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RWT On Dividends: Tax and Accounting Treatment

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What is RWT (resident withholding tax)

It is a tax deducted on dividend before making a payment to the shareholder. For example, if company made a profit of $100 before tax, $28 would be income tax. Net profit after tax $72 will be a liability payable to shareholders. A payment of $72 will be made to the shareholders, the name of this payment is dividend.  The IRD is interested in collecting tax from this payment, with current highest tax rate being 33%, further 5% of deduction is imposed on the company. Hence, $5 will be deducted and paid to the IRD, this is called RWT.

What about non-cash dividend how would RWT apply

Non-cash dividend need to be grossed up

RWT = (tax rate × dividend paid / (1 – tax rate)) – tax paid or dividend attached

 

A non-cash dividend of $72 with imputation credits of $28, and no FDP credits:

RWT = (0.33 × $72 /(1 - .33)) - $28 = $7.46

 

Thus dividend would be $107.46 (72+28+7.46)

 

Are there any simple rules of RWT for small companies?

 

The government proposal is out there, which may allow the small companies to be exempted for RWT deduction. This will be done via declaration signed by the directors that they are responsible for the payment of RWT. This will allow dividend to be paid without deducting RWT, and the recipient can pay shortfall in their tax return. But nothing is final yet. Watch the space.

 

Clearing of overdrawn shareholder current account by dividend payment and RWT treatment

 

A non cash dividend can be paid to clear overdrawn shareholder current account. Att a same time pay cash dividend to settle RWT liability. This new method is useful to clear the SCA and no gross required. A new section inserted in the income tax act section 14B, can be used from 01-04-2017 onwards. 

A formula is 

tax rate × (cash dividend + non-cash dividend + tax paid or credit attached) – tax paid or credit attached

 

using above numbers 

RWT = 0.33*(67+5+28)-28 =$5

Accounting entry would be:

Credit to SCA $67

Credit to RWT liability $5

Debit Dividend $72

 

RWT On Dividends: Tax and Accounting Treatment

What is RWT (resident withholding tax)

It is a tax deducted on dividend before making a payment to the shareholder. For example, if company made a profit of $100 before tax, $28 would be income tax. Net profit after tax $72 will be a liability payable to shareholders. A payment of $72 will be made to the shareholders, the name of this payment is dividend.  The IRD is interested in collecting tax from this payment, with current highest tax rate being 33%, further 5% of deduction is imposed on the company. Hence, $5 will be deducted and paid to the IRD, this is called RWT.

What about non-cash dividend how would RWT apply

Non-cash dividend need to be grossed up

RWT = (tax rate × dividend paid / (1 – tax rate)) – tax paid or dividend attached

 

A non-cash dividend of $72 with imputation credits of $28, and no FDP credits:

RWT = (0.33 × $72 /(1 - .33)) - $28 = $7.46

 

Thus dividend would be $107.46 (72+28+7.46)

 

Is there any simple rules of RWT for small companies?

 

The government proposal is out there, which may allow the small companies to be exempted for RWT deduction. This will be done via declaration signed by the directors that they are responsible for the payment of RWT. This will allow dividend to be paid without deducting RWT, and the recipient can pay shortfall in their tax return. But nothing is final yet. Watch the space.

 

Clearing of overdrawn shareholder current account by dividend payment and RWT treatment

A non cash dividend can be paid to clear overdrawn shareholder current account. And at a same time pay cash dividend to settle RWT liability. This new method is useful to clear the SCA and no gross required. A new section inserted in the income tax act section 14B, can be used from 01-04-2017 onwards.

A formula is

tax rate × (cash dividend + non-cash dividend + tax paid or credit attached) – tax paid or credit attached

 

using above numbers

RWT = 0.33*(67+5+28)-28 =$5

Accounting entry would be:

Credit to SCA $67

Credit to RWT liability $5

Debit Dividend $72

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Saurav Wadhwa is a Principal Accountant at IBBZ Accounting Limited


M Bus (TAX) PG Cert (LAW) CA CPA


Membership and Qualification:


- Masters in Professional Business Studies (Taxation) with Distinction from Auckland University of Technology


- Post Graduate Certificate in LAW, Law School at Auckland University of Technology


- Chartered Accountant(CA), New Zealand Institute of Chartered Accountants (NZICA)


- Certified Practicing Accountant(CPA), CPA Australia


- Bachelor of Commerce, Grad. Cert. in Business from Auckland University of Technology


Saurav Wadhwa


Saurav has many years of practical experience in tax & accounting services and is the co-founder of IBBZ Accounting Limited.  He is qualified both in law and accounting. Saurav has worked in various tax & accounting specialist roles for large corporates in New Zealand. He loves to work with Small Businesses.


His key focus is on:



  • Tax advisory for small and family operated businesses on a wide range of taxation issues.

  • Legitimate tax saving structures.

  • Advising on range of new business issues.

  • Ensuring business growth is attained.

  • Effective cash flow planning.


Saurav specialises in Tax Disputes resolution, Tax Relief applications, Tax Debt resolution/management, and representation in Tax Audit. Saurav can represent you in Taxation Review Authority,  in Tax Dispute Court Cases or he can represent you during Tax Audit Investigations.


Blend of skills in Tax laws and accounting, makes him perfect advisor for small businesses and individuals like you. Saurav understands how to safeguard your business from creditors risk, maximise the business growth and pay low taxes. He can be your good strategic and business partner. He is of a friendly nature and easily approachable.


Saurav understands the numbers very well. He is a qualified Chartered Accountant and registered with highest professional accounting bodies of Australia and New Zealand. He can help you to plan for the future to satisfy all your financial needs.



Consumed by a hunger for knowledge, Saurav has never stopped furthering his education or expanding his pool of knowledge. Nothing gives Saurav more satisfaction than assisting his clients to achieve their financial goals. His diligence, passion and accuracy has earned him a reputation as a reliable professional who strives to serve his clients above and beyond the call of his duties.



Saurav was nominated for the Best Accountant of the year and the Young Entrepreneur of the year, and his company IBBZ Accounting won the award of Best Small Business 2014. In 2015 Saurav won the award of Best Accountant of the Year.


In 2017 Saurav was appointed as a committee member to New Zealand Public Practice Board of CPA Australia. 



Saurav is a dedicated family man. Saurav is very fond of outdoor activities and enjoys pretty much all outdoor activities: running, bike, motorbike, snorkel, fishing, skiing etc. Saurav, is also a self-confessed workaholic, spends some of his free time thinking about his client’s affairs and forecasting their financial future.


He can be contacted on saurav@ibbz.co.nz  or 09 272 8050

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Guest Monday, 25 September 2017