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RE 5: No withholding obligation in certain circumstances
or “When you don't need to deduct resident withholding tax”
You could also call this:

“When it's unfair to expect someone to withhold tax from a payment”

You need to know about a rule that applies when someone (let’s call them Person A) gets money from or makes a payment for someone else (Person B). This rule is for people who are listed in certain parts of the tax law.

The rule says that Person A doesn’t always have to take out resident withholding tax (RWT) from the payment. This is the case if Person A couldn’t reasonably know that the money was resident passive income. For example, if it’s a payment to cash in an investment, Person A might not know how much of it counts as resident passive income.

In these situations, the payment is treated as if it’s not resident passive income for Person B. This means Person A doesn’t have to withhold RWT from it.

This rule helps make sure that people only have to withhold tax when it’s fair to expect them to know they should.

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Next up: RE 7: When resident passive income paid to trustees

or “Rules for trustees receiving passive income on behalf of others”
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Part R General collection rules
Withholding tax on resident passive income (RWT)

RE 6When obligation to withhold unreasonable

  1. This section applies when a person (person A) who is a person listed in a paragraph in section 32E(2)(a) to (h) of the Tax Administration Act 1994—

  2. receives an amount from another person (person B); or
    1. makes a payment at person B’s request.

      1. For the purposes of determining whether person A is required under section RE 4 to withhold RWT, the payment is treated as not consisting of resident passive income of person B to the extent to which—

      2. person A could not reasonably be expected to be aware that the payment was resident passive income; or
        1. for an amount that is a redemption payment, person A could not reasonably be expected to be aware of the amount that consisted of resident passive income.

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          Notes
          • Section RE 6 list of defined terms request: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).