In New Zealand Taxation Policy on Dividends

 Investing means make your money functional for you basically when you invest in stocks. When most of New Zealanders invest in high dividend paying stocks, their objective is to protect their investments against inflation and grow their capital for use in retirement age. One thing makes this challenging is that investment offering a high degree of certainty and stability in value such as cash and term deposits struggle to beat inflation after tax has been taken into account.

New Zealand offers a favorable tax environment for investors’ earnings and assets – the most attractive of all 27 OECD countries, according to research by Professor Rob Salmond of the University of Michigan.

Key features of New Zealand’s tax system are:

  • No inheritance tax
  • No capital gains tax (it can apply to some investments)
  • No local or state taxes apart from property rates paid to local authorities
  • No payroll tax
  • No social security tax
  • No health care tax, apart from a minimal accident compensation tax.

In The Case Of Dividends

If the company business is in profit year then you may need to pay a dividend. This will affect only those whose company has been subject to income tax. As a shareholder of the company you are a counted as an employee of the company and if you want more money than the balance you must pay FBT (Fringe benefit tax). The tax law requires you to have sufficient company tax paid by 31 March, known as Imputation Credits, to cover all dividends paid. If you think you may not have paid enough tax by this deadline, don’t wait until April 7 to pay your company tax. It is safer to send the money to the Inland Revenue by March 31.

Tax Rates on Dividend Stocks

The top personal tax rate has recently been reduced to 33% for income over NZ$70, 000. From 2011 Company tax rates also fell recently, from 30% to 28%. For New Zealand tax residents, the tax paid on resident passive income such as interest and dividends is RWT (resident withholding tax). You may receive interest with tax deducted and, dividends with tax deducted (tax credits attached). Dividends are a part of a company’s profits that it passes on to its shareholders. Unit trusts are treated as companies for income tax purposes and unit trust distributions are treated as dividends. A New Zealand company or unit trust may attach several types of credits to dividends. “Imputation credits” are credits for part of the tax the company has already paid on its profits so the dividends aren’t taxed twice. “Payment for a foreign dividend” (formerly dividend withholding payment credits) is credited for tax the company paid on dividends it received from overseas. There may also be RWT deducted from the dividend to bring the total tax credit up to 33%. Dividends from listed PIEs are not liable for RWT.

If you will consider living in New Zealand and want tax concessions on overseas investment income and pensions than this is applied for your first four years of living. It generally means that only your New Zealand sourced income is liable to income tax for that period. While there’s no general capital gains tax on New Zealand investments, after the four year adjustment period tax can apply to realized and non-realized gains on overseas portfolios, including exchange gains.

Avoiding Double Taxation

May be you find a tax resident in New Zealand as well as in another country or territory. In that case, if both countries tax their resident’s worldwide income, there is a possibility that your income could be taxed twice. New Zealand minimizes that possibility by unilaterally providing credits for tax paid overseas on income that is also subject to New Zealand tax. In addition, New Zealand has agreements with 35 of your main trading and investment partners which eliminate double taxation.

Stocks to Buy

LTC is a company which investors looked for income tax purpose. The company pays annual dividend $1.86; P/E is 25.08 with dividend yield 4.73%.

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