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Resident Withholding Tax

The main types of income requiring tax deduction are as follows:

Employment income:

PAYE

Schedular payments:

Withholding tax

Employer’s superannuation contributions:

ESCT

Interest:

Resident withholding tax (RWT) or Non-resident withholding tax (NRWT)

Dividends:

RWT or NRWT

 

If a person receives payment as an employee, the payer must deduct PAYE from the payment. If a person receives payments as a contractor, the payer must deduct withholding tax from the payment.

 

What is RWT?

RWT is a tax deducted by the payer from interest and dividends paid to New Zealand residents. RWT is not a final tax. RWT paid is regarded as a tax credit against taxpayers’ total income tax liabilities. And, it is refundable if RWT paid exceeds total tax liabilities.

 

What are RWT rates?

RWT on interest varies from 10.5% - 33% depends on the the recipients’ tax conditions. The tax rate can be found out at Sch 1.  If the recipient is an individual person, the tax rate is same as the recipients’ marginal tax rate. If the recipient is a company, the default rate is 28%.

RWT on dividend is 33%.

RWT on Maori authority distribution is 17.5%. However, if the distribution is more than $200 and the Maori authority does know the tax file number of the recipient, RWT is 33%.

 

How to calculate RWT?

RWT on Interest (s RE12):

Tax rate * (Interest + Foreign withholding tax) – Foreign withholding tax

        Interest is the interest paid before the deduction of RWT

Tax rate * interest

         If the interest has a New Zealand source.

RWT on cash dividend (s RE13):

Tax rate * (Dividend + Tax paid or credit attached) – Tax paid or credit attached

Tax paid or credit attached is the total of the following amounts:

         Where the dividend is paid by an ICA company (a company entitled to operate an imputation credit account), the total of any imputation credits attached to the dividend;

         Where the dividend is paid on shares issued by a New Zealand resident company, the amount of any FDP credit attached to the dividend;

         Where the dividend is paid on shares issued by a non-resident company, the amount of foreign withholding tax paid or payable on that dividend.

RWT on non-cash dividend (s RE14):

(Tax rate * Dividend)/(1 – Tax rate) – Tax paid or credit attached

Tax paid or credit attached is the total of the following amounts:

         Where the dividend is paid by an ICA company, the total of any imputation credits attached to the dividend;

         Where the dividend is paid on shares issued by a company not resident in New Zealand, the amount of FWT paid or payable on the amount of dividend;

         Where the dividend is paid on shares issued by a company resident in New Zealand, the amount of FDP credit attached to the dividend.

 

Notice: Non-cash dividend is similar to fringe benefit. The different is non-cash dividend is provided to shareholders, but Fringe benefit is provided to employees. 

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