Taxing foreign interest

These questions and answers were selected from the CCH Question and Answer service.

Our bank is deducting resident withholding tax (RWT) from interest on our foreign currency bank accounts. Is there anything we can do to stop this? We have tax losses available to offset current profits, so claiming back these small sums of tax in the annual returns is a hassle.

You can apply to the Commissioner of Inland Revenue for a certificate of exemption on form IR 15E.

As part of your application, you will be required to submit a set of accounts detailing your projected income, deductions, RWT credits and income tax liability.

The certificate of exemption must be shown to the bank, and the bank will cease RWT deductions.

My client is a builder who is registered for GST. In 1997 he purchased two dwellings as long-term rental properties. No GST was claimed on the purchase price. He now views the property as a potential building site for two new dwellings. If he demolishes the existing dwellings is there a change of use and an entitlement to a GST claim? What value may we use for such a claim?

The builder will be allowed an input tax adjustment for the lesser of the cost of the property or the open market value when the property is applied for the taxable use of property development.

The adjustment is required to be made on a return-by-return basis, as the cost exceeds $18,000. The builder could make an application to the IRD for approval to make a one-off deduction.

In determining whether to allow such an adjustment the IRD can take a number of factors into account, including whether the company has made any one-off adjustments in the other direction, that is from taxable to non-taxable use.

* For more information, visit the CCH website or phone 0800 500 224.