Foreign tax credits on FIF income: US withholding, the 15% cap and other limits

When an overseas company pays you a dividend, its country often keeps some tax. New Zealand gives you a credit for that tax, but the credit has three ceilings: the rate allowed by the double tax agreement, the actual tax paid, and the New Zealand tax on that holding’s FIF income (IR461 p20; IR3G pp22 to 23). For US shares the treaty rate is 15%. If your platform withheld 30% because no W-8BEN was lodged, the extra 15% cannot be credited here. This guide sets out the limits with worked figures.

The limits on a foreign tax credit

From IR461 p20 and IR3G pp22 to 23, the credit for each FIF holding is limited:

1. To the treaty rate. Where New Zealand has a double tax agreement with the country, the credit is capped at the rate the agreement allows. IR461’s example: Peter has 30% Swiss withholding, the agreement limits Swiss tax to 15%, so his credit is limited to 15% and he must ask the Swiss tax authority for the rest.
2. To the tax actually paid. You cannot claim more than was withheld.
3. To the New Zealand tax on that segment of foreign income. For FDR, CV, the cost method and deemed rate of return, the segment is the FIF income from that holding, not the dividend (subpart LJ; IR461 p20).

Further rules:

• No credit if that holding’s FIF income is nil or a loss.
• Unused credits cannot be refunded or carried forward.
• Where there is no double tax agreement, a credit may be allowed if the foreign tax is substantially the same as New Zealand income tax.
• “Australian franking credits and tax paid on dividends from the United Kingdom are not eligible” (IR461 p20).

Inland Revenue’s detailed guidance is IS 21/09, “How to calculate a foreign tax credit” (cited at IR461 p20). We have not read it, so the method below for the third limit is our reading.

US dividends: 15% or 30%

The New Zealand and United States tax treaty, as amended by the protocol signed in 2008, limits US tax on dividends paid to a New Zealand resident beneficial owner to 15% of the gross dividend, or 5% for a company owning at least 10% of the voting power (Article 10(2), US Treasury copy of the protocol). For an individual investor, 15% is the relevant figure.

US payers apply the treaty rate when you have given them a Form W-8BEN. The IRS instructions warn that failing to provide one when asked “may lead to withholding at the foreign-person withholding rate of 30%” (IRS Instructions for Form W-8BEN). Platform help pages say the same in practice (Stake help, single platform source).

New Zealand only credits up to the treaty rate, so the extra 15% is a straight cost unless you recover it from the US authorities, which IR461’s Peter example says is the route for over-withheld tax. See the W-8BEN guide.

Our earlier research marked the 15% as unconfirmed from an official page; it is now confirmed from the treaty protocol text, and the 30% default from the IRS instructions.

Worked example: an FDR year

You hold a US shares ETF worth NZ$100,000 on 1 April 2025, you are over the $50,000 threshold, and your other taxable income is $95,000. FDR income from the ETF is $5,000, and the extra tax on it is $1,650.00. Your average tax rate on total income of $100,000 is about 22.88%, so the New Zealand tax on this holding’s FIF income is $1,143.88 on our method (FIF income × total income tax ÷ taxable income). The ETF paid NZ$1,500 of gross dividends.

Your New Zealand tax on the FIF income falls from $1,650.00 to $1,425.00 either way. Without the W-8BEN you have also lost an extra $225 to the US.

When FIF income is low, the credit shrinks

The third limit bites when a holding’s FIF income is small compared with its dividends. Suppose, in a CV year, the same ETF’s CV income was only $500 while it still paid $1,500 of dividends with $225 withheld. On the same average rate, the New Zealand tax on $500 is $114.39, so that is the most you can credit. The other $110.61 of US tax is lost: it cannot be refunded or carried forward (IR461 p20).

And if CV reduces your FIF income to nil, there is no credit at all on those holdings. That is why our calculator chooses between FDR and CV by lower income, as IR461 p14 does, and notes that in rare cases with large credits the other method might leave slightly less tax to pay (FDR or CV).

Our calculator also caps credits on all FIF holdings together at the New Zealand tax on the net FIF income, because per-holding CV gains can add up to more than the net figure when other holdings made losses. Capped credits are scaled back in proportion so that the IR1261 lines add up to box 17A. These are our stated rules; see the methodology page.

UK and Australian shares

UK. Tax paid on dividends from the United Kingdom is not eligible for a credit (IR461 p20). If any UK tax is shown on a dividend statement, it is not claimed as a credit here.

Australia. Australian franking credits cannot be claimed in New Zealand (IR461 p20; IRD exemptions page). Some Australian companies attach New Zealand imputation credits, and some Australian dividends carry New Zealand resident withholding tax (RWT). Neither is a foreign tax credit (IR461 p20; IR3G p23):

• NZ imputation credits reduce your tax, limited by reference to FIF income if the dividend is bigger than the FIF income, with no carry forward;
• RWT offsets your tax and any excess is refundable, even where FIF income is zero.

Many ASX-listed Australian companies are exempt from FIF altogether, in which case their dividends are taxed as ordinary income (ASX guide).

Under the $50,000 threshold

Below the threshold, dividends are taxed as ordinary income and the segment for the credit is the dividend itself. With $1,200 of gross US dividends and $70,000 of other income, New Zealand tax on the dividends is $360.00 (30% band). With a W-8BEN, $180 was withheld and is fully creditable, leaving $180.00 to pay. Without one, $360 was withheld, but only $180 is creditable, so you still pay $180.00 here and have lost $180 more to the US. Try it in our dividends tool.

Where credits go on the return

Foreign tax goes in box 17A of the IR3 and on each IR1261 line (IR3G pp19 and 22). Our calculator puts the creditable amount in box 17A after the limits above, rather than the raw tax withheld. Keep proof of the overseas tax paid; IR3G p22 says to attach it. See how to file and the IR1261 guide.

Rules checked 12 November 2026. General information, not tax advice; check with your accountant, especially for large credits or treaty claims.

Questions

Can I claim all 30% US tax if no W-8BEN was lodged?

No. New Zealand only credits up to the treaty rate, which is 15% for an individual’s US dividends (IR461 p20; treaty Article 10(2)). The rest would have to be recovered from the US.

Why is my credit less than the tax withheld even at 15%?

Because the credit is also capped at the New Zealand tax on that holding’s FIF income. In a low CV year, that can be less than the tax withheld (IR461 p20).

Can I carry unused foreign tax credits forward?

No. For FDR, CV, the cost method and deemed rate of return, unused credits cannot be refunded or carried forward (IR461 p20).

Can I claim Australian franking credits?

No. Franking credits are not eligible in New Zealand (IR461 p20).