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Income Tax Act 2007

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

RE 4: Persons who have withholding obligations

You could also call this:

“Who must withhold tax on certain payments”

You need to withhold tax if you pay someone resident passive income. This applies if you live in New Zealand or if you run a business here through a fixed place. You also need to meet one more requirement:

  • You have RWT-exempt status
  • You’re making the payment as part of your business
  • The payment is a dividend
  • The payment is a taxable Maori authority distribution
  • The payment is a replacement payment for a share-lending arrangement
  • You’re a custodial institution paying investment income to an end investor

If you’re not living in New Zealand but run a business here, you might not need to withhold tax in some cases. This could be if the payment is for money lent or shares issued by someone else, and it’s connected to your business outside New Zealand and paid in foreign currency.

If you need to withhold tax on a payment in foreign currency, you can do so in that currency. When you work out how much tax to credit or pay to the Commissioner, you need to convert it to New Zealand dollars using specific exchange rates.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1520200.

Topics:
Money and consumer rights > Taxes
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RE 3: Obligation to withhold RWT, or

“When and how you must withhold and pay resident withholding tax”

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RE 5: No withholding obligation in certain circumstances, or

“When you don't need to deduct resident withholding tax”

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

RE 4Persons who have withholding obligations

  1. A person referred to in section RE 3(1)(a) meets the requirements of this section for an obligation to withhold an amount of tax if they meet at least 1 requirement of each of subsections (2) and (3) in relation to a payment of resident passive income.

  2. The person must be, at the time the payment is made,—

  3. resident in New Zealand; or
    1. if not resident in New Zealand,—
      1. carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand; and
        1. not excluded under subsection (4).

        2. In addition to meeting a requirement of subsection (2), 1 of the following requirements must be met at the time the payment is made:

        3. the person has RWT-exempt status under section RE 27:
          1. the payment is made in whole or in part in carrying on a taxable activity, whether or not the person acts as agent or trustee for another person:
            1. the payment is a dividend:
              1. the payment is a taxable Maori authority distribution:
                1. the payment is a replacement payment under a share-lending arrangement:
                  1. the person is a custodial institution that pays on or transfers an amount of investment income to an end investor, see section RE 10C.

                    1. For the purposes of subsection (2), a person who is not resident in New Zealand and is carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand, is treated as not meeting the requirements of the subsection if they establish that, at the time the payment is made,—

                    2. for an amount payable in relation to money lent or to shares issued by another person,—
                      1. the payment is attributable to or effectively connected with a fixed establishment of the person outside New Zealand; and
                        1. all amounts payable in relation to the money lent or to the shares are payable in a currency other than New Zealand currency:
                        2. for dividends payable in relation to shares issued by the person, the person is not required by generally accepted accounting practice to express its financial statements in New Zealand currency.

                          1. A person who is required to withhold RWT in relation to a payment of resident passive income that is in a currency other than New Zealand currency may withhold and pay the amount of the RWT in the foreign currency.

                          2. For the purposes of subsection (5), in the calculation of the amount of RWT to be credited against income tax, the amount must be converted to New Zealand currency at the option of the person deriving the resident passive income at either—

                          3. the close of trading spot exchange rate on the day the RWT is paid; or
                            1. an exchange rate specified by the Commissioner for this purpose in relation to the month in which the RWT is paid.

                              1. For the purposes of subsection (5), in the calculation of the amount of RWT to be paid to the Commissioner, the amount must be converted to New Zealand currency either at—

                              2. the close of trading spot exchange rate on the first working day of the month after the month in which the day the RWT is withheld; or
                                1. a conversion rate applying under section OB 60(6) (Imputation credits attached to dividends) if the resident passive income is a dividend and the person required to withhold RWT under subsection (5) is an Australian ICA company that chooses to use that rate; or
                                  1. the exchange rate on the date on which the payment of income is received.

                                    Compare
                                    Notes
                                    • Section RE 4(1): amended (with effect on 1 April 2008), on , by section 125(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section RE 4(3)(a): amended, on , by section 219(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                    • Section RE 4(3)(f): inserted, on , by section 180(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4(4)(a): replaced (with effect on 1 April 2008), on , by section 125(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section RE 4(4)(b): replaced (with effect on 1 April 2008), on , by section 125(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section RE 4(6): amended (with effect on 30 June 2009), on , by section 527(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section RE 4(7)(b): amended, on , by section 180(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4(7)(c): inserted, on , by section 180(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4 list of defined terms custodial institution: inserted, on , by section 180(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4 list of defined terms end investor: inserted, on , by section 180(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4 list of defined terms FDP: repealed (with effect on 30 June 2009), on , by section 527(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section RE 4 list of defined terms investment income: inserted, on , by section 180(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                    • Section RE 4 list of defined terms RWT-exempt status: inserted, on , by section 219(2)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                    • Section RE 4 list of defined terms RWT exemption certificate: repealed, on , by section 219(2)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).