RWT withholding certificates and reconciliation statements

Financial institutions are required to include various types of information on RWT (resident withholding tax) withholding certificates and reconciliation statements. This includes the tax rate that was applied to the interest, the amount of interest paid and the amount of RWT withheld. Requiring this information to be included on the certificate makes it easier for taxpayers who receive interest income to determine whether they need to file a return or request a personal tax summary, and whether they are using an appropriate RWT rate for their circumstances.

In providing the tax rate that was applied to the interest, financial institutions are permitted to show the average of the tax rates used during the year. However, financial institutions calculate this in different ways. Some financial institutions may have difficulties calculating the tax rate that was applied to the interest for the 2010-11 tax year, given that RWT rates reduced from 1 October 2010.

Key features

The requirements for RWT withholding certificates and reconciliation statements have been made more flexible. Some drafting clarifications to the requirements have also been made.

Section 25(6)(d) of the Tax Administration Act 1994 has been amended to remove the requirement that the basic tax rate applied to the interest be shown on the RWT certificate. Financial institutions must continue to include the amount of interest paid and the amount of RWT withheld.

The requirement in section 25(6)(d) has been replaced with a provision that requires interest RWT certificates to include one or more of the following:

1. the average rate that applied;
2. the marginal rate that would have applied had the interest been paid at the end of the relevant tax year;
3. the rate at which RWT was withheld during the year. In this case, if more than one RWT rate was applied during the year, the certificate should show the amount of interest to which each rate applied and the amount of RWT withheld at each rate.

A new definition of "RWT rate" has been added to section 3(1). This clarifies that the rate referred to in the requirements is the RWT rate for interest income.

The punctuation in subsections 25(6)(a), (b), (c) and (d) has also been corrected. This amendment clarifies that each of the requirements in those subsections must be met.

Section 51(2)(g) required RWT withholding reconciliation statements to include the basic tax rate for RWT that applied to the resident passive income. This requirement has been removed.

Application dates

These amendments apply for RWT withholding certificates and reconciliation statements relating to the 2010-11 tax year and future tax years.