Trusts & Prescribed Investor Rates

Posted: 9th March 2010

As you will be aware, from 1 April 2009 the personal income tax thresholds and rates changed and as a result consequential adjustments have been made to investors' rates of resident withholding tax ('RWT") and their portfolio investor rates ("PIR's").

PIR Changes

All investors with a PIR of 19.5% at 31 March 2010 will automatically move to a new rate of 21% for 2010-2011. An Amendment Act passed in December 2009 also allows trustees to elect a PIR of 21% (in addition to the 0% and 30% rates) which is a new investors rate for trusts that has application from 1 April 2010. This may assist if the income is being distributed to beneficiaries on this lower tax rate as they receive the net income with the benefit of an appropriate tax credit.

RWT Changes

In summary, the changes are:-

For individuals:-

The current 19.5% rate is being replaced by a rate of 21% from 1 April 2010. A new rate of 12.5% will be available to individuals who expect their total annual income to be $14,000 or less. A default rate of 38% will apply to investors who do not choose a RWT rate.

For companies:-

As Issuer, we will apply a RWT rate of 30% from 1 April 2010. From 1 April 2011, all companies will be able to elect this rate.

Am I affected?

These changes to RWT taxes will affect you if any of the following situations apply:-

You are currently taxed at an RWT rate of 19.5%; or You expect your total annual income to be $14,000 or less;or You operate a company (unless it is on a default 38% RWT rate or exempt from paying RWT).

What are the new Resident Withholding Tax Rates?

The tables below outline the current rates and the new rates for individuals and companies:-

Sources: NSA Tax and Forsyth Barr