We explain what resident withholding tax is, who it applies to, rates and rules for making payments.
What Is Resident Withholding Tax?
Resident withholding tax (RWT) is:
- The initial tax you pay on interest and dividends you earn from your New Zealand bank accounts and investments;
- Whereas the initial tax you pay on income from overseas accounts and investments is non-resident withholding tax (NRWT) paid to a foreign tax authority by the overseas payer. This creates foreign tax credits.
Your bank or fund manager deducts RWT from your investment income before you receive it.
If you have borrowed money from an individual, trust, partnership or company (other than registered financial institutions like banks), and pay more than $5,000 in interest on those borrowings, you must deduct RWT and register with the IRD as a RWT payer. If you pay less than $5,000 per year in interest you do not have to account for RWT.
The rate at which RWT is deducted depends on several factors:
- Your tax status – savings account or term deposit interest is taxed at a RWT rate elected by you, based on your income.
- The type of interest or dividends you earn. Dividends and unit trust distributions have between 5% and 33% RWT depending on the imputation credits available, while portfolio investment entities are charged at different rates depending on the type of fund.
- The information you provide to your payer. Interest payments by a company are taxed at the maximum rate of 33% if you haven’t provided them with your IRD number. From April 2020, RWT will be deducted at the ‘non-declaration’ rate of 45% if you have not given your IRD number to your interest payer.
At the end of the financial year, your tax position will be calculated and IRD will assess whether your chosen RWT rate matches your income tax rate. If it doesn’t they may issue an end-of-year tax bill.
Frequency of RWT Payments
- Monthly for RWT payments of $500 or more per month (due 20th of following month)
- 6-monthly for RWT payments less than $500 per month (due in October and April)
RWT returns must be filed with IRD in line with your payments. This includes a nil return if you have no RWT to pay for the period.
From 1st April 2020 the reporting requirements for investment income will change. The IRD’s website provides specific details of the reporting requirements for each type of business and organisation.
Please contact us if you have questions regarding resident withholding tax and how it applies to you.