INTRODUCTION
Imputation System is one of the tax system in New Zealand in which the tax paid on the same income earned by two parties can be transferred from one party to another. That means tax is only paid by one party, other party gets the benefit of the tax paid by first party. It 's all about relating to companies and their shareholders. Companies pays the tax on the profit, and shareholders gets the benefit. It eliminates the issue of Double Tax. Imputation System took effect from 1989 onwards.
New Zealand follows the "tax year" of 12 Months for all tax activities starts from 1st April and ends on 31 March every year.
Most of the companies in New Zealand has the balance date of 31 March for their financial period, which aligns well …show more content…
The NZ Companies start getting Australian franking credits from 1 October 2003 onwards.
Later in 2008 in the month of July the Australian Treasurer and the New Zealand System of finance agree to adopt mutual recognition of Franking credits (in Australia) and Imputation credits (In New Zealand). The mutual recognisation has been established in idea to improve the welfare of Australia and New Zealand.
The establishing of Mutual Recognisation has gained many advantages like:
• Greater efficiency of investment
• Greater efficiency in product market
• More Flexible investments
• More Stable tax System
• Putting Next Step in Single Economic Market Agenda
HOW IT WORKS?
The Imputation System has reduced the tax liabilities for the shareholders. Generally Shareholders used to pay double tax before the introduction of Imputation System. Here is an example provided by IRD to make to understand how imputation makes …show more content…
If they are attaching the imputation credits, then they much follow some required rules to allocate credits.
Limitation of Attaching Imputation Credits
If company decided to attach imputation credits, there is a maximum limit of it.
Limit on Share of Profit
Maximum of 38.89% of Imputation credits can be attached to each dollar of profit
Limit on Dividends
Maximum of 28% of Imputations credits can be attached to each dollar of dividend. The above diagram indicates the ration of Imputation Credits. The ration can be represented using the format of 28:72. This shows that maximum of 28% of imputation credits can be attached to the 72% of share of profit.
The diagram showing the example:
If the Company 's Profit for
The year ended 31 March 15 $100
Tax Deducted @28% $28
Profit after Tax $72 The profit is $72 after paying a tax of $28. That 's why the maximum ratio is 28:72
RESIDEND WITHOLDING TAX
Dividends received by shareholders in New Zealand are subject to RWT. The RWT is deductible at the rate of 33% on the Gross Dividend (Gross Dividend includes Imputation Credits). On the other hand the imputation credits attached with the dividends reduces the amount RWT Payable. This makes RWT relatively lower to 5% of the gross
Imputation System is one of the tax system in New Zealand in which the tax paid on the same income earned by two parties can be transferred from one party to another. That means tax is only paid by one party, other party gets the benefit of the tax paid by first party. It 's all about relating to companies and their shareholders. Companies pays the tax on the profit, and shareholders gets the benefit. It eliminates the issue of Double Tax. Imputation System took effect from 1989 onwards.
New Zealand follows the "tax year" of 12 Months for all tax activities starts from 1st April and ends on 31 March every year.
Most of the companies in New Zealand has the balance date of 31 March for their financial period, which aligns well …show more content…
The NZ Companies start getting Australian franking credits from 1 October 2003 onwards.
Later in 2008 in the month of July the Australian Treasurer and the New Zealand System of finance agree to adopt mutual recognition of Franking credits (in Australia) and Imputation credits (In New Zealand). The mutual recognisation has been established in idea to improve the welfare of Australia and New Zealand.
The establishing of Mutual Recognisation has gained many advantages like:
• Greater efficiency of investment
• Greater efficiency in product market
• More Flexible investments
• More Stable tax System
• Putting Next Step in Single Economic Market Agenda
HOW IT WORKS?
The Imputation System has reduced the tax liabilities for the shareholders. Generally Shareholders used to pay double tax before the introduction of Imputation System. Here is an example provided by IRD to make to understand how imputation makes …show more content…
If they are attaching the imputation credits, then they much follow some required rules to allocate credits.
Limitation of Attaching Imputation Credits
If company decided to attach imputation credits, there is a maximum limit of it.
Limit on Share of Profit
Maximum of 38.89% of Imputation credits can be attached to each dollar of profit
Limit on Dividends
Maximum of 28% of Imputations credits can be attached to each dollar of dividend. The above diagram indicates the ration of Imputation Credits. The ration can be represented using the format of 28:72. This shows that maximum of 28% of imputation credits can be attached to the 72% of share of profit.
The diagram showing the example:
If the Company 's Profit for
The year ended 31 March 15 $100
Tax Deducted @28% $28
Profit after Tax $72 The profit is $72 after paying a tax of $28. That 's why the maximum ratio is 28:72
RESIDEND WITHOLDING TAX
Dividends received by shareholders in New Zealand are subject to RWT. The RWT is deductible at the rate of 33% on the Gross Dividend (Gross Dividend includes Imputation Credits). On the other hand the imputation credits attached with the dividends reduces the amount RWT Payable. This makes RWT relatively lower to 5% of the gross