OPINION: A New Zealand tax resident is subject to New Zealand tax on his or her world-wide income. It does not matter if the income is not repatriated to New Zealand, the tax rules still apply, writes Jay Changlani in Taxing Times.
For example, if you invest in overseas shares or fixed rate government bonds the income derived from those investments will be taxed in the country of source and again in New Zealand on either actual receipts or under the foreign investment fund rules. A credit may be allowed for any tax paid or deducted in the overseas country.
Some people think they may get away with not returning some or all of their foreign income. However, relying on non-detection by the IRD may not be the best tax planning.
The IRD is actively pursuing overseas sourced income, and has several sources of information which they can use to determine whether you have offshore investments such as the Reserve Bank which provides details of all foreign currency transfers in excess of $10,000, and Information Sharing Agreements with other tax authorities.
The onus is on the taxpayer to file their return correctly. If you have not included all of your overseas income in your New Zealand tax return and the IRD carry out an audit, you could face penalties of up to 150 per cent of the unpaid tax, use of money interest and payment of the actual tax. In addition, there probably will be accounting and/or legal fees incurred in dealing with IRD queries.
However, the above cost can significantly reduce if you voluntarily inform IRD about any overseas income you have not returned in New Zealand in error.
Since the calculation of the overseas investments are not straight-forward, I recommend that taxpayers engage a specialist tax adviser to deal with the voluntary disclosure process as soon as possible, to mitigate any tax liability or penalties that may arise.
» Jay Changlani is a tax manager at accounting firm WHK. Phone 03 211 3355.
- The Southland Times