Imputation credits effectively match the New Zealand income tax paid by the company. To avoid double taxation of dividends, imputation credits can be transferred to shareholders to reduce or eliminate the tax shareholders have to pay on dividends.
Full imputation means providing 28 cents of imputation credits for every 72 cents of cash dividend that is received in the hand by the shareholder. At this level of imputation all resident shareholders who pay income tax at the rate of 28% or less will not have to pay any further New Zealand income tax. New Zealand resident shareholders who pay tax at the highest New Zealand tax rate of 33% will be required to pay a further 5 cents for each $1.00 of gross income (i.e. to leave them with a net 67 cents of cash in the hand). This additional tax will be covered by RWT that Infratil is required to deduct from the dividend.
If less than 28 cents of imputation credits were provided (with every 72 cents of cash dividend), the dividend would not be “fully imputed” and all resident shareholders that have a marginal tax rate that is higher than the imputation credits attached would also be required to pay additional New Zealand income tax. Again, this additional tax will be covered by RWT deducted by Infratil from the dividend. In any event, it is Infratil’s policy that all dividends should be fully imputed.
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