Mr Lake Amplifies His Budget Proposals

Press, Volume CIII, Issue 30479, 29 June 1964, Page 10

Mr Lake Amplifies His Budget Proposals

(New Zealand Press Association)

WELLINGTON, June 28.

The general tax law was to be strengthened so as to render liable to New Zealand tax all interest and royalties paid from New Zealand to overseas residents, the Minister of Finance (Mr Lake) said on Friday.

Mr Lake amplified his Budget statement on the proposals to alter New Zealand tax laws as regards dividends, interests and royalties.

The present exemption from income tax of dividends in the hands of companies was to be withdrawn so far as dividends paid by New Zealand companies ,to overseas companies were concerned.

The personal exemption of £468 has to be withdrawn in respect of 'non-resident individuals except to the extent that they derived income from personal services ' performed while in New Zealand, in which case a proportionate part of the exemption would continue to be allowed, said Mr Lake. The tax on dividends, interest and royalties to overseas residents was to be collected by a withholding tax at the time they were paid or credited. Notice was to be given to terminate the present United Kingdom double tax agreement, but with a view to renegotiating a new agreement with that country. The old agreement had been in force since 1947, and with its suspension opportunity would be taken to review a number of matters affecting the taxation of income flowing between the United Kingdom , and New Zealand. Withholding Tax

More particularly, in relation to the Budget statement, however, it was intended that the termination would enable withholding tax to be imposed on dividends and royalties paid , after Budget date to United Kingdom companies. Companies and individuals making such payments arid payments of interest, should therefore provide for the withholding tax, said the Minister.

Mr Lake said the rates of withholding tax were:— Dividends: 30 per cent for both overseas companies, and individuals, except that the rate for dividends paid to residents of Australia and Japan would be 15 per cent because Of the respective double tax agreements. Interest and royalties: To companies, 30 per cent; to individuals, 15 per cent. The withholding tax on dividends would be final and dividends would not be included in any assessment on other income of the recipient. For interest and royalties, the. rate would also be final except in cases where sufficient income from these and other sources in New Zealand gave a higher, rate of overall tax than the" withholding rate. In these cases the withholding tax would be allowed as a credit against tax assessed in the normal manner. Legislation

Mr Lake said the necessary legislation would be passed this session to give effect so that the withholding tax would be levied on all dividends, interest and royalties paid to overseas companies (including United Kingdom companies) after 5. p.m. on

June 25, 1964 (Budget date). In the meantime, New Zealand residents making payments of dividends, interest and royalties, would probably find it more convenient to deduct an amount for the withholding tax.

The alternative was to accept a subsequent assessment as agent after the legislation was enacted, and to deduct the tax involved from subsequent payments. The withholding tax for individuals would begin on dividends, interest and royalties paid or credited on or after April 1, 1965. The Minister said withholding tax was to be accounted for to the Inland Revenue Department by the 20th of the month after that in which deduction was made. A reconciliation statement would be required after March 31 next. Responsible

Details would be required of any payments of dividends, interest and royalties which were made in the period from Budget date to the date the legislation was passed, and on which withholding tax was not deducted.

The company or Other person in New Zealand paying or crediting, the dividends, interest or royalties to the overseas resident would be primarily responsible for deduction of the withholding tax. Dividends distributed in the

form of bonus shares would also attract the withholding tax and there would be special provisions covering these. An additional rate of 7} per cent (Is 6d in the £) would be Imposed in addition to present rate of ordinary income tax on the taxable income derived in New Zealand by overseas companies. The additional rate would first apply in respect of income derived during the year ended March 31, 1964.