New Zealand and Australia: Sign New Income Tax Treaty
On 27 June 2009, the Australian and New Zealand governments signed a new double taxation agreement (DTA). There are some items of note for international assignees/cross-border workers between the two countries and their employers. Under the new DTA, the key change is to withholding tax rates:
| Withholding tax rates on |
Current DTA |
New DTA |
| Dividends | 15% | 0 to 10% shareholding – 15% 10 to 80% shareholding – 5% 80%+ shareholding – 0% |
| Interest | 10% | 0% – payable to eligible institutions* 10% – other |
| Royalties | 10% | 5% |
* The 0-percent withholding tax on interest applies to “eligible institutions,” which include a bank or an enterprise that substantially derives its profits by raising debt finance in financial markets or taking deposits at interest for the purposes for providing finance (i.e. “financial institutions”). There is a further requirement that the “Approved Issuer Levy” or AIL is able to be applied by a New Zealand interest payer.
Other notable changes include:
• The inclusion of an exemption for secondments, in the “Income from Employment” article (new article 14(4)), where a person is not present for more than 90 days in any 12-month period.
• A seven-year limit on re-assessing past tax returns (other than in the case of fraud, negligence or where an audit has already commenced) – refer new articles 7(8) and 9(4).
• Pensions that would be exempt in the home country will be exempt in the other country, on migration of pensioners between Australia and New Zealand. Lump-sum pension benefits will be taxed only in the country where the pension is sourced, not in the country to which the pensioner has retired – refer new article 18.
Next Steps
The new DTA will come into force once the governments of both countries ratify it. New Zealand is expected to give legal effect to the new treaty later this year. The lower withholding rates will apply from the second month following the new Australian DTA coming into force. The new treaty will apply to taxes on other income from the start of the New Zealand and Australian tax years following the date on which the DTA enters into force. This is likely to be the 2010-11 New Zealand income year.
KPMG Note
The DTA provides for the 90-day exemption for short-term secondments between Australia and New Zealand. This matter was raised by KPMG in New Zealand. While there is already relief under New Zealand’s domestic legislation, which exempts persons that are present in New Zealand for 92 days or less in any 12-month period, the updated DTA extends this relief to Australia. This measure should result in considerable compliance savings for employers. The changes in the taxation of pensions will improve the portability of superannuation savings between New Zealand and Australia.
This article is excerpted, with permission, from “Taxmail” (29 June 2009 issue 3), a publication of the KPMG International member firm in New Zealand.
Source: KPMG