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Make sure you're using the right RWT rate - Māori authorities

Interest income

If you receive interest RWT will usually be deducted from this income by the payer and sent to us.

Note

RWT is deducted from interest on the day the interest is paid, regardless of when the interest was earned. So if interest is paid on or after 1 October 2010, it will be liable for RWT at the new rates (eg 17.5% rather than 21%).

It is important that you choose the RWT rate appropriate for your circumstances. This ensures that the correct amount of tax is deducted from it. If you choose a rate that is too low, you will have a tax bill to pay at the end of the income year.

You also need to make sure your interest payer has your IRD number.

Where it is identified that you are using a rate that is not consistent with your marginal tax rate we can advise your interest payer to change your rate. You will receive a letter advising you of the change. If you think you should be using a different rate, please go to your interest payer's website for information about changing it, or contact the interest payer directly.

RWT rates for 1 April 2010 - 31 March 2011

A Māori authority may choose any of the following RWT rates.

During the 2011 tax year the RWT rates were changed and your interest payer will have moved your RWT rate as follows:

If you have .... then your RWT rate 1 April 2010 to 30 September 2010 is ... and your RWT rate 1 October 2010 to 31 March 2011 is...
given your interest payer your IRD number

21%

17.5%

given your interest payer your IRD number and elected this rate

33%

30%

given your interest payer your IRD number but not elected a rate where a new account was opened after 31 March 2010

38%

33%

given your interest payer your IRD number and elected this rate

38%

33%

not given your interest payer your IRD number

38%

33%

Note these are the rate at which RWT is deducted from interest paid to a Māori authority, not the rate you would deduct Māori authority credits from distributions made to beneficiaries.

Find out more about Māori authority distributions.

Budget 2010 change for Māori authorities

Budget 2010 aligned the RWT rates with the 1 October 2010 income tax rate changes. The RWT rate changed for individuals as well as Māori authorities.

However, the income tax rate for Māori authorities remains at 19.5%.

Impact of changes on a Māori authority?

Most Māori authorities had their RWT rate reduced from 21% to 17.5%.This would have resulted in a reduced amount of RWT credit to offset the income tax liability for 2011, when the Maori authority tax rate was 19.5%..

During the 2010-11 tax year there wasn't an RWT rate that matched the income tax rate for a Māori authority.

If the interest was paid in the period 1 April 2010 to 30 September 2010 the RWT deducted will be greater than the income tax rate, 21% compared with 19.5%.

If the interest is paid evenly at regular times throughout the year then for the first 6 months the RWT deducted will be greater than the income tax rate. Then for the second 6 months the RWT deducted will be less than the income tax rate (17.5% instead of 19.5%).

If the interest was all paid in the period 1 October 2010 to 31 March 2011there will be a reduced amount of RWT credit.

Example 1

 

Monthly interest payments of $1,000 starting with 21% RWT reducing to 17.5%

Period Interest RWT rate RWT deducted
1 April 2010 to 30 September 2010 (6 months)

$1,000 x 6 = $6,000

21%

$210 x 6 = $1,260

1 October 2010 to 31 March 2011 (6 months)

$1,000 x 6 = $6,000

17.5%

$175 x 6 = $1,050

Total for the year

$12,000

 

$2,310

Treated as Māori authority income

$12,000 x 19.5%

 

$2,340

Reduced amount of RWT

 

 

$30

 

Example 2

 

Interest paid at end of the year $120,000 with the new RWT rate of 17.5% deducted and allocated as trustee income

Period Interest RWT rate RWT deducted
Interest paid on 31 March 2011

$120,000

17.5%

$21,000

Total for the year

$120,000

 

$21,000

Treated as Māori authority income

$120,000 x 19.5%

 

$23,400

Reduced amount of RWT

 

 

$2,400

Where the tax or provisional tax is not paid by the due date use of money interest may be applied.

What you need to do

The types of issues you need to consider include:

  • Check if the 17.5% RWT rate is right for your authority's circumstances. You may consider changing back or using another RWT rate. You will need to contact your interest payer to change your rate.
  • Plan for any increased residual income tax or provisional tax liability.
  • If a payment of interest has already been made since 1 October 2010 with the new RWT deducted you will also need to consider the impact and plan accordingly.

If you are unsure about what to do you seek advice from a tax advisor.

Reduced Māori authority tax rate for the 2012 tax year

From 1 April 2011 (2012 tax year) the Māori authority tax rate reduced from 19.5% to 17.5% which now aligns to the RWT rate that applies if you have provided your IRD number to an interest payer, and have not elected a higher rate.

RWT rates for 1 April 2011 and future years

The income tax rate for Māori authorities was reduced to 17.5% for the 2011-12 income year. This aligns the income tax rate with one of the RWT rates (17.5%) that a Māori authority is able to choose preventing a tax shortfall on the interest income.

A Māori authority may have any of the following RWT rates.

If you have .... then your RWT rate from 1 April 2011 is ...
given your interest payer your IRD number 17.5%
given your interest payer your IRD number and elected this rate 30%
given your interest payer your IRD number but not elected a rate where a new account was opened after 31 March 2010 33%
given your interest payer your IRD number and elected this rate 33%
not given your interest payer your IRD number 33%

 

 


Date published: 30 Mar 2011

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