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Imputation basics


The information provided here offers a plain English summary of imputation. Note that this is only a non-legislative introduction to the concepts. Read the Imputation guide (IR274) or get advice from your tax agent or professional adviser about the more detailed rules, before acting on this information.

It will be easier for you to understand Inland Revenue's information about imputation, if you understand the terms shown in bold through the below explanations. Keep in mind that this information uses terms as defined by the Income Tax Act 2007, some of which have been changed or may be unfamiliar. (The redefined terms are listed near the end of this page.)

What is imputation?

Imputation is a mechanism that a company can use to pass on credits for tax it has paid on its profits, to its shareholders when it pays them dividends. These imputation credits offset the amount of tax that the resident shareholders would otherwise be liable to pay on those dividends, so they don't have to pay "double tax".

How does it work?

When a company pays income tax, it gains that amount of imputation credits. The company records these credits (amongst other types of credit entries) in a memorandum account known as the ICA (imputation credit account). All New Zealand resident companies must maintain an ICA.

When a company decides to distribute dividends to its shareholders, it can choose to allocate some of those imputation credits by attaching a certain amount of them to the dividend payments, ie it imputes the dividends. Distributing the credits creates a debit of the same amount, which the company again records in its ICA (among other types of debit entries).

Some companies can find themselves on both sides of imputation transactions. Such a company may:

  • gain any imputation credits that are attached to dividends it receives, if it is a shareholder of another company, and
  • pass those credits on to its own shareholders, attached to dividends it pays out.

At the end of the year

The company must complete and file an Annual imputation return (IR4J) (also called an ICA return) with Inland Revenue for each tax year (1 April to 31 March), based on the information it has recorded in its ICA for that year. If the return shows a debit balance, the company is penalised.

When the company's New Zealand resident shareholders each complete their annual income tax returns, they declare both their gross dividend income (which includes the cash amount and the credits) and the imputation credits. They only have to pay more income tax if the total imputation credits are not enough to cover the tax that is due on the gross dividends. (Overseas shareholders don't gain any benefit from New Zealand imputation credits.)


  • The amount of imputation credits that a company can attach to any dividend distribution is capped, relative to the amount of the dividend. This maximum imputation ratio is 28:72 from the start of the 2012 income year (previously 30-70 up to end of 2011 income year), meaning up to $28 of imputation credits can be attached to every $72 of dividends or, in other terms, the gross dividend can include imputation credits up to 38.88% of the dividend's cash value amount.
  • There are transitional rules to allow credits for tax paid at 30% to be imputed at that rate until 31 March 2013.
  • Imputation credits are conceptual monetary amounts only: they have no cash value.
    • If a company has more imputation credits in its ICA return than it has allocated to its shareholders, it cannot claim their value as a tax refund. Such credits can be either carried forward to the next tax year, or used to pay off certain other types of tax liabilities that the company may have.
    • If a shareholder receives more imputation credits than the amount of tax they are liable to pay for their dividend income, they cannot claim any excess back as a tax refund. Instead, they can carry it forward to the next tax year.

Imputation and RWT

Dividends that a shareholder receives are resident passive income, which is liable for RWT (resident withholding tax). The rate of RWT is 33%.

When a company distributes a dividend (without imputing it), it must deduct 33% RWT from the dividend amount and pay that to Inland Revenue - unless the person it is paying has an RWT exemption. However, any imputation credits that are attached to a dividend serve to offset any amount of RWT that the company must deduct.

The end result is that the shareholder receives the same cash amount of dividend, regardless of how much of the tax component of the total dividend amount is made up of imputation credits or of RWT. (The combination should always total 33% for shareholders who are not exempt from RWT.)


Dividends from a listed PIE are not liable to RWT.

See Resident withholding tax (RWT) for more details.

Changed imputation-related terms

A range of tax terms have been redefined in the Income Tax Act 2007. This list shows the terms used above that have changed:

  • "ICA" replaces "imputation credit account". (This is now used globally instead of simply as an abbreviation for the full term.)
  • "Passive income" replaces "withholding income".
  • "RWT" replaces "resident withholding tax". (This is now used globally instead of simply as an abbreviation for the full term.)
  • "Tax year" replaces "imputation year". (Note that the concept of "tax year" already existed.)

Find out more

  • Read our guide Imputation (IR274) for full technical details about imputation in New Zealand
  • Get a copy of the Imputation credit account return (IR4J) for more information about how to complete and file your annual return
  • See Trans-Tasman Imputation for more information about how imputation operates between Australia and New Zealand companies and shareholders.