Dividends – Imputation Credits & RWT
Grange Associates Ltd - 15 October 2012
Generally, companies paying dividends to shareholders attach imputation credits and deduct
withholding tax prior to payment. There are several rules that need to be applied to ensure imputation
credits are attached at the correct ratio and withholding tax is deducted, here are the most important ones to
The imputation ratio of the dividend cannot exceed the resident company income tax
The imputation ratio is determined as follows:
Amount of imputation credits attached to dividend
Dividend paid excluding imputation credits & RWT
If the imputation ratio exceeds the resident company income tax rate, the excess is not creditable for
The maximum imputation ratio from the start of the 2012 income year is capped at 28:72. This means a
maximum of $28 of imputation credits can be attached to every $72 of dividends, or imputation credits can be up to
38.88% of a dividends cash value amount. This is a decrease from the previous ratio of 30:70 up to the end of
the 2011 income year. However, during the transitional period, companies can still allocate credits that relate to
tax paid at 30% at the previous maximum ratio of 30:70. The transitional period ends on 31 March 2013.
After this date all dividends must be imputed at the 28:72 ratio.
All dividends paid by a company during an imputation year must have the same
imputation ratio unless a Ratio Change Declaration (IR407) form is completed
An exception to this is when a company tax rate change is the sole reason for dividends having
different imputation ratios.
Resident Withholding Tax
Dividends received by shareholders are considered resident passive income, which means they are liable for RWT
at 33%, unless the receiver holds an RWT exemption certificate. Imputation credits attached to a dividend
offset this RWT liability to the extent to which they are attached. Shareholders receive the same cash
dividend regardless of the make up of imputation credits and RWT on a dividend, but the combination of imputation
credits attached and RWT paid must always equal 33% of the gross dividend for shareholders not exempt from RWT.
The change in company tax rate means that dividends will now generally have RWT payable of 5% on the gross
dividend, this was previously 3%.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
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