD).
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:
Nope. No Idea!
Still stuck? Contact us or your tax professional
Accounting for your rental residential investment property; general taxation advice.