When a US company pays you a dividend, 15% of it usually never arrives: it's withheld for the IRS under the NZ-US tax treaty. New Zealand doesn't tax you twice on that money. The withheld amount becomes a credit against the New Zealand tax on your FIF income, subject to two caps: the credit can't exceed what the treaty allows, and it can't exceed the NZ tax on that holding's income. Whatever the caps cut off is simply gone. There are no refunds and no carry-forward for FDR and CV users.
This guide explains where the 15% comes from, how the caps work, and what the credit looks like by the time it lands in box 17A of your IR3.
Where the 15% comes from
The United States withholds 30% of dividends paid to foreign investors by default. The NZ-US tax treaty cuts that to 15%, but only if the payer knows you're a New Zealand tax resident, which is what the W-8BEN form is for. Hatch, Sharesies, IBKR and Tiger all collect a W-8BEN when you open the account, so most NZ investors get the 15% rate without ever thinking about it.
Check your dividend statements anyway. A W-8BEN lasts for the year you sign it plus three full calendar years, and an expired one quietly puts you back on 30%. If you see 30% withheld, renew the form with your broker. Getting the over-withheld half back is a claim against the IRS, not something IRD can credit you for, as the next section explains.
The two caps on the credit
IR461 sets out both limits:
- The treaty rate. The credit can't exceed the tax the treaty lets the other country charge. IR461's example is Swiss: 30% withheld, but the treaty limits Switzerland to 15%, so 15% is all IRD will credit. The over-withheld balance is between you and the Swiss (or American) tax authority. For US dividends with a current W-8BEN this cap rarely bites, because exactly 15% was withheld in the first place.
- The NZ tax on that income. Under subpart LJ of the Act, the credit for each holding can't exceed the New Zealand tax payable on that holding's FIF income. If a holding produced no FIF income this year, there's no NZ tax on it, and so nothing to credit against.
That second cap is the one that surprises people, so here it is with numbers. Say a holding contributes $1,000 of FIF income and your average tax rate is 30%: the NZ tax on that income is $300, comfortably above the $150 the US withheld on its dividends, so you claim the full $150. Now suppose it's a flat year and you've used CV: the same holding contributes $100 of FIF income, the NZ tax on it is $30, and that's all you can claim. The other $120 of withheld tax can't be carried forward, refunded, or moved to another holding. It's spent.
💡 Good to know: the credit is worked out holding by holding, not as one pooled total. A wasted credit on one share can't top up another. When more than one FIF goes into your return, IRD wants the per-FIF breakdown showing exactly this.
You still get the credit under FDR
A common confusion: because FDR users don't declare their dividends (the flat 5% stands in for them), people assume the withholding tax on those dividends is wasted. It isn't. The credit attaches to the New Zealand tax on the holding's FIF income, however that income was calculated. A US share taxed under FDR still generates a claimable credit for the 15% withheld on its dividends, capped at the NZ tax on its FDR income.
The flip side: in a CV year where your FIF income lands at or near zero, the cap shrinks toward zero with it, and the credits go mostly unused. That's worth knowing when the two methods are close, because the FDR-vs-CV comparison is about net tax, not just FIF income.
Credits you can't claim
Not everything that looks like foreign tax works as a credit:
- Australian franking credits. Australia's imputation credits aren't a withholding tax and aren't claimable in New Zealand. IR461 is explicit about this. (Some trans-Tasman companies attach New Zealand imputation credits to their dividends, and those have their own treatment.)
- UK dividend tax. IR461 names tax paid on United Kingdom dividends as ineligible too.
- Anything above the treaty rate. As above: that's a refund claim against the foreign tax authority.
- Credits in a loss year. No FIF income from the holding means no credit, and unused amounts can't be refunded or carried forward under FDR or CV.
Getting the numbers into the return
Everything converts to New Zealand dollars, including the foreign tax, at the exchange rate for the date it was withheld. The claimable total goes in box 17A of your IR3, and the income it attaches to goes in 17B. The filing guide covers the boxes, the IR1261 summary, and the per-FIF workings that back the credit up.
The calculator applies all of this per holding: it takes the foreign tax you imported from your broker CSV, caps it at the NZ tax on each holding's FIF income, and shows the claimable total. The box 17A figure it reports is what survives the caps, ready to go straight into the return.
In short
- The US withholds 15% of dividends when your W-8BEN is current, 30% when it isn't. Renew it through your broker.
- The credit per holding is the lesser of the foreign tax paid (capped at the treaty rate) and the NZ tax on that holding's FIF income.
- FDR users still get the credit, even though dividends aren't separately declared.
- Unused credits vanish. Nothing refunds, and nothing carries into next year.
- Australian franking credits and UK dividend tax don't qualify at all.
Common questions
Why was 30% withheld from my US dividend instead of 15%?
Almost always an expired or missing W-8BEN. The form is valid for the year signed plus three calendar years, and brokers don't always chase renewals loudly. IRD will only credit the 15% treaty rate either way; the other 15% has to be recovered from the IRS.
Can I get a refund if my credit is bigger than my NZ tax?
No. For FDR and CV users the credit is limited to the New Zealand tax on each holding's FIF income, and any excess is neither refunded nor carried forward to a later year.
Do I get the credit under FDR even though I don't declare dividends?
Yes. The credit offsets the NZ tax on the holding's FIF income however it was calculated, so withholding tax on dividends is claimable in an FDR year, capped at the tax on that holding's FDR income.
Are Australian franking credits claimable in New Zealand?
No. Franking credits are Australia's imputation system, not a withholding tax, and IR461 lists them as ineligible. New Zealand imputation credits attached by trans-Tasman companies are a separate mechanism with different rules.
Do I convert the foreign tax to NZD?
Yes, at the exchange rate for the date the tax was withheld, the same way the dividend itself converts. The exchange-rate guide covers which rate series to use, and the calculator does the conversion from your broker's figures automatically.
Sources: IR461 (foreign tax credits p.20), subpart LJ of the Income Tax Act 2007, and IRD's interpretation statement IS 21/09: how to calculate a foreign tax credit.
This guide is general information, not tax advice. Always verify figures against IR461 and your year-end statements, and check anything important with a qualified NZ accountant before filing.