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IS 20/06
03 Jul 2020

Income tax - tax issues arising from owning foreign residential rental property

If you own a foreign residential rental property, you probably need to pay tax on the rental income in both New Zealand and in the country where the property is located.  As a result, you want to ensure you are calculating your New Zealand tax correctly and getting any available credit for the foreign tax paid.

The way you calculate the income from your foreign residential rental property for New Zealand tax purposes may be different from the way you calculate it for foreign tax purposes.  It is unlikely that you will be able to simply copy the income and expense amounts you calculated for foreign tax purposes straight into your New Zealand tax return.  This is because tax rules vary from country to country.  For example:

  • balance dates for when income or expenses are recognised as derived or incurred vary from country to country
  • the deductions you can claim for New Zealand tax purposes may differ from those allowed overseas and vice versa 
  • you will need to convert the foreign currency amounts into New Zealand dollars using the correct rates for the correct dates
  • New Zealand’s Financial Arrangements rules (FA rules) may mean you need to account for both the amount of interest you paid or incurred on a foreign currency loan used to finance the residential rental property as well as any foreign exchange gains or losses made on the loan

In addition to paying New Zealand tax on rental income from your foreign residential rental property, you may also be required to pay New Zealand tax on any gains you make if you sell the property.  This is because New Zealand’s land taxing rules can apply to foreign property owned by New Zealand tax residents in the same way they do for New Zealand property.

If you are required to pay tax on income from your foreign residential rental property both in New Zealand and overseas, you may be entitled to claim foreign tax credits in New Zealand for tax paid overseas.  Calculating the foreign tax credits available where tax has been paid on income in a foreign country and tax is also payable on the same income in New Zealand is complex.

This interpretation statement explains the different matters you need to consider to comply with your New Zealand tax obligations when you own a foreign residential rental property.  Because these issues can be complicated and the outcomes can vary depending your circumstances, you may wish to seek professional tax advice tailored to your situation.

Tax Information Bulletin Vol 32 No 7 - August 2020

Income Tax Act 2007: ss BB 1, CB 6A, CB 6, CC 1, CW 27, DA 2, EG 1, HR 8, subpart LJ, LJ 3, RF 2, RF 12, YF 1, YF 2
Tax Administration Act 1994: s 78B