22 March, 2010
NZ-Australia double tax agreement now in force
The new double tax agreement between New Zealand and Australia has come into force, bringing in lower withholding tax rates on certain dividend, interest and royalty payments made between New Zealand and Australia, Revenue Minister Peter Dunne announced today.
Both countries have now ratified the agreement and exchanged diplomatic notes.
The new withholding tax rates will apply from 1 May 2010. For New Zealand taxes other than withholding taxes, the treaty will apply for income years beginning on or after 1 April 2010.
Under the new DTA, withholding tax on non-portfolio dividends has been reduced from 15% to either 5% or zero, depending on the size of the investor's shareholding in the company paying the dividend, and certain other criteria.
Withholding tax on royalties has been reduced from 10% to 5% and the rate of withholding tax on interest paid to banks and other lending or finance businesses has been reduced from 10% to zero. For interest derived from New Zealand, the zero rate will only apply if the approved issuer levy is paid.
The new DTA also introduces several changes to help reduce compliance costs and provide greater certainty over tax treatments between the two countries. This includes introducing a minimum period for which certain short-term business activities, such as exploration for natural resources, must be carried on before they are considered to give a resident of one country a taxable presence in the other country.
The DTA will also make pensions that are tax-free in one country also exempt in the other when recipients move across the Tasman.
"The new DTA builds on the already close economic relationship that exists between our two countries and reflects the considerable growth and change that has occurred in trade and investment between our two countries since the last agreement was signed in 1995," Mr Dunne said.
Double tax agreements are bilateral treaties that remove tax obstacles to cross-border trade and investment, and prevent businesses being taxed twice on the resulting income. They also give greater certainty about how cross-border income will be taxed, reduce compliance costs for businesses and lower tax on some income.
The text of the new double tax agreement is available at www.taxpolicy.ird.govt.nz