TalkTax

In this set of binding rulings the Inland Revenue addresses the foreign tax credit position for NZ resident investors in hybrid ALPs (i.e. Australian Limited Partnership (ALPs) that are subject to tax in Australia as companies but treated as pass-through for NZ tax purposes).  The rulings conclude that a NZ resident investor will be entitled to a tax credit for Australian corporation tax paid by the ALP but not for any withholding tax on a distribution from the ALP.

The practical implication of this is that hybrid ALPs may not be suitable investment vehicles for assets that are unlikely to generate full taxable returns in Australia.  NZ resident investors will be looking for fully franked distributions to avoid the imposition of any withholding tax (unless they can rely on the zero withholding rate under the DTA).  From an analytical perspective these rulings confirm that a credit for foreign tax in NZ does not depend on who has paid the tax but whether the tax has been paid on the relevant segment of income derived by the taxpayer.  This means that hybrids can be useful vehicles for accessing the benefit of foreign tax paid by a foreign entity in a foreign jurisdiction.