Resident Withholding Tax NZ: Rules, Requirements and Process

Resident withholding tax comes off bank interest before the interest lands in your account, and off dividends before a company pays you. Most New Zealanders pay it every month without filling in a form for it, yet it still causes confusion. A rate on a statement does not match expectations. A term deposit matures and the tax looks too high. A dividend arrives with credits attached and nobody is sure what they mean. This guide explains how RWT works: who deducts it, which rate should apply, what changes with dividends, who is exempt, and what happens at year end if the rate was wrong.

Quick answer

Resident withholding tax (RWT) is tax deducted at source from interest and dividends paid to New Zealand tax residents. Your bank, fund manager or the company paying you deducts it and sends it to Inland Revenue on your behalf.

For interest paid to an individual, you choose a rate of 10.5%, 17.5%, 30%, 33% or 39% to match your total taxable income, and you give your payer your IRD number. Give your IRD number but choose no rate, and the default is 33%. Give no IRD number at all, and your payer must deduct at the non-declaration rate of 45%. Dividends are taxed at a flat 33%, reduced by any imputation credits attached. RWT is rarely the final word. Inland Revenue squares up your position at the end of the tax year, so too low a rate can leave a bill and too high a rate can produce a refund.

What RWT is, and where you will meet it

RWT is a collection mechanism, not a separate tax. The underlying tax is income tax on interest and dividend income. Instead of waiting for you to declare that income and pay months later, the law requires the payer to withhold part of each payment and pass it straight to Inland Revenue.

You will meet it on interest from savings accounts, call accounts and term deposits, on interest from bonds and similar investments, on dividends from New Zealand companies (including dividends paid through share platforms), and on some unit trust distributions taxed at the dividend rate.

The payer is the organisation making the payment: your bank, a finance company, a fund manager, a share registry, or a private company paying its shareholders. As a recipient you do not send RWT to Inland Revenue yourself. Your job is to give the payer your IRD number and, for interest, your elected rate. Get either wrong and the deduction will be wrong too.

Inland Revenue calls interest, dividends and a few similar payments to residents “resident passive income”. That term matters in the payer rules later in this guide.

RWT on interest: choosing your rate

Interest is where you have a choice, and where most mistakes happen. With your IRD number supplied, you can elect one of five rates. The right one matches your total taxable income for the year, from all sources.

Your total taxable income	RWT rate to elect
Up to $15,600	10.5%
$15,601 to $53,500	17.5%
$53,501 to $78,100	30%
$78,101 to $180,000	33%
$180,001 and over	39%

The bands line up with the personal income tax rates. If your salary already puts you in the 30% band, electing 10.5% on term deposit interest just defers part of the tax to a bill later. Our guide to tax rates in NZ sets out the personal rates in full.

Total income means everything, including the interest itself. A part-time worker with $20,000 of wages and a large term deposit might cross into a higher band once interest is added. Circumstances change mid-year, too: a pay rise, a move to full-time work or a period with no work can all shift your band. Inland Revenue expects you to tell your payer if a change affects your rate.

Joint accounts can use only one rate. If you and a partner sit in different bands, pick one rate between you. The higher earner’s rate usually avoids a bill for that person, though the lower earner may overpay during the year and wait for the square-up. Inland Revenue splits joint account income equally between holders who have provided valid IRD numbers, and you can correct an allocation that does not reflect reality at assessment time.

The 33% default and the 45% non-declaration rate

Give your payer your IRD number but elect no rate, and interest is taxed at the 33% default. Plenty of accounts sit on it for years because nobody chose anything at opening. For someone in the 17.5% or 30% band it means too much tax off every payment, returned only after the annual assessment. For someone in the 39% band it quietly builds a shortfall. A two-minute election fixes both.

Give your payer no IRD number, and they must deduct at 45%. Inland Revenue calls this the non-declaration rate, and it has applied at 45% since 1 April 2020. It is set above every ordinary rate on purpose. Provide your IRD number and elect a rate, and later payments should be taxed correctly. Tax already withheld at 45% is credited at year end, so it is not lost, but you may wait months to see it back.

Companies, trusts and Māori authorities

Companies that have told their payer they are a company, and provided an IRD number, can elect 28%, 33% or 39%. Elect nothing and the default is 28%, matching the company tax rate. Trustees generally choose from 17.5%, 30%, 33% or 39%, with trustees of testamentary trusts also able to use 10.5%. Māori authorities can generally elect from 17.5%, 30%, 33% or 39%. Where a trust is involved, weigh the trust’s own position and its beneficiaries before electing.

RWT on dividends: 33% and imputation credits

Dividends have no menu of rates. The RWT rate on a dividend is 33%, deducted by the paying company before you are paid.

One qualification matters: imputation credits. A company pays tax on its profits at 28%. When it pays a dividend it can attach credits for tax already paid, and those credits count towards the 33% withholding. The cash deducted is therefore often far less than 33% of the gross dividend. A fully imputed dividend carries a 28% credit, leaving only 5 percentage points to cover by deduction.

