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Income Tax Act 2007

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

RE 12: Interest

You could also call this:

“How tax is withheld from interest payments”

When you receive a payment of interest, the person who pays you needs to withhold some tax and pay it to the government. They use a formula to work out how much tax to withhold:

(tax rate × (interest paid + foreign withholding tax)) − foreign withholding tax

The tax rate is set out in schedule 1, part D, clause 3 or 4. The interest paid is the amount before tax is taken out. Foreign withholding tax is any tax already paid to another country on this interest.

In some special cases, the person paying you can choose to use a different tax rate:

For the 2009-10 tax year, they can use 0.38 instead of 0.39.

For the 2010-11 tax year, they can use 0.30 instead of 0.33 when paying interest to a portfolio investment entity or a company that’s not a Maori authority.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1520225.

Topics:

Money and consumer rights > Taxes

RE 11: Notification by companies, or

“Companies must notify payers about their status to ensure correct tax deduction”

RE 13: Dividends other than non-cash dividends, or

“Tax withholding rules for cash dividends”

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

RE 12Interest

This section applies when a person makes a payment of resident passive income that consists of interest.
The amount of tax for the payment that the person must withhold and pay to the Commissioner is calculated using the formula—
$(tax rate × (interest paid + foreign withholding tax)) − foreign withholding tax.$

Where:
In the formula,—
tax rate is the basic rate set out in schedule 1, part D, clause 3 or 4 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits):
interest paid is the interest paid before the amount of tax is determined:
foreign withholding tax is the amount of foreign withholding tax paid or payable on the interest paid.

Despite subsection (3)(a), the amount of tax that the person must withhold and pay may, if the person chooses, be calculated, under subsection (3), using a tax rate of 0.38 if—
the payment of resident passive income is made in the 2009–10 tax year; and
the tax rate under subsection (3)(a) would be 0.39 in the absence of this subsection.

Despite subsection (3)(a), the amount of tax that the person must withhold and pay may, if the person chooses, be calculated under subsection (3) using a tax rate of 0.30 if—
the payment of resident passive income that consists of interest is made in the 2010–11 tax year to—
1. a portfolio investment entity; or
2. a company that is not a Maori authority; and
the tax rate under subsection (3)(a) would be 0.33 in the absence of this subsection.

Compare

2004 No 35 s NF 2(1)(a)

Notes

Section RE 12(3)(a) tax rate: amended (with effect on 1 April 2008), on 6 October 2009, by section 530(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section RE 12(3)(a) tax rate: amended (with effect from 1 April 2008), on 15 December 2008, by section 33(1) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section RE 12(3)(a) tax rate: amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section RE 12(4) heading: added, on 1 April 2009, by section 33(2) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section RE 12(4): added, on 1 April 2009, by section 33(2) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section RE 12(5) heading: added, on 1 April 2010 (applying for the 2010–11 income year), by section 108(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section RE 12(5) heading: amended (with effect on 1 April 2010), on 7 September 2010, by section 115(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section RE 12(5): added, on 1 April 2010 (applying for the 2010–11 income year), by section 108(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section RE 12(5)(a): substituted (with effect on 1 April 2010), on 7 September 2010, by section 115(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section RE 12(5)(a)(ii): amended, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section RE 12 list of defined terms company: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section RE 12 list of defined terms income year: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section RE 12 list of defined terms Maori authority: inserted (with effect on 1 April 2010), on 7 September 2010, by section 115(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section RE 12 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section RE 12 list of defined terms trustee: repealed, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).