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Income Tax Act 2007

General collection rules - Withholding tax on resident passive income (RWT)

RE 2: Resident passive income

You could also call this:

“What counts as income from investments for New Zealand residents”

Resident passive income is money paid to a person that includes:

  • Interest
  • Dividends
  • Taxable Maori authority distributions (except retirement scheme contributions)
  • Replacement payments from share-lending arrangements

Some types of interest are not counted as resident passive income. These include:

  • Interest that is exempt from tax
  • Interest earned by someone with RWT-exempt status
  • Interest that is non-resident passive income
  • Interest earned outside New Zealand by a non-resident
  • Interest that is exempt income for a transitional resident
  • Interest paid between companies in the same group
  • Interest paid to an intermediary for tax pooling accounts
  • Interest payable under certain tax laws
  • Interest from inflation-indexed instruments

Some types of dividends are also not counted as resident passive income. These include:

  • Dividends that are exempt income
  • Certain association rebates
  • Dividends from portfolio investment entities
  • Dividends earned by someone with RWT-exempt status
  • Dividends that are non-resident passive income
  • Most dividends earned by a non-resident
  • Fully imputed dividends between companies (in some cases)
  • Dividends between companies in the same group
  • Certain dividends related to look-through companies
  • Contributions to retirement savings schemes
  • Some dividends paid by unit trusts or group investment funds
  • Dividends from dividend stripping arrangements

If a trustee receives resident passive income that is beneficiary income, it is treated as if the trustee did not receive it. The trustee can pay the beneficiary an amount equal to or less than the RWT withheld, which is then treated as beneficiary income.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1520194.

Topics:
Money and consumer rights > Taxes
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“When and how you must withhold and pay resident withholding tax”

Part R General collection rules
Withholding tax on resident passive income (RWT)

RE 2Resident passive income

  1. Resident passive income means an amount paid to a person to the extent to which it consists of—

  2. interest:
    1. a dividend:
      1. a taxable Maori authority distribution other than a retirement scheme contribution:
        1. a replacement payment paid to a person under a share-lending arrangement.

          1. Subsections (3) to (5) override subsection (1).

          2. The following amounts are excluded from interest under this section:

          3. exempt interest:
            1. interest derived by a person who has RWT-exempt status under section RE 27:
              1. interest that is non-resident passive income:
                1. interest derived from outside New Zealand by a non-resident:
                  1. interest that is exempt income under section CW 27 (Certain income derived by transitional resident):
                    1. interest paid by a company and derived by another company when both companies are part of the same group of companies at the time of the payment:
                      1. interest paid to an intermediary—
                        1. by a client in relation to the operation of a tax pooling account; or
                          1. by the Commissioner under section RP 18 (Deposits in tax pooling accounts):
                          2. interest payable under section 120D or Part 7 of the Tax Administration Act 1994:
                            1. interest arising because section EI 2 (Interest from inflation-indexed instruments) applies to an inflation-indexed instrument.

                              1. For the purposes of this section, the following amounts are treated as interest and not as a dividend:

                              2. a dividend that a building society pays to a member in relation to a withdrawable share in the society:
                                1. a dividend that a friendly society pays to its member in relation to a share in the society.

                                  1. The following amounts are excluded from a dividend under this section:

                                  2. a dividend that is exempt income—
                                    1. through the application of section CW 9, CW 10, or CW 10B (which relate to income from equity); or
                                      1. under section CW 27 (Certain income derived by transitional resident); or
                                        1. under section CW 39 (Local authorities):
                                          2. an amount—
                                            1. of an association rebate that is excluded from being a dividend by section CB 34(5)(a) (Amounts derived by members from mutual associations); or
                                              1. that is payable to a person by a company and is treated as being a dividend by sections GB 23 to GB 25 (which relate to excessive remuneration):
                                              2. a dividend from a portfolio investment entity:
                                                  1. a dividend derived by a person who has RWT-exempt status under section RE 27:
                                                    1. a dividend that is non-resident passive income:
                                                      1. a dividend derived by a non-resident other than a dividend that has a source in New Zealand:
                                                        1. a dividend paid by a company and derived by another company, if the dividend is fully imputed and the paying company chooses to exclude the dividend from being resident passive income:
                                                          1. a dividend paid by a company and derived by another company when both are part of the same group of companies at the time of the payment:
                                                            1. an amount treated as a dividend under section CB 32C (Dividend income for first year of look-through company):
                                                              1. a dividend that is excluded income under section CX 50B (Contributions to retirement savings schemes) or would be excluded income under that section in the absence of subsection (2)(a) and (b):
                                                                1. a dividend other than a non-cash dividend that—
                                                                  1. has an imputation ratio of 30/70 or more; and
                                                                    1. is paid by a unit trust or group investment fund (or RWT proxy on their behalf) that has not withheld RWT from any earlier dividend:
                                                                    2. a dividend treated as derived by a person under section GB 1(3) (Arrangements involving dividend stripping).

