New Zealand dividend imputation credits: tax and ratio

Imputation credits pass company income tax through to shareholders, reducing their personal tax on dividends within a published maximum ratio.

Maximum imputation ratio

28:72Inland Revenue, maximum imputation ratio

Credit per $1 gross dividend

Up to 28 centsInland Revenue, maximum imputation ratio

Published net-profit equivalent

38.89 cents per $1 after-tax net profitInland Revenue, maximum imputation ratio

Company credit record

Imputation credit accountInland Revenue, imputation credit accounts

Company tax becomes a shareholder credit

Imputation allows a company to pass on credits for income tax it has already paid. Shareholders receive those credits with their dividends. The company keeps track of its income tax payments and can attach credits to dividends it pays. Dividends form part of each shareholder's income, while the attached imputation credit reduces the income tax the shareholder has to pay personally. Inland Revenue describes this as preventing company profits from being taxed twice. Inland Revenue, imputation for companies (opens in a new tab).

The maximum ratio has a stated basis

Companies can attach up to 28 cents of imputation credit to each $1 of gross dividend paid to shareholders. Inland Revenue calls this the maximum imputation ratio and writes it as 28:72: 28 cents of credit attached to each 72 cents of profit. Its page also expresses the same limit as 38.89 cents of credit per $1 of net profit after tax. The maximum prevents attached credits exceeding the tax paid on the profits from which the dividend came. Inland Revenue, maximum imputation ratio (opens in a new tab).

The company records available credits

An imputation credit account records tax paid, tax passed to shareholders and tax refunded to the company. Its balance records the credit available to pass on. The account is a memorandum or record-keeping account used to complete company imputation returns. Most New Zealand resident companies must keep one, as must organisations treated as companies for income tax purposes, including unit trusts, cooperative companies and life insurance companies. Inland Revenue, imputation credit accounts (opens in a new tab).

The benchmark governs later dividends

The first dividend a company pays in a tax year is its benchmark dividend. The relationship between that dividend and attached imputation credits sets the benchmark dividend ratio for the rest of the year. If no credits are attached to the benchmark, none can be attached to other dividends that year. A ratio change requires both the absence of an arrangement for tax advantage and submission of a Ratio change declaration form, IR407, before subsequent dividends are paid. Supplementary dividends under foreign investor tax credit rules are excluded from the benchmark rules. Inland Revenue, benchmark dividend (opens in a new tab).

Scope of this explanation

This is general information about imputation and company records. It does not calculate a shareholder's final tax, determine the credits available for a particular dividend or assess a company's compliance. No imputation calculator or worked tax example is provided. The guide does not classify non-resident income, determine withholding obligations, establish refund treatment or recommend an investment or dividend policy.

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