Dividend Imputation Credits: How Tax-Paid Dividends Work in NZ

What Are Imputation Credits?

When a New Zealand company earns a profit, it pays 28% company tax to IRD. When that company later distributes a dividend to shareholders, the tax already paid can be passed on as an imputation credit — essentially a receipt proving the company has already paid tax on that money.

This prevents double taxation. Without imputation credits, the company would pay 28% tax on profits, and then you’d pay your full marginal rate on the dividend — meaning the same income gets taxed twice.

How Imputation Credits Work

Here’s the mechanics, step by step:

1. Company earns $100 in profit
2. Company pays $28 in tax (28% rate)
3. Company distributes $72 as a cash dividend
4. The dividend carries a $28 imputation credit
5. You declare $100 gross income ($72 cash + $28 credit)
6. Your tax on $100 is calculated at your marginal rate
7. The $28 credit offsets your tax liability

The result at different tax rates

Your marginal rate	Tax on $100 gross	Less imputation credit	Net tax you pay	Total tax paid (company + you)
10.5%	$10.50	−$28.00	−$17.50 (refund)	10.5%
17.5%	$17.50	−$28.00	−$10.50 (refund)	17.5%
30%	$30.00	−$28.00	$2.00	30%
33%	$33.00	−$28.00	$5.00	33%
39%	$39.00	−$28.00	$11.00	39%

The system ensures dividends are ultimately taxed at your personal marginal rate — no more, no less.

If your rate is below 28%, you receive a refund of the difference. If your rate is above 28%, you pay the top-up.

Maximum Imputation Ratio

The maximum imputation credit ratio is 28/72 — meaning for every $72 of cash dividend, the maximum credit is $28. This matches the 28% company tax rate.

A dividend can be:

• Fully imputed: The full 28/72 credit is attached. The company has paid the maximum tax.
• Partially imputed: Only some credits attached. Common when a company has foreign income or insufficient imputation credits.
• Unimputed: No credits. You pay tax on the full cash amount at your marginal rate.

Resident Withholding Tax (RWT) on Dividends

NZ companies must deduct RWT when paying dividends to resident shareholders. The default rate is 33% on the cash amount, but this is reduced by imputation credits.

For a fully imputed $72 dividend with $28 credit:

• RWT rate: 33% of gross ($100) = $33
• Less imputation credit: −$28
• RWT deducted from cash: $5
• You receive: $72 − $5 = $67 in hand

The $5 RWT and $28 imputation credit are both shown as tax credits on your assessment. If your actual rate is lower than 33%, you’ll get a refund.

Choosing a lower RWT rate

If your marginal tax rate is below 33%, you can elect a lower RWT rate by providing your IRD number and tax rate to the company or share registry. Available rates: 10.5%, 17.5%, 30%, 33%.

Worked Example

Emma earns a $90,000 salary and receives a fully imputed dividend of $5,000 cash from her NZ shares.

Step 1 — Gross up the dividend:

• Cash received: $5,000
• Imputation credit: $5,000 × (28/72) = $1,944
• Gross dividend: $5,000 + $1,944 = $6,944

Step 2 — Calculate tax on the dividend: Emma’s salary puts her in the 33% bracket ($78,101–$180,000).

• Tax on $6,944 at 33% = $2,292

Step 3 — Apply credits:

• Imputation credits: $1,944
• RWT already deducted: $348 (33% of $6,944 − $1,944)
• Total credits: $2,292

Result: Emma’s credits exactly match her tax liability — she has nothing extra to pay and no refund on the dividends. The effective tax rate on the underlying company profit is 33%, matching her personal rate.

Imputation Credits and PIE Funds

If you invest through a Portfolio Investment Entity (PIE) such as a KiwiSaver fund or managed fund, imputation credits work differently. PIE funds use your Prescribed Investor Rate (PIR) — capped at 28% — and tax is handled within the fund. You don’t need to declare PIE income or claim imputation credits on your personal return.

This is one reason PIE funds can be more tax-efficient for earners in the 33% or 39% brackets — the maximum PIR is 28%, whereas direct share ownership taxes dividends at your full marginal rate.

For a comparison, see the PIE vs direct investment calculator.

Key Takeaways

• Imputation credits prevent double taxation — they represent company tax already paid at 28%
• Your dividends are ultimately taxed at your personal marginal rate: below 28% gets a refund, above 28% pays a top-up
• Maximum imputation ratio is 28/72 per dollar of cash dividend
• RWT is deducted at 33% by default, reduced by imputation credits
• If your rate is below 33%, elect a lower RWT rate to avoid over-withholding
• PIE funds cap tax at 28% — potentially better than holding shares directly for higher earners

Use the dividend tax calculator to see exactly how imputation credits affect your after-tax dividend income.