                                                                      1. If a person derives an amount described in this section in their capacity as trustee and the amount is beneficiary income, the amount is treated as not derived by the trustee.

                                                                      2. A trustee may pay an amount of money (the RWT substitution payment) to the relevant beneficiary that is equal to or less than the amount of RWT withheld for an amount to which subsection (6) applies (the RPI beneficiary income).

                                                                      3. The RWT substitution payment is treated as an amount of resident passive income that is beneficiary income, with the same nature as the RPI beneficiary income. There is no liability or obligation to withhold RWT in relation to the RWT substitution payment.

                                                                      Compare
                                                                      Notes
                                                                      • Section RE 2(1): amended (with effect on 1 April 2008), on , by section 525(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section RE 2(1)(c): amended, on , by section 542(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2(3)(b): amended, on , by section 218(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2(3)(c): amended (with effect on 1 April 2008), on , by section 525(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section RE 2(3)(h): amended, on , by section 140(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                      • Section RE 2(3)(i): inserted, on , by section 140(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                      • Section RE 2(5)(a)(i): amended, on , by section 160(1) (and see section 160(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                                      • Section RE 2(5)(a)(ii): amended, on , by section 160(2) (and see section 160(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                                      • Section RE 2(5)(a)(iib): inserted, on , by section 160(3) (and see section 160(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                                      • Section RE 2(5)(a)(iii): repealed, on , by section 218(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2(5)(b): replaced (with effect on 1 April 2008), on , by section 131(1) (and see section 131(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                      • Section RE 2(5)(bb): inserted (with effect from 1 April 2008), on , by section 44(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
                                                                      • Section RE 2(5)(c): repealed (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 146(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                      • Section RE 2(5)(d): amended, on , by section 218(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2(5)(f): amended, on , by section 129(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                                      • Section RE 2(5)(fb): inserted, on , by section 265(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2(5)(g): amended, on , by section 160(4) (and see section 160(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                                      • Section RE 2(5)(g): amended, on , by section 218(4) (and see section 218(6) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2(5)(gb): inserted, on (applying for the 2017–18 and later income years), by section 265(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2(5)(h): added, on , by section 542(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2(5)(i): added, on , by section 542(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2(5)(i)(i): replaced, on , by section 265(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2(5)(j): added (with effect on 1 April 2008), on , by section 106(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                                                      • Section RE 2(7) heading: added (with effect on 1 April 2008), on (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 124(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2(7): added (with effect on 1 April 2008), on (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 124(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2(8) heading: added (with effect on 1 April 2008), on (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 124(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2(8): added (with effect on 1 April 2008), on (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 124(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2 list of defined terms association rebate: inserted (with effect on 1 April 2008), on , by section 131(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                                      • Section RE 2 list of defined terms attributed repatriation: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                                      • Section RE 2 list of defined terms beneficiary: inserted (with effect on 1 April 2008), on , by section 124(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2 list of defined terms combined imputation and FDP ratio: repealed, on , by section 265(4)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2 list of defined terms derived from New Zealand: repealed, on , by section 129(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                                      • Section RE 2 list of defined terms excluded income: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms FDP ratio: repealed, on , by section 265(4)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2 list of defined terms fully imputed: inserted, on , by section 265(4)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                      • Section RE 2 list of defined terms group investment fund: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms imputation ratio: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms inflation-indexed instrument: inserted, on , by section 140(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                      • Section RE 2 list of defined terms non-cash dividend: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms portfolio investment entity: inserted (with effect from 1 April 2008), on , by section 44(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
                                                                      • Section RE 2 list of defined terms resident in New Zealand: repealed (with effect on 1 April 2008), on , by section 525(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section RE 2 list of defined terms RWT: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms RWT-exempt status: inserted, on , by section 218(5)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2 list of defined terms RWT exemption certificate: repealed, on , by section 218(5)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section RE 2 list of defined terms RWT proxy: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section RE 2 list of defined terms RWT substitution payment: inserted (with effect on 1 April 2008), on , by section 124(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                      • Section RE 2 list of defined terms source in New Zealand: inserted, on , by section 129(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                                      • Section RE 2 list of defined terms unit trust: inserted, on , by section 542(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).