If you’re completing an NZ tax return (IR3), you may be able to claim a ‘foreign tax credit’ (FTC) for some or all of the overseas tax you’ve paid. With Hatch this is the tax you’ve paid in the US on dividends you’ve received.
A tax credit will offset some (or all) of your NZ tax bill.
If your effective tax rate is less than 15%, you’ll get a partial tax credit
Typically any US dividends you receive through Hatch will be taxed at 15% before they land in your Hatch account. This tax goes straight to the US Government and the NZ Government doesn’t see a penny. However, the NZ Government generally cut you a break from being double taxed by giving you a credit. Nice.
You can only claim a credit up to your effective NZ tax rate. This means that if your effective tax rate is under 15%, you might not be eligible for a full credit. The good news, even if you have received over $200 NZD in dividends, you might not have any extra tax to pay in NZ.
Effective tax rate: This is your average tax rate across all the brackets that apply to you (e.g. your first $14,000 is taxed at 10.5%, the next $34,000 at 17.5% etc). It’s calculated by dividing the total income tax you need to pay, by your total income. Once you know your income for the year you can calculate the tax you need to pay using the IRD’s calculator.
You received $20,000 income for the year, and have an effective tax rate of 12.6%
You received $1,000 NZD in dividends from your investments and paid $150 NZD in US tax.
If you’d received that $1,000 income in NZ, it would be taxed at 12.6%% and you would have been required to pay $126 in tax, so the maximum credit you can claim on your IR3 is $126.
You can find more on this in the IRD’s IR3 filing guide (page 21)
FIF taxpayers claim tax credits on individual investments:
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Note: Your tax obligations are unique to you - if you're unsure, we recommend you seek professional tax advice. Your situation may change over time; it’s your responsibility to keep up to date with changes.