[Ana&Steve]

Could someone refresh me on the rate of tax on the interest you earn in an NZ savings acct? I am going through w/ the search but am having trouble narrowing the search to less than 50 pages!:o
Thanks,
Ana

EDIT: found the answer: 19.5% w/ an IRD #

[IanW99]

Could someone refresh me on the rate of tax on the interest you earn in an NZ savings acct? I am going through w/ the search but am having trouble narrowing the search to less than 50 pages!:o
Thanks,
Ana

EDIT: found the answer: 19.5% w/ an IRD #

You may have found an answer but not sure that its the correct one?

My understanding is that you have to tell the bank your income tax rate so that they can deduct the correct level of tax from it.

All your income is combined to work out how much tax you should have paid, so if you are a higher rate tax payer of 39% then your bank will deduct 39% from any interest you earn.

Of course if you are not going to be earning anything other than the interest from a bank, then yes you would just pay the lowest rate.

Ian

[James 1077]

Ian is correct - you pay tax on your savings income at your highest tax rate - so 39% for a 39% tax-rate payer; 33% for someone who pays tax at 30% etc.

You can, however, use a PIE account (Rabobank and Kiwi offer them - probably amongst others) to get your rate capped at 30%. If you only pay tax at 19.5% then I think the PIE accounts extend the bands so that you don't go up to the 30% rate until your income hits $60k.

[Ana&Steve]

Hmmm...how does this affect us if we only have a savings acct in NZ and we don't live there? We file US taxes but I thought ASB takes out our interest for us.:confused:
I think I'm way too rusty on the facts!

[James 1077]

Ah, this becomes even more complicated as you aren't tax resident in New Zealand and so should not be having RWT withheld from your account but NRWT.

NRWT (non residents withholding tax) is withheld at the rate of 15% on interest but this can be less depending on where you are tax resident. Assuming you are tax resident in the US this should be withheld at a 10% rate.

Your interest income (before the tax is withheld) in New Zealand is, however, also taxable in the USA but you should get a credit for the tax paid in New Zealand. This is easiest shown in an example.

Lets say you earn $100 of interest. ASB should withhold 10% of this and so pay you $90 in cash. In the USA however you would have to declare this interest earned as $100 and would be taxed on this. I'm not sure what the tax rate in your part of the USA is but lets assume it is 25%. Therefore you would have to pay $25 in tax in the US. However you have already paid $10 of tax in New Zealand and so would set this against the $25 and so only have an additional $15 tax to pay in the USA.

As your bank isn't currently deducting the right amount of tax you should get in touch with them as soon as possible to sort this out with them (let them know you are not NZ tax resident but are US resident - you may need something from the US taxman to confirm this). You may also need to file a tax return in New Zealand on a form IR3NRG (http://www.ird.govt.nz/forms-guides/keyword/nonresidents/) so that you can get repaid any additional tax paid in New Zealand that shouldn't have been withheld by ASB. This is important as you are only allowed to credit NZ tax that should have been paid against your US tax liability. In the above example therefore it could be that you have been paying NZ tax at 19.5% rather than 10%. While you would assume that you could simply credit the 19.5% against the 25% US tax rate you are actually only allowed to credit 10% as that is all of the tax you should have paid. Your total tax cost therefore jumps from 25% to 34.5% unless you reclaim the 9.5% in New Zealand. This becomes even higher still if ASB are withholding tax at higher rates.

Unfortunately cross border tax is really complicated and is hard to put into simple language so, if the sums are large, your best bet is to get a tax advisor to help out - at least for the first year (you can copy what they did after that). Hopefully this is reasonably clear but let me know if it isn't!

[Ana&Steve]

Thank you very much James! None of that sounded familiar, somehow I've managed never to learn it:o I think a call to ASB is in order, and I think my tax adviser lady is is going to quit on me after this one!