Tax Updates: 31 July 2023

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

UOMI rates increasing again

Understandable, I guess, when you reflect on what is happening with the official cash rate and Inland Revenue’s (IR) determination not to be treated as a bank, use of money interest rates will again increase effective 29th August 2023.

The paying rate will increase from 10.39% to 10.91%, while the receiving rate will increase from 3.53% to 4.67%.

Investing in a US LLC rulings

If you or your clients invest in a United States limited liability company (LLC), which is being taxed as a partnership in the US (along similar lines to our own LTC regime), then this series of five rulings which are a reissue of the 2020 versions, would be a good read if you are wanting more clarity surrounding the ability to claim the US federal income tax paid on the investors’ share of the LLC income.

The potential complexity arises because the LLC is still considered a company under New Zealand tax rules, with investor profit attributions therefore considered dividends. The five rulings cover all the potential investor scenarios, ranging from an investor with less than $50k in the total cost of all attributing interests in Foreign Investment Funds (FIFs) to an investor receiving dividends from either a non-attributing active Foreign Investment Fund or a non-attributing active Controlled Foreign Company (CFC). The five rulings are:

• BR Pub 23/09: “Income tax – dividends derived by New Zealand resident investor in a US limited liability company that is a foreign investment fund, where the total cost of all the investor’s attributing interests is $50,000 or less.”
  
• BR Pub 23/10: “Income tax – foreign investment fund income and dividends derived by a New Zealand resident investor in a US limited liability company.”
  
• BR Pub 23/11: “Income tax – attributed foreign investment fund income and dividends derived by a New Zealand resident investor in a US limited liability company.”
  
• BR Pub 23/12: “Income tax – attributed Controlled Foreign Company income and dividends derived by a New Zealand resident investor in a US limited liability company”; and,
  
• BR Pub 23/13: “Income tax – dividends derived by a New Zealand resident investor in a US limited liability company that is either a non-attributing active foreign investment fund or a non-attributing active Controlled Foreign Company”.

Only in rulings three and four will the investor be entitled to a foreign tax credit for the US federal tax paid, against the New Zealand income tax payable on their attributed FIF or CFC income.

The rulings are perhaps a timely reminder, therefore, that just because an investor has directly paid foreign income tax on their share of the foreign-sourced income, does not automatically correlate to a foreign tax credit being claimable in their New Zealand income tax return, particularly in cases where the foreign entity may be viewed as a different beast from a New Zealand tax perspective, than it is in its local jurisdiction.

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This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.