Filing My Foreign Investment Fund Tax Return

31 March 2020 marked the end of the financial year for the year 2020 – which also means that in the next few months you will need to file taxes! Luckily, we have an easy tax system in New Zealand. For many people you who are on salaried wages, your tax is automatically done for you through PAYE (pay as you earn). Your employer would have already paid your taxes on your behalf.

But what about if you have been investing in a foreign investment fund (FIF)? The Vanguard funds on InvestNow, or US shares through Hatch or Stake. Whichever foreign investment it is, you probably have questions about how to do your return- I get emails about them all the time. So to try and help, I’m going to bring you along with me while I do my FIF return.

This is not a guide thought- I am not a tax expert or an account- so if you have any questions seek professional help. This is just how I do it based on reading guides from IRD and Hatch. And did a post about FIF tax previously– but it needs to be expanded on.

Before I Start My Tax Return

Before I start to complete your tax return, I like to go and collect all the relevant information that I need. This involved downloading tax certificates from all the financial services I use- the tax summary from InvestNow, tax certificates from my banks and KiwiSaver provider, and tax certificates from my peer to peer lending.

I probably don’t need all of them for doing this return- as many of them share information directly to IRD- so the information is already loaded in IRD- and I don’t usually have to record PIE funds in my return as I know that my Prescribed Investor Rate for my PIE funds is correct. That means that my tax has already been collected throughout the year and that no final income needs to be recorded on my tax return.

But I find it useful to have them ready for cross-checking and have them all filed away in the same place. The one thing I do need is the tax summary report from InvestNow, which shows my FIF income. Hatch does the same thing- I’m not too sure about Stake thought.

How I File Your FIF Tax Return

Filing you FIF tax online has become super easy for us Kiwis. To start with, I need to login to myIR on the IRD website. If you don’t have a myIR login you should probably get one by the way.

Once I’ve logged into my IRD account I need to click through to my “income tax window”.

This is were I can see all the recent activity related to my income tax, and tax returns for the last 7 years. As well as some other details.

From either the summary tab, or the periods tab- I find the year that I want to file a tax return for.

Clicking on “file return” then leads me through a step by step process of what I need to do. I find it much easier to do my tax return online than to follow the form that gets sent in the mail. It does suggest that I should set aside 60 minutes to complete the return, but if you have done it before it doesn’t take that long.

The first few questions of the process are some basic questions to get me warmed up.

Then the form asked me what my BIC code is, and because I am a PAYE employee- I just leave this blank. As far as I know, this is for self-employed people to determine how much ACC is deducted alongside their tax.

The next list is where I can select what income I need to include in my return. For my FIF income, I need to have “Overseas Income” selected. This caught me out for a second. Since this is only the second year I have done this, I was looking for “Overseas Income” on the list but didn’t realise that it was at already selected and at the top.

Then some more questions- that I now read through carefully. Because one year I made the mistake and checked the “this will be my final return”- thinking-yes – this is going to be my final return for the year. I’m not going to do it twice.

But if I had read it more carefully I would have understood that this question is trying to determine if you have died in the last year. Lucily- IRD made contact to confirm and I gladly told them that I was in fact alive and well.

They have made the question more clear now- and it now says “close my income tax account, this will be my final return”.

Then come some disclosure questions. As far as I am aware- I only need to make a CFC/FIF disclosure if you exceed the $50,000 threshold. But don’t quote me on that one. From what I have read- if I used any of the other methods in determining my FIF tax. then I would need to file a FIF disclosure form.

Once all that has been completed, then I get to the income section of your return. The meat in this tax sandwich. This is were IRD reports what my total gross income from my job, what interest income with resident withholding tax they hold on record. I like to check both of these against my own records. And this is where it helps to have all my documents ready.

Since I am a natural person investing in a FIF which doesn’t exceed the NZ$50,000 threshold I can choose to just to pay the tax on the dividend received. I add the dividend income value that is on my tax summary from InvestNow into the overseas income box, and then I add any Foreign Tax credits into the total overseas tax paid.

Then it’s just a matter of me declaring that all the information I have provided is true and correct and submitting the tax return. After which you will see that your account is negative and a tax balance is payable. I don’t pay this immediately as I like to wait until the submission has been processed before I make the payment.

And that’s it. It’s not as hard as everyone makes it out to be. It will become a little bit more complicated once you are above the threshold- but Investnow calculates it all for me anyway.

Please note, your individual circumstances may differ and tax situations when you have additional investments outside of InvestNow. Don’t take what I do as independent tax advice, and if you are confused I recommend you seek professional tax advice to ensure your individual tax obligations are met.

Also- have a read of the IRD Guide to foreign investment funds and the fair dividend rate and Hatch’s tax guide.