Frequently asked questions

HomeFAQsCould you give a brief summary of the New Zealand …

Could you give a brief summary of the New Zealand tax treatment of bond and share investors?

Capital gains on equity securities

Capital gains on equity securities are generally not taxed in New Zealand unless an investor is in the business of dealing in the securities or had the dominant purpose of resale for profit when the security was purchased.

Imputation credits

The New Zealand recipient of dividend income may offset their New Zealand income tax obligation on that income if imputation credits were attached to the dividend. Imputation credits reflect income tax paid by the company and may be attached up to the level of corporate tax paid (28%). Non-New Zealand recipients may also benefit from imputation credits as, to the extent dividends are fully imputed and the shareholder holds less than 10% of the total Infratil shares on issue, no NRWT will be deducted as described.

Resident Withholding Tax (RWT) Applies to New Zealand Resident Investors

Except for investors that hold a valid exemption certificate issued by the IRD, RWT will be deducted at 33% if an IRD number has not been provided to the bond/share registry. As previously mentioned, investors may have RWT deducted at their marginal tax rate if an IRD number has been provided and the relevant tax rate has been provided (the rates of RWT allowed are either 10.5%, 17.5%,  28%, 30% or 33%) 

Bond investors may have RWT deducted at their marginal tax rate if an IRD number has been provided and the relevant tax rate has been provided to the Registry. The rates of RWT on interest are either 10.5%, 17.5%, 28%, 30% or 33%.

For shareholders, the RWT on dividends is always just at a straight 33% rate (less imputation credits) (unless, the shareholder has an exemption certificate).   Unfortunately, shareholders can’t specify a lower rate, but they can ultimately receive a refund to the extent the RWT deducted exceeds their tax liability.

Non-Resident Withholding Tax (NRWT) Applying to Non-Resident Share and Bond Holders

When a dividend is paid to non-resident shareholders NRWT will be deducted at the rate applicable to the country of the shareholders residence (which depends on the tax treaty between NZ and the relevant country). 15% is a common rate. However, to the extent that the dividend is imputed, there is relief to the cost in the form of a supplementary dividend.

  • If Infratil’s dividend were “fully imputed” (i.e. 28 cents of imputation credits are attached for every 72 cents of the cash dividend) then the supplementary dividend should fully cover any NRWT due. For example, if Infratil’s dividend was 17cps cash and 6.61cps of imputation credits, then the offshore resident shareholder will still receive 17cps in cash.
  • However, at present Infratil is not fully imputing its dividend, therefore there will be a net NRWT deduction on the part that is not fully imputed. For example, if Infratil’s dividend was 17cps cash and 4.25 cps of imputation credits, then effectively the difference between the fully imputed portion of the dividend (being 10.93 cps based on imputation credits attached of 4.25 cps) and unimputed portion is 6.07cps. The 6.07cps portion represents the cash dividend which is unimputed. NRWT of 0.91cps (at an NRWT rate of 15%) will be deducted on the unimputed portion with no supplementary dividend paid. The non- resident shareholder will then receive a net dividend of 16.09cps.

The rate of NRWT applying to interest varies depending on the resident country of the investor. It is usually either 10% or 15%. However, Infratil registers all of its bonds under the approved issuer levy regime, which is an alternative to deducting non-resident withholding tax (NRWT).  This means that NRWT is withheld at a rate of 0%.

 

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