Foreign income and deductions

Modified on Wed, 1 May at 11:33 AM

To add foreign income and credits to a tax return, add the applicable foreign income workpaper to the account. TaxLab will automatically calculate allowable Foreign Tax Credits for foreign income based on the Segments in the workpapers.

Add a foreign income workpaper

Add the workpaper to an account:  

  1. Open the Trial balance and locate the account that you want to add the workpaper to. 
  2. From the Add Workpaper drop-down list, select the applicable foreign income workpaper
  3. Click the workpaper link to open the worksheet and enter details of the foreign income.

Add the workpaper when no account is required:

  1. Go to Workpapers > Workpapers
  2. Click New workpaper. From the drop-down list, select the applicable foreign income workpaper.
  3. Click the workpaper link to open the worksheet and enter details of the foreign income.

There are a range for foreign income workpapers available depending on entity types. These include Foreign Income, Foreign Interest, Foreign Dividend, Foreign rental income, Foreign rental expense, Attributed FIF/CFC and Foreign superannuation scheme income. 

IR3s and IR1261 overseas income summary

From 2023, additional information regarding foreign income received by a resident individual must be filed. This is captured on the IR1261 Overseas income summary form which is attached to all IR3s with foreign income.

The IR1261 Overseas Income Summary collates and reports the overseas income based on the Jurisdiction the income was derived from and the Type of overseas income it is. In TaxLab, this information is added directly to the foreign income workpapers. 

From 2023, you cannot update the tax form disclosure to Overseas Income directly on an account without adding one of these workpapers first.

Adding foreign income to an IR3

When you add a foreign income workpaper to an IR3, in addition to the income and foreign tax credit details, you will also be prompted to provide:

  • Jurisdiction – This is the jurisdiction the foreign income was derived from. Select the applicable jurisdiction from the drop-down list. If the jurisdiction is unknown, “Unknown jurisdiction” is an available option. 
  • Type of income – Select the applicable income type from the drop-down list. This list is specified by Inland Revenue. If the income type is not listed, select Other.
  • Description for segmentation – This field is optional and allows you to correctly segment the foreign income for the purposes of the foreign tax credit calculation. It can be left blank or be populated with a brief description. 
  • Segment – Automatically populates based on your selections in the above fields. This is what is used to calculate the allowable foreign tax credit for each segment. 

When two or more foreign workpapers have the same segment they will be aggregated together in the calculation of the allowable foreign tax credit.

Distributions of foreign income to an IR3

In TaxLab, when an IR3 recipient receives a linked distribution of foreign income from an IR7 or IR6 filer the Tax Jurisdiction will automatically be set to Unknown and Income Type automatically set to Other.

However, the IR3 guide notes that individuals should provide the specific details of the foreign income received via distributions. 

Instructions on how to make these changes in the IR3 taxpayer can be found in our article Splitting foreign income received from a trust, partnership or LTC.

Nil income from FIF

We don't currently support the filing of nil income on the IR1261 where there is still an overseas tax obligation. This is because we only include workpapers containing foreign income or amounts where a foreign tax credit is allowed. 

Until we're able to make this available you'll need to submit the return without the nil income and then amend your return directly in myIR. 

Reviewing the IR1261 overseas income summary

You can review the IR1261 Overseas Income Summary details on the printed E-file Transcript.

Verify that the form is attached to the IR3 from the File with IRD screen:

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