Inland Revenue illustrates this with a round example. A gross dividend of $100 carries a $28 imputation credit. Tax at 33% is $33, the credit covers $28, and $5 is deducted as RWT, so the shareholder receives $67 cash with $33 of tax accounted for. Your dividend statement shows each piece: cash dividend, imputation credit, gross taxable amount and RWT withheld. Keep it, because it feeds your assessment.

If your personal rate is below 33%, a dividend will usually have more tax attached than you ultimately owe, with the excess dealt with at assessment. Imputation credits have their own rules and are not simply refunded in cash in every situation. If your rate is 39%, the 33% attached does not cover your liability and you owe the difference: $6 on that $100 example.

Unit trust distributions are generally taxed at the same 33% rate, unless the fund is a portfolio investment entity (see below). For after-tax deposit comparisons, our guide to the best term deposit rates in NZ shows how RWT affects what you keep from a term deposit.

Who is exempt from RWT

Some recipients have no RWT deducted because they hold RWT exempt status. Inland Revenue maintains an exemption register listing exempt recipients by IRD number, and payers check the register rather than paper certificates.

Exemption is not open to anyone who would prefer to handle their own tax. A charity registered with Charities Services is placed on the register automatically and need not apply. Other organisations can apply where they meet Inland Revenue criteria, for example certain not-for-profit bodies, public and local authorities, registered banks and similar institutions, and taxpayers whose income is exempt under other legislation. Exemptions can also arise in cases involving very large incomes, with $2 million a year being the figure in Inland Revenue cancellation guidance, or significant losses or refunds.

Practical points:

• An exemption covers interest and dividends. Payers should deduct neither.
• Tell your payer about your status, and about any change. Inland Revenue can cancel an exemption if conditions stop being met, such as a charity being deregistered.
• If RWT was deducted despite a valid exemption, Inland Revenue provides a refund route using form IR454.
• Payers must check the register, which Inland Revenue updates overnight on business days, rather than taking a claim on trust.

Most individual savers will never qualify. Exemption is the exception, for organisations whose tax is dealt with another way.

If you choose the wrong rate

At the end of the tax year Inland Revenue totals your income, calculates the tax that should have been paid, and compares it with everything withheld through PAYE, RWT and other credits. Payers report your investment income and tax withheld during the year, and you can watch it build up in myIR.

Too low a rate leaves a shortfall to pay. It is common after a promotion, a second income source, or an old rate left in place while income rose. Too high a rate means an overpayment that goes towards a refund, subject to your overall position. Our guide to getting a tax refund in NZ explains that process and its timing.

Deliberately electing a low rate gains nothing: the tax is still owed, deadlines apply, and interest and penalties can follow overdue tax. Electing 39% on a $40,000 income is equally pointless, an interest free loan until assessment. The right rate, updated when income changes, is the boring and correct answer.

Check, too, that your payer holds your correct IRD number. A wrong or missing number breaks the reporting chain and can trigger the 45% rate. Your number and rate should appear on a recent statement, or be available from the payer on request.

Non-residents: RWT compared with NRWT

RWT applies to New Zealand tax residents. Non-residents receiving New Zealand interest, dividends or royalties fall under non-resident withholding tax (NRWT) instead.

NRWT uses fixed statutory rates, not an elected rate matched to income. Where no double tax agreement rate applies, Inland Revenue lists defaults of 15% for interest, 30% for dividends and 15% for royalties. Agreements with many countries reduce those rates, commonly to 10% for interest and 15% for dividends, though the figure depends on the country and income type. Fully imputed dividends can reduce NRWT further, and for interest some payers can use an approved issuer levy, paid by the issuer on certain securities instead of deducting NRWT.

Residency can change mid-year, and withholding follows the residency position rather than a physical address. Joint accounts held by a resident and a non-resident are treated under RWT for the interest, with the non-resident able to claim a refund through a non-resident return or a specific refund form. If residency is in doubt, establish it first: the wrong regime is a bigger problem than the wrong rate.

PIEs and PIRs: related, but not RWT

KiwiSaver funds and many managed funds are portfolio investment entities (PIEs). Income inside a PIE is taxed at your prescribed investor rate (PIR), not an RWT rate. For resident individuals the PIR options are 10.5%, 17.5% and 28%, with the top rate capped at 28% even if your personal rate is 33% or 39%.

Do not mix the elections up. Telling your bank your RWT rate does nothing to your KiwiSaver PIR, and updating a PIR does not change your savings account rate. The consequences of a wrong PIR also differ from the RWT square-up. This guide does not work through the PIR calculation: the thresholds and the two-year income test sit with the wider rate system, and the Finance section collects our related tax and money guides.

Obligations for payers of interest and dividends

Payers face stricter duties than recipients expect. Paying interest on a private loan, paying interest in a business, or paying company dividends can all bring you inside the RWT system.

