Tax on Dividends

[Annanz]

I’m new investor and recently open Trading Account through ASB securities. Little bit confused about Tax on Dividends. I’m due to receive my first dividend payment from Michael Hill on April 1st. Dividend will only be $18.00 but I presumed I needed to pay tax even though it’s such small amount. When will I need to declare this to IRD???

Rang IRD on the phone twice to get 2 different answers to the same question. Originally told I did not have to pay tax on dividends because Michael Hill would have already paid this through company tax rate. Then I rang back to be sure and someone else told me I will have to pay tax on the dividends using my personal tax rate.

Would appreciate anyone’s help or advice.

[AMR]

MHI has already paid tax at the company rate of 30%. If your personal tax is in the 39% bracket, you pay 9% difference. If you pay 19% tax, you are due for a refund. this is v. generic advice, it might not suit you but generally that's how it goes.

[777]

All dividends need to be declared if you are filing a tax return. Tax will have been deducted at 33% but this does reduce to 30% from 1/4/08. As AMR has stated you will be liable for the difference if your personal tax rate is 39% and a refund if 19.5%. You say you have opened a trading account. If you intend to trade shares then you will have to file a tax return showing your profits or losses. If you are an investor then you don't have to include your transactions. Investor v trader is another topic altogether and you can find numerous threads on this forum discussing it.

[shasta]

All dividends need to be declared if you are filing a tax return. Tax will have been deducted at 33% but this does reduce to 30% from 1/4/08. As AMR has stated you will be liable for the difference if your personal tax rate is 39% and a refund if 19.5%. You say you have opened a trading account. If you intend to trade shares then you will have to file a tax return showing your profits or losses. If you are an investor then you don't have to include your transactions. Investor v trader is another topic altogether and you can find numerous threads on this forum discussing it.

Annanz

Just remember that excess imputation credits, are not automatically refunded, you do need sufficient other tax credits (PAYE, RWT) to offset income to receive the refund.

Otherwise the correct treatment by the IRD is to carry forward the excess imputation credits as a "loss".

This can subsequently be claimed in a future year, where there is sufficent income/tax credits attached to utilise the loss offset.

Feel free to PM any questions :)

[CJ]

Most NZ'ers dont need to file a tax return. Check whether you need to file a tax return. I think if div are less than $200, there is no need (you may want to though based on your personal tax rate).

Regarding what Shasta said re imputation credits being carried forward, there is a ranking method with tax paid. IC are used before other forms of tax so if you have also had PAYE withheld from wages (or RWT from interest), IC will be used first and the refundable credits (IC and PAYE) will be used last, with a refund made if needed.

[Steve]

Tax will have been deducted at 33% but this does reduce to 30% from 1/4/08.

However there are transitional rules so that dividends may still be imputed at 33% after 1/4/08 if the original tax was paid at 33% by the company, so that there is no economic loss to the shareholders. I think that these rules apply for the next 3 years or so...

[Tinker]

Got that Annaz?

No wonder we are infested with a bloated IRD who won't answer their phones, bless them!

[Annanz]

Appreciate the information provided above. I’m only working between 20 – 25hrs per week at the moment why I’m completing my final year of physiotherapy, so my tax rate is 19.5%

Sorry to sound very blonde but what exactly are imputation credits???

[Year of the Tiger]

Sorry to sound very blonde but what exactly are imputation credits???

Dividend imputation credits

Dividend imputation credits (or tax credits) are essentially a credit back on your tax. You're required to pay tax on the dividend income you receive through owning shares. But, if a New Zealand company has already paid tax on its income, and then distributed the dividends to you, taxing you would be taxing the same profits a second time; the Government would be "double dipping".
The way it works, then, is that you pay the tax on your dividend income and claim a credit back based on the imputation credit attached to your dividend payment.
Dividends are either fully, partially or not imputed. The effect of the imputation credit will depend on your marginal tax rate and this may, potentially, affect your overall investment decision.

http://www.theshapeofmoney.co.nz/investments/shares/dividend-imputation-credits.asp

Notes

An agreement (from 1 April 2003) between the New Zealand and Australian Governments means that Australian companies can now attach imputation credits to dividends paid to their New Zealand shareholders.
You need other income to offset your imputation credit, as the Inland Revenue won't refund a cash sum.*******************
Annanz,
I've been interested in Shares and the Sharemarket for 3 or 4 years now and am still pretty conservative when it comes to spending hard earned money on shares. Most of the time I have faired pretty well with the occasional blip along the way. I still consider myself to be very much a newbie to all this, that is why I enjoy reading what the 'old hands' are up too.

The one thing I have done all along the way is to read, read and read some more. Every time I see someone talking about something I haven't heard before, I do the usual Google search or refer to the few books I have bought to head me in the right direction.

I think it is vital to understand as many terms as possible and I would have thought that 'imputation credits' would have been one of the very first things I learnt about.

I can only suggest that before you start working with that Trading account you spend as much time as possible doing research. If not, then sadly you may not have to worry about paying 'tax on your profits' as you may find that 'profits' are very thin on the ground.

Good luck with your Trading and your Physio studies.

YOTT

[POSSUM THE CAT]

YOTT can you tell me which Australian companies with NZ subsideries do this Fletchers do this the other way but I have yet to find an Austraian company that does it for NZ shareholders

[absolut-advance]

Just ignore the whole issue, wait until they ring you... then just play real dumb...

IOU....IRD


Kidding of course..

AAArrested