Dividend Tax Guide for NZ Investors
Understanding how dividend income is taxed in New Zealand is essential for maximizing your investment returns. This comprehensive guide explains Resident Withholding Tax (RWT), imputation credits, PIR rates for PIE funds, and strategies to minimize your tax liability on dividend income.
1. How Dividend Income is Taxed in New Zealand
1.1 The Basics
When you receive dividends from NZ companies, tax is typically deducted at source through Resident Withholding Tax (RWT). This means the company withholds tax before paying you the dividend, similar to how PAYE works for wages.
However, dividend tax in New Zealand has a unique feature called imputation credits that can significantly reduce or eliminate your tax liability on dividend income.
1.2 Tax Rates for Different Income Types
| Income Range | Tax Rate |
|---|---|
| Up to $14,000 | 10.5% |
| $14,001 - $48,000 | 17.5% |
| $48,001 - $70,000 | 30% |
| $70,001 - $180,000 | 33% |
| Over $180,000 | 39% |
2. Resident Withholding Tax (RWT) Explained
2.1 What is RWT?
Resident Withholding Tax (RWT) is tax deducted from dividends paid by NZ companies to resident investors. Your RWT rate should match your marginal tax rate, but you can elect a different rate if appropriate.
2.2 RWT Rates
Available RWT rates are:
- 10.5% - For individuals earning up to $14,000
- 17.5% - For individuals earning $14,001 - $48,000
- 30% - For individuals earning $48,001 - $70,000
- 33% - For individuals earning $70,001 - $180,000
- 39% - For individuals earning over $180,000
2.3 Choosing Your RWT Rate
You provide your RWT rate to your broker or share registry when you set up your account. If you don't specify, they'll typically apply 33% by default.
Important Tip
Choosing an RWT rate lower than your marginal tax rate means you'll owe tax when you file your return. Choosing a higher rate means you may get a refund, but IRD holds your money interest-free until you file.
2.4 How to Change Your RWT Rate
To change your RWT rate:
- Contact your broker (e.g., Sharesies, Stake, Hatch, ASB Securities)
- Contact the share registry directly (e.g., Computershare, Link Market Services)
- Complete an IR456 form for each company you hold shares in
3. Imputation Credits Explained in Detail
3.1 What Are Imputation Credits?
Imputation credits (also called franking credits) represent company tax already paid on the profits being distributed as dividends. This prevents double taxation - once at the company level and again at the personal level.
New Zealand companies pay 28% corporate tax. When they distribute profits as dividends, they can attach imputation credits to those dividends.
3.2 How Imputation Credits Work - Real Examples
Example 1: Low Income Earner (17.5% tax rate)
- • Dividend received: $100
- • Imputation credit attached: $28 (representing 28% company tax)
- • Gross dividend (before all tax): $128
- • Your personal tax at 17.5%: $22.40
- • Company tax already paid (imputation credit): $28
- • Tax refund due to you: $5.60
Because the company paid more tax (28%) than your personal rate (17.5%), you get a refund!
Example 2: High Income Earner (39% tax rate)
- • Dividend received: $100
- • Imputation credit attached: $28
- • Gross dividend (before all tax): $128
- • Your personal tax at 39%: $49.92
- • Company tax already paid (imputation credit): $28
- • Additional tax you owe: $21.92
Because your personal rate (39%) is higher than company tax (28%), you pay the difference.
Example 3: Perfect Match (33% tax rate)
- • Dividend received: $100
- • Imputation credit attached: $28
- • Gross dividend (before all tax): $128
- • Your personal tax at 33%: $42.24
- • RWT withheld at source (33% of $128): $42.24
- • Company tax already paid (imputation credit): $28
- • Total tax paid: $42.24 (RWT) - $28 (imputation) = $14.24 actually withheld
- • No refund, no additional tax owed
3.3 Fully Imputed vs Partially Imputed Dividends
Not all dividends come with full imputation credits:
- Fully imputed - Has 28 cents of imputation credits per dollar (most NZ companies)
- Partially imputed - Has less than 28 cents per dollar (company has overseas income)
- Unimputed - No imputation credits (foreign dividends, PIE fund distributions)
3.4 How to Claim Imputation Credits
Imputation credits are automatically applied when you file your annual tax return. You don't need to do anything special - IRD receives information from companies and brokers about your dividends and credits.
