Non-resident AIL queries
Question from botany updated on 22nd April 2020:
I’m a non-resident. I earn interest from term deposits with BNZ. In addition, I also receive rental income from some apartments in Auckland. Recently, I read somewhere that as a non-resident I can opt to pay 2% Approve Insurer Levy (AIL) for my bank interest instead of paying the NWRT. I would like to know if I am really better of choosing AIL? Also, is there any catch given that I also need to pay New Zealand tax for my rental income? The country I reside in has a double tax agreement with New Zealand.
Our expert Matthew Gilligan responded:
Let’s start by confirming some basics for all readers. When a non-resident earns interest from New Zealand, it is subject to non-resident withholding tax (NRWT) by default. The rate is generally 10% but depends on the country the non-resident lives in.
However, there is an exception to the default if you elect to pay a 2% “approved issuer” levy (AIL). On the face of it, you are better off being subjected to the 2% AIL than suffering NRWT deductions.
Generally, the only instance where it would be better to pay a higher amount of NRWT is where you have to return the interest as taxable income in your country of residence and that country permits a tax credit for NRWT but not for the 2% AIL. Because the 2% AIL is not seen as a form of income tax by all jurisdictions, it is sometimes not possible to claim it as a credit.
Of course, if you do not have to pay tax on the interest in your country of residence, then you do not face this issue and you are better off paying the 2% AIL. The fact that you have rental property is neither here nor there in this scenario.
