How it's calculated
Most New Zealand companies pay income tax at a flat 28% of their taxable profit. Self-employed people are taxed at the individual rates instead.Inland Revenue
When the company pays a dividend, New Zealand's imputation system passes on a credit for the tax the company has already paid, so the profit is taxed once at the shareholder's own rate. A company can attach up to 28 cents of imputation credit to each $1 of gross dividend, written 28:72: 28 cents of credit for every 72 cents of after-tax profit paid out.Inland Revenue
The shareholder includes the cash dividend plus the credit (the gross dividend) in their income, works out tax at their rate and subtracts the credit. If the credit is more than the tax, the excess is not refunded: an individual carries it forward to reduce tax in later years.Inland Revenue
The formula
- Company tax = taxable profit × 28%.
- After-tax profit = profit − company tax; dividend = after-tax profit × the share paid out.
- Imputation credit = dividend × 28 ÷ 72; gross dividend = dividend + credit.
- Shareholder's further tax = gross dividend × shareholder's rate − imputation credit (if negative, those are excess credits).
- Shareholder keeps = dividend − further tax.
The company also deducts resident withholding tax (RWT) of 33% of the gross dividend less the imputation credit, which counts towards the shareholder's tax.
Worked example
Inland Revenue's IR274 example: a company earns $1,000 profit and pays $280 tax. It pays out the rest as a fully imputed dividend of $720 with $280 of credits. A shareholder taxed at 33% pays $50 more and keeps $670.
| Line | Amount |
|---|---|
| Taxable profit | $1,000 |
| Company tax (28%) | -$280 |
| Profit after tax | $720 |
| Cash dividend | $720 |
| Imputation credits (28/72) | $280 |
| Shareholder tax at 33% on $1,000, less credits | -$50 |
| Shareholder keeps | $670 |
For $100,000 of profit with half paid out to a shareholder on 39%, the company pays $28,000, keeps $36,000, and the shareholder keeps $30,500 of their dividend.
Assumptions and limitations
- Fully imputed dividends. The company is assumed to have enough imputation credits in its imputation credit account to attach the maximum. Partly imputed dividends carry less credit and more RWT.
- Taxable profit, not accounting profit. Enter profit after deductible expenses and depreciation, and after any losses carried forward.
- Not included: provisional tax and its timing, look-through companies, Māori authorities (17.5%), salaries paid to shareholder-employees, and dividends to non-residents.
- Shareholder's rate. Pick the rate that applies to the top slice of the shareholder's income once the gross dividend is added.
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