What Are Imputation Credits?
Simple Definition
Imputation credits (also called imputation tax credits) are tax credits attached to dividends paid by New Zealand companies. They represent the company tax already paid on the profits being distributed to shareholders.
When you receive a dividend with imputation credits, you're getting a credit for the 28% company tax the business already paid on those profits. This prevents you from being taxed twice on the same income.
Why Imputation Credits Exist
New Zealand uses an imputation system to avoid double taxation of company profits. Without this system:
- Company earns $100 profit and pays $28 company tax (28% rate)
- Company distributes remaining $72 as dividend
- You pay personal income tax on the $72 dividend (double taxation)
With imputation credits:
- You receive $72 cash + $28 imputation credit = $100 gross dividend
- You pay tax on the full $100, but get credit for the $28 already paid
- Net result: Tax is only paid once, at your personal tax rate
How Imputation Credits Work in Practice
Example Calculation
Let's say you receive a fully imputed dividend from a NZ company:
What You Receive:
Tax Treatment by Income Level:
Scenario 1: 10.5% Tax Rate (Income under $15,600)
Total income: $720 cash + $175 refund = $895
Scenario 2: 30% Tax Rate (Income $48,001-$70,000)
Total after-tax income: $720 cash - $20 tax = $700
Scenario 3: 39% Tax Rate (Income over $180,000)
Total after-tax income: $720 cash - $110 tax = $610
Understanding Imputation Ratios
What is Imputation Ratio?
The imputation ratio tells you what percentage of the dividend has imputation credits attached. Not all dividends are fully imputed.
Fully Imputed (100%)
Maximum imputation credits attached. Best for NZ tax residents.
Partially Imputed (0-99%)
Some credits attached. Common for companies with overseas profits.
Unimputed (0%)
No imputation credits. Common for foreign companies or REITs.
How to Calculate Imputation Credits
Formula: Imputation Credits = Cash Dividend × (28 ÷ 72) × Imputation Ratio
The 28/72 ratio comes from NZ's 28% company tax rate:
- • Company keeps $72 after paying $28 tax on $100 profit
- • For every $72 paid out, $28 was paid in tax
- • Therefore: Credits = Cash × 28/72 = Cash × 0.3889
How to Claim Imputation Credits
Step-by-Step Guide
Receive Your Annual Tax Statement
Your broker or share registry will send you an Annual Imputation Credit Summary or Resident Withholding Tax (RWT) Certificate by March 31 each year.
Find Your Imputation Credits
Look for these key figures on your statement:
- • Gross dividends received (cash + credits)
- • Imputation credits attached
- • RWT deducted (if applicable)
Complete Your IR3 Tax Return
Include dividend income in your IR3 Individual Tax Return. The imputation credits will automatically reduce your tax liability or generate a refund.
Receive Refund (If Applicable)
If your imputation credits exceed your tax liability, IRD will refund the difference directly to your nominated bank account.
Important Notes
- •Imputation credits are only valuable to NZ tax residents
- •Non-residents cannot claim imputation credits
- •Credits are automatically applied when you file your IR3
- •Keep dividend statements for at least 7 years
Maximizing Imputation Credit Benefits
Best For Low-Income Investors
If your tax rate is below 28%, you'll receive a tax refund on the excess imputation credits.
Example: Retirees with income under $48,000 can receive significant refunds from dividend income.
Tax-Efficient for All NZ Residents
Even high-income earners benefit by avoiding double taxation on company profits.
Tip: Focus on fully imputed dividends for maximum tax efficiency.
Investment Strategy Considerations
Prioritize Fully Imputed Dividends
NZ companies like banks, utilities, and telecommunications typically offer fully imputed dividends. Check our dividend stocks database for imputation ratios.
Consider Your Tax Rate
Low-income investors benefit most from imputation credits. If you're retired or have lower income, dividend stocks with full imputation are excellent for tax-effective income.
Compare After-Tax Returns
A 5% fully imputed dividend may deliver better after-tax returns than a 6% unimputed dividend, depending on your tax rate. Use our dividend calculator to compare.
Quick Reference: Imputation Credits
Key Facts
- Prevent double taxation of company profits
- Represent 28% company tax already paid
- Only available to NZ tax residents
- Can generate tax refunds for low-income earners
- Claimed automatically on IR3 tax return
Calculation Formula
Credits = Cash Dividend × 28/72 × Imputation %
Example:
Cash dividend: $1,000
Imputation: 100% (fully imputed)
Credits: $1,000 × 0.3889 = $389
Related Resources
Dividend Tax Guide
Complete guide to dividend taxation in New Zealand including RWT, PIE funds, and tax rates.
Read guide →Beginner's Guide
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