New Zealand To Align Investment And Income Tax Rates

by Mary Swire, Asia-Pacific stories, Hong Kong

24 July 2009

The New Zealand government is proposing to introduce legislation to align resident withholding tax rates on interest and portfolio investment entities (PIE) with recent changes to personal income tax rates and the 30% corporate tax rate.

"The changes will be part of a taxation bill to be introduced later this month, with passage expected by December," Revenue Minister, Peter Dunne, has announced. "This is catch-up legislation that couldn't be put in place late last year when the personal tax cuts were enacted because of the time needed to consult with banks and other financial institutions over the changes.”

"I am announcing the changes today to give financial institutions as much time as possible to start preparing for them,” he continued. “Resident withholding tax on interest is based on the marginal tax rate of the recipient of the interest income. Its purpose is to ensure that tax is paid at source on that income at a rate that closely approximates the recipient's tax rate.”

The new resident withholding tax rates will be 12.5%, 21%, 33% and 38%, depending upon the personal tax rates of individual recipients. These new rates will generally apply from 1 April 2010.

The default rate for individuals who do not specify their tax rate to their bank will rise from 19.5% to 38%. However, such people will be able to have eventual refunds through their tax returns.

There will be a new 30% rate on interest for companies that invest in financial institutions. Its use will be optional for financial institutions for a year from 1 April 2010, and compulsory thereafter.

Tax rates on PIE will also reflect the new personal tax rates, with rates ranging from 12.5% to 30% for income over NZD70,000. The changes will ensure that people who invest in PIE are not disadvantaged relative to direct investors. Once enacted, the new PIE rates will apply from 1 April 2010.

"The changes will mean that savers who choose a rate with their bank do not pay more tax on interest than they need to, and that PIE investors are not over-taxed on their investment," Mr Dunne said.

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