Govt pulls back from 38% RWT rate

Rob Hosking,  Wednesday, 18 November 2009 10:00

The government has partially backed off proposals to set a default Residential Withholding Tax (RWT) rate of 38%.

The initial bill installed an automatic RWT rate of 38% for anyone who does not nominate a rate.

Those who had previously nominated the - now abolished -rate of 19.5% would have had their RWT rate automatically raised to 38%.

The finance and expenditure select committee has reported back, after hearing submissions objecting to this, recommending this only apply for new bank accounts after April 1 next year.

Deloitte New Zealand tax partner Greg Haddon says the Inland Revenue Department is concerned about people nominating a rate lower than their correct rate, and then not furnishing a tax return which would square up their tax position.

But the select committee felt the original proposal went too far.

"According to figures provided by Inland Revenue this would have resulted in over 900,000 taxpayers being faced with having RWT withheld at excessive rates.

"Of this 900,000 around 270,000 taxpayers were expected to elect back down from the 38% default rate, but that still resulted in approximately 630,000 taxpayers being overtaxed.  Needless to say, the FEC did not consider this a wise move, given the potential political ramifications."

The changes give the Inland Revenue Department powers to instruct banks and other interest payers to alter a taxpayer's RWT rate if the department believes the taxpayer has nominated a rate lower than they should have.

However a taxpayer who is on the receiving end of such a move can still elect to lower their rate, Haddon says.

"Taxpayers may be in circumstances that Inland Revenue is not aware of, for example they may have losses from another venture that will offset their salary income."

The changes also include dropping the RWT rate for companies, from 33% to 30%.

written by ray clarke, 19 November 2009

Here we have the so called EXPERTs on Taxation in NZ willing to sink the boot into the children of New Zealand who recieve an odd payment or two into a savings account being clobbered at high rates and no redress except appealing to IRd. NZ is NO MORE INTERESTED IN SAVINGS THAN FLY TO THE MOON!

written by Hayley, 19 November 2009

I believe part of this article is incorrect. Only those taxpayers who were defaulted onto the 19.5% rate (ie they had not nomiated a rate when opening the account) would have been moved to the 38% under the now amended proposed rules. If a taxpayer had elected 19.5% they would be moved to the new 21% rate when the rules come into effect.

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