Hon Peter Dunne
Minister of Revenue
MEDIA STATEMENT
Govt to align investment and income tax rates
The Government is proposing to introduce legislation to align resident withholding tax (RWT) rates on interest and portfolio investment entities (PIE) tax rates with recent changes to personal income tax rates and the 30% company tax rate, Revenue Minister Peter Dunne announced today.
"The changes will be part of taxation bill to be introduced later this month, with passage expected by December," he said.
"This is catch-up legislation that couldn't be put in place late last year when the personal tax cuts were enacted because of the time needed to consult with banks and other financial institutions over the changes.
"I am announcing the changes today to give financial institutions as much time as possible to start preparing for them.
"Resident withholding tax on interest is based on the marginal tax rate of the recipient of the interest income. Its purpose is to ensure that tax is paid at source on that income at a rate that closely approximates the recipient's tax rate.
"New resident withholding tax (RWT) rates will be 12.5%, 21%, 33% and 38%, depending upon the personal tax rates of individual recipients. The new RWT rates will generally apply from 1 April 2010.
"The default rate for individuals who do not specify their tax rate to their bank will rise from 19.5% to 38%. This will apply from 1 April 2010 for new bank accounts.
"There will be a new 30% RWT rate on interest for companies that invest in financial institutions. Its use will be optional for financial institutions for a year from 1 April 2010, and compulsory thereafter.
"Tax rates on portfolio investment entities (PIEs) will also reflect the new personal tax rates, with rates ranging from 12.5% to 30% for income over $70,000. The changes will ensure that people who invest in PIEs are not disadvantaged relative to direct investors. Once enacted, the new PIE rates will apply from 1 April 2010.
"The changes will mean that savers who choose a rate with their bank do not pay more tax on interest than they need to, and that PIE investors are not over-taxed on their investment," Mr Dunne said.
Media contact: Mark Stewart, Press Secretary, 021 243 6985
Note: For more information on the proposed changes, see the technical annex.