If you pay resident passive income (interest, a dividend, a taxable Māori authority distribution, or a replacement payment under a share lending arrangement) to New Zealand residents, Inland Revenue requires you to register as an RWT payer, deduct RWT at the correct rate for each recipient, and send the deductions to Inland Revenue with the required investment income information.

That means collecting each recipient’s name and contact details, IRD number and date of birth where available, and elected rate. Recipients elect an interest rate by telling the payer, and Inland Revenue provides form IR456 for choosing an RWT deduction rate. Check the exemption register and deduct nothing from exempt recipients. Collect details for all joint owners of joint accounts.

Reporting is electronic unless Inland Revenue exempts you, and nil returns are not needed for periods with no payment. For interest, reports are due by the 20th of the month following the month the interest was paid.

Payment timing depends on scale. Payers regularly withholding $500 or more a month must file and pay by the 20th of the month following deduction. Payers withholding less than $500 a month file and pay twice a year, by 20 April and 20 October. If smaller deductions accumulate past $500, payment is due by the 20th of the next month, and monthly filing and payment applies for the rest of that tax year. RWT certificates are not required for recipients who gave an IRD number, but must be given to those who did not.

Companies paying dividends have parallel duties: deduct at 33%, allow for imputation credits, report, and pay over the withholding. Late or incorrect deduction is the payer’s compliance failure and can attract penalties and interest. Set the process up before the first payment, not after a year of payments.

How to check and fix your rate

1. Estimate your total taxable income for the year, from all sources.
2. Match it to the table above and note the rate.
3. Check a recent statement for the rate actually used, and whether your IRD number is recorded.
4. If either is wrong, contact the payer (online banking, branch or phone) and elect the correct rate. Do it for each payer separately.
5. Check fund providers separately: that is a PIR check, not RWT.
6. Glance at investment income in myIR during the year. If figures look wrong, raise it with the payer first.

Repeat the check whenever income changes materially: a new job, redundancy, return to work, a large deposit, or retirement. Rates do not update themselves.

Frequently asked questions

Is RWT the same as income tax?

Yes, collected early. Withheld amounts are credited against income tax on your total income at year end. RWT is not an extra tax on top.

What rate should I use on my savings account?

The rate matching your total taxable income: 10.5% up to $15,600, 17.5% up to $53,500, 30% up to $78,100, 33% up to $180,000, and 39% above that. Include the interest in your estimate.

Why is my bank deducting 45%?

The bank almost certainly does not hold your IRD number for that account, or holds it incorrectly. That triggers the 45% non-declaration rate. Supply your number and elect a rate.

Why was I taxed at 33% when I never chose a rate?

That is the default for interest where an IRD number was supplied but no rate elected. Elect the rate your income points to.

Do I pay RWT on KiwiSaver?

No. KiwiSaver schemes are PIEs, taxed at your PIR (10.5%, 17.5% or 28% for resident individuals). Check your PIR with your provider.

Are dividends taxed twice?

Imputation is designed to prevent full double taxation. Company tax already paid attaches to the dividend as credits, counting towards tax in your hands, including the 33% RWT calculation.

Can I get RWT back if too much was deducted?

Usually through your end-of-year assessment. If you held a valid exemption and tax was deducted anyway, Inland Revenue also provides refund form IR454.

Does RWT apply to overseas account interest?

No deduction is made by an overseas bank under New Zealand RWT, but residents are taxed on worldwide income and must declare overseas interest in New Zealand. The other country may withhold its own tax.

I pay interest to a private lender. Must I deduct RWT?

Quite possibly. Paying interest that is resident passive income can require registration, deduction and reporting, even outside the banking system. Confirm your position with Inland Revenue before paying gross.

Sources

• Resident withholding tax overview, Inland Revenue: http://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt
• Using the right resident withholding tax (RWT) rate, Inland Revenue: http://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt/using-the-right-rwt-tax-rate
• Tax rates for individuals, Inland Revenue: https://www.ird.govt.nz/income-tax/income-tax-for-individuals/tax-codes-and-tax-rates-for-individuals/tax-rates-for-individuals
• Payers of resident withholding tax (RWT), Inland Revenue: http://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt/payers
• Payers of interest, reporting requirements, Inland Revenue: http://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt/payers/investment-income-reporting/reporting-requirements/payers-of-interest
• Resident withholding tax exemption register, Inland Revenue: https://www.ird.govt.nz/rwt-exemption
• Non-resident withholding tax rates for double tax agreement countries, Inland Revenue: http://www.ird.govt.nz/income-tax/withholding-taxes/non-resident-withholding-tax-nrwt/deduct-nrwt-at-the-right-rate/nrwt-rates-for-dta-countries

Disclaimer

This article is general information about how resident withholding tax works in New Zealand. It is not tax advice and does not take your personal circumstances into account. Rates and thresholds can change, so check the current position on the Inland Revenue website or talk to a qualified tax adviser before acting.