Add foreign income

Overview

To add foreign income to a tax return, you'll need to add the applicable foreign income workpaper to the account in your trial balance. TaxLab will automatically calculate allowable foreign tax credits for foreign income based on the segments in the workpapers.

Add a foreign income workpaper

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 and enter details of the foreign income.

If you need to add a 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 and enter details of the foreign income.

Types of foreign income workpapers

There are a range of foreign income workpapers available depending on the entity type that you are adding it to. These include Foreign income, Foreign interest, Foreign dividend, Foreign rental income, Foreign rental expense, Attributed FIF/CFC income and Foreign superannuation scheme income. 

Foreign income and individual returns (IR3s)

The IR1261 Overseas Income Summary Form (IR1261)

From 2023, NZ resident individuals must file additional information about any foreign income they receive. This information is returned on the IR1261, and in TaxLab it is attached to all IR3 tax returns that contain foreign income. The IR1261 collates and reports the overseas income by jurisdiction, along with the type of income it is. In TaxLab, any information added to the foreign income workpapers will flow through into this form. You cannot update the tax form disclosure to "Overseas income" directly on an account without adding a foreign income workpaper first.

When you add a foreign income workpaper to an account in an individual's tax return (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. 

If you have two or more accounts with foreign workpapers attached, and these have the same segment, the amounts will be combined in the calculation of the allowable foreign tax credit.

Receiving distributions of foreign income

In TaxLab you are able to link entities, and then distribute income out from Partnerships and Look-through Companies (IR7s), or Trusts (IR6s). If an individual receives a distribution of foreign income, this will appear in their accounts with a "foreign income" workpaper automatically added. The Jurisdiction will automatically be set to "Unknown" and Type of income automatically set to "Other". The IR3 guide notes that individuals should provide the specific details of the foreign income received via distributions, so these need to be manually updated. Learn how to Split foreign income received from a trust, partnership or LTC.

Reviewing the IR1261

You can review the IR1261 details on the printed E-file Transcript. Select the printer icon > print options > EFile Transcript.

You can also verify that the form is attached to the IR3 from the Filing and Payment Schedule. Select Reports > Filing and Payment Schedule

Troubleshooting

I can't record a Foreign Investment Fund (FIF) that has nil income

If you have an individual that needs to return nil income in their IR1261 because there is still an overseas tax obligation, this is currently unsupported by TaxLab. TaxLab only includes workpapers containing foreign income or amounts where a foreign tax credit is allowed. You'll need to submit the return without the nil income and then amend the return directly with Inland Revenue. 

The IR1261 isn't displaying as active for my tax return

If you don't have any foreign tax credits available to claim, then the IR1261 will not display as active. If you do have available credits, check that on your foreign income workpaper the "Tax Treatment" is marked as "Taxable".

What's next?

Once you've recorded your foreign income, you can add foreign tax credit details. 

Related articles

Split foreign income received from a trust, partnership or LTC.

Import distributions and settlements.