29 Jun 2009

Tax deal with Australia gets thumbs up

9:41 pm on 29 June 2009

The revised double tax agreement between New Zealand and Australia is likely to promote trade and investment, a tax expert says, even though it fails to address the thorny issue of imputation credits.

The updated agreement brings lower withholding taxes on dividend, interest and royalty payments between the two countries, costing the Crown about $10 million a year.

The withholding rate for dividends will reduce to zero if the investor holds 80% or more of a company, and from 15% to 5% for an investor who holds at least 10% of a business. The withholding rate on royalties will reduce to 5%.

Tax-free pensions remain free of tax when people move between both countries, and short term secondments of up to 90 days a year across the Tasman will not now be taxed.

PricewaterhouseCoopers partner Geof Nightingale says the changes will make it easier for investors in both Australia and New Zealand to return profits to their own countries for reinvestment.

He believes the moves will encourage greater economic ties between the two countries and reduce the tax impediment to cross-border investment.

However the agreement does not deal with the mutual recognition of imputation credits, which Mr Nightingale says an Australian review is considering at present.