4. PIR Rates for PIE Funds
4.1 What is a PIE Fund?
Portfolio Investment Entities (PIE) are special tax structures used by most NZ managed funds, ETFs, and KiwiSaver schemes. They offer tax advantages, especially for high income earners.
4.2 PIR Rates Explained
PIE funds use Prescribed Investor Rates (PIR) instead of RWT. PIR rates are capped at 28%, which benefits high earners:
| Income Level | PIR Rate |
|---|---|
| Up to $14,000 | 10.5% |
| $14,001 - $48,000 | 17.5% |
| $48,001+ | 28% (capped - even if you earn over $180,000!) |
4.3 PIE vs Direct Shares - Tax Comparison
High Earner Example ($180,000+ income)
If you earn over $180,000 per year:
- • Direct NZ shares: Pay 39% tax on dividends (minus 28% imputation = 11% effective extra tax)
- • PIE fund: Pay only 28% tax (capped PIR rate) = 11% tax saving!
On $10,000 of dividend income, that's a $1,100 tax saving by using PIE funds instead of direct shares.
4.4 Choosing Your PIR Rate
You select your PIR rate when investing in a PIE fund. Choose based on your income over the last two tax years. If you choose incorrectly:
- Too low: You'll owe extra tax when filing your return
- Too high: You won't get a refund (unlike RWT), so always choose the correct lower rate
5. Tax Strategies to Minimize Dividend Tax
5.1 Maximize Imputation Credits
Focus on fully imputed dividends from NZ companies. These provide the maximum tax benefit through imputation credits.
- Check dividend announcements for imputation credit ratios
- Banks (ANZ, Heartland) typically pay fully imputed dividends
- Utilities (Contact Energy, Mercury) usually fully imputed
- Companies with overseas income may be partially imputed
5.2 Use PIE Funds for High Earners
If you earn over $70,000 (especially $180,000+), consider PIE funds for NZ equity exposure:
- Smartshares NZ Dividend ETF (DIV) - capped at 28% tax
- Simplicity NZ Share Fund - PIE structure benefits
- Kernel NZ 20 Fund - PIE wrapper advantages
5.3 Timing Dividend Income Strategically
Consider the timing of dividend income if your income fluctuates:
- If taking a career break, time dividend income to lower-income years
- If retiring, consider when you sell dividend stocks vs drawing down
- Spread purchases across tax years to manage income
5.4 Using Trust Structures
Family trusts can be used for tax planning, but this is complex and requires professional advice:
- Trusts pay 33% tax on dividend income
- Can distribute to beneficiaries in lower tax brackets
- Setup and compliance costs must be considered
- Recent trust law changes affect this strategy
5.5 Offsetting with Losses
You cannot offset dividend income with capital losses in NZ (unlike some countries). However:
- Business losses can offset dividend income if you're self-employed
- Rental property losses can reduce overall taxable income
- Consider tax-efficient portfolio rebalancing strategies
6. When You Need to File a Tax Return
6.1 Do I Need to File a Return?
You need to file an IR3 individual tax return if:
- You earn over $200 in dividend income AND other non-PAYE income
- Your RWT rate was incorrect and you owe additional tax
- You want to claim back excess imputation credits
- You're self-employed or have rental income
- IRD requests you to file
6.2 What Information You'll Need
When filing your return for dividend income:
- Dividend statements from your broker or share registry
- Details of gross dividends received
- Imputation credits attached to dividends
- RWT withheld
- Your IRD number and income details
6.3 Filing Deadlines
Key tax return deadlines:
- 7 July - Standard deadline if filing yourself
- 31 March (following year) - If using a tax agent
- File early if expecting a refund from excess imputation credits
7. Common Dividend Tax Scenarios
7.1 Retiree with Only Dividend Income
Scenario: Retiree receives $30,000 in fully imputed dividends, no other income.
- • Gross dividend income: $30,000
- • Imputation credits: $8,400 (28%)
- • Total gross income: $38,400
- • Tax owed at progressive rates: $5,910
- • Imputation credits available: $8,400
- • Tax refund: $2,490
The retiree gets a substantial refund because the company tax paid (28%) exceeds their average tax rate (~15%).
7.2 High Earner with Side Income
Scenario: Earns $200,000 salary + $15,000 dividends from direct shares.
- • Salary (PAYE paid): $200,000
- • Dividends received: $15,000
- • Imputation credits: $4,200
- • Gross dividend: $19,200
- • Tax on dividends at 39%: $7,488
- • Less imputation credits: $4,200
- • Additional tax owed: $3,288
This person would save $1,650 per year by investing via PIE funds (28% cap) instead of direct shares (39% rate).
7.3 Part-Time Worker Building Portfolio
Scenario: Part-time income $25,000 + $3,000 dividends.
- • Part-time PAYE income: $25,000
- • Dividends received: $3,000
- • Imputation credits: $840
- • Total gross income: $28,840
- • Tax owed: $3,842
- • Tax paid via PAYE: ~$3,675
- • Imputation credits: $840
- • Tax refund: $673
8. Frequently Asked Questions
Can I claim imputation credits if I don't file a tax return?
No. You must file an IR3 tax return to claim imputation credits. If you're due a refund from excess imputation credits, IRD won't automatically send it - you must file a return.
What if my broker withheld the wrong RWT rate?
You'll square up when filing your tax return. If too much was withheld, you'll get a refund. If too little, you'll owe the difference. Contact your broker to update your RWT rate for future dividends.
Are Australian dividends taxed the same way?
No. Australian franking credits don't work in NZ. You'll pay NZ tax on Australian dividends at your full marginal rate with no imputation benefit. Some relief via double tax agreements, but it's complex.
Should I invest through a company for tax reasons?
Companies pay 28% tax on dividends received (same as corporate rate). This can work for high earners, but adds complexity and compliance costs. Consult an accountant before setting up a company structure.
How do I calculate my dividend tax liability?
Use our dividend calculator to estimate after-tax dividend income. For precise calculations, consult a tax professional or use IRD's online tools.
Do I pay tax on reinvested dividends?
Yes. Whether you receive cash dividends or reinvest them through a dividend reinvestment plan (DRP), they're taxable income in the year received. RWT is still withheld on reinvested dividends.
9. Resources and Tools
9.1 Official Resources
- Inland Revenue (IRD) - Official tax information and filing
- IRD's myIR portal for viewing tax information and filing returns
- IR3 Individual Tax Return form and guide
9.2 Our Tools
- Dividend Calculator - Calculate after-tax dividend income
- Dividend Calendar - Track upcoming dividend payments
- Stock Screener - Find fully imputed dividend stocks
9.2 Official Resources
For the most up-to-date tax information and official guidance, consult these authoritative sources:
- Inland Revenue (IRD) - Dividend Tax Information - Official NZ tax authority guidance on dividend taxation
- IRD - Individual Tax Returns (IR3) - How to file a tax return to claim imputation credit refunds
- NZX (New Zealand Stock Exchange) - Official market data and company announcements
- Financial Markets Authority (FMA) - NZ's financial regulator for investor protection
9.3 Related Guides
Key Takeaways
- Imputation credits can significantly reduce or eliminate tax on NZ dividends
- Choose the correct RWT or PIR rate to avoid owing tax or losing money
- High earners (39% tax rate) benefit from PIE funds capped at 28%
- Low earners can get tax refunds from excess imputation credits
- File a tax return to claim imputation credit refunds
- Focus on fully imputed NZ dividends for maximum tax efficiency