OM-IP investments have traditionally been a popular investment with kiwis, although they are managed in Australia, and are denominated in Australian Dollars. Many kiwi investors will be unaware that OM-IP investments are, in fact, not tax resident in Australia, but in the Cook Islands. At first, this is not extraordinary news, but the tax implications could be onerous, if you have an OM-IP investment. Recent changes to the tax treatment of overseas investments puts OM-IP investments in the basket of â€œForeign Investment Fundsâ€, which may result in a tax liability, even if the investment has not returned any â€œincomeâ€ to you, which would usually be in the form of interest or dividend payments.
This has been an area of focus for the IRD for some time. We understand the IRD has details of approximately 37,000 investors in OM-IP and has called for those people to voluntarily disclose their foreign investment fund (FIF) income. To date, only a few hundred disclosures have been made. We are advised that once the Tax Information Exchange Agreement between New Zealand and the Cook Islands comes into effect (which will be some time soon) the IRD will start pursuing those investors.
How it affects you - Anyone that may have a FIF income tax liability as a result of an investment in OM-IP, should talk to us now on how best to approach the position in their circumstances.
If your investment is less than $50,000, you are ok as you qualify under the de-minimis rule and are exempt. If your investment is more than $50,000, this investment is subject to the foreign investment fund rules and a FIF calculation is required with your year end income for tax purposes.
If you had advised all investments and income per your annual questionnaire we send to you, we would have completed the necessary calculations for you.