Resident Withholding Tax

[Bluekiwi]

Okay I have had a few chats with my accountant over this, but I would like to read more to really get to grips with it, is there a thread here or somewhere I can go to find out more, the IRD website just talks about it assuming you know exactly what it is and how it works.

I have a Rental Trust that effectively has borrowed 200k from our Family Trust.
Plus will soon also have a Trading Trust in same sort of situation.

What does this phrase actually mean, I am a resident and I am withholding ?
Or the tax resides in the assumed interest charge to the business.

I just want to get to grips with it a bit more .

[buxlo122]

Resident Withholding Tax (RWT)

RWT is a tax deducted on interest earned.
It is withheld by the entity paying the interest.
They then pay that RWT on to the IRD on a monthly basis.
At the end of the year when you file your tax return the RWT deducted will count against your tax liability. If your tax liability is less than your residual income tax the excess RWT will be refunded.

RWT Registration
If you are paying more than $5000p.a in interest you need to register and file monthly RWT returns.

[Rosco]

Hi Bluekiwi,

The first point to look at is your family trust charging your rental trust interest?

If so, as Buxlo has put, and the interest per annum is over $5,000 then technically the rental trust needs to deduct RWT from the interest, pay this RWT to IRD and pay the net interest to the family Trust.

In reality, this kind of associated transaction happens a lot, and often the parties don't pay RWT. BUT they technically should.

If your family trust is not charging the rental trust any interest, then you don't need to worry about RWT.

Ross

[CJ]

In reality, this kind of associated transaction happens a lot, and often the parties don't pay RWT. BUT they technically should.

Agreed. NOrmally the interst will be 'paid' on the last day of the year triggering a RWT liability one month later. Provided the receiving entity has fully paid their tax (ie provisional tax), IR wont mind as they actually got their tax in advance had RWT been paid (you need to weight up the admin v cash cost).

[Tan]

I just want to get to grips with it a bit more .

I'll leave the details to the experts, but very simply, think of your bank account.

RWT just stands for tax on interest (or dividends). You, any NZ trust, and any NZ Company you have are NZ residents. The tax is withheld by IRD until you do your tax return. Tax is tax .

You get $10 interest, you pay $3 RWT. You do nothing but supply your IRD number. The bank does the paperwork. At the end of the year the bank sends you an IR15 certificate and you put it with your tax papers.

The family trust would need to do the paperwork
- an IR15P when a return is due (once you have $500 tax to pay, or more often if you want).
- an IR15 at the end of the year (a copy goes to the rental trust)

The rental trust wouldn't do anything except put the IR15 with it's end of year paperwork.

If, as CJ says the interest is annual, your accountant would put through the IRD forms when they worked out your financials anyway.

If you complete the forms yourself, you only need the amount of interest and tax rate, and date to do the return.

Happy tax paying.

[foss]

Being a trust presumably they have the "discretion" not to charge interest? Not like a company where it needs to be commercial and charge interest?

What is the advantage of separating rental trust from family trust? sounds like alot of extra cost and administration?

[ChrisD]

Being a trust presumably they have the "discretion" not to charge interest? Not like a company where it needs to be commercial and charge interest?

What is the advantage of separating rental trust from family trust? sounds like alot of extra cost and administration?

Presumably he wants to charge interest to get the deduction in the rental trust for funds borrowed in the family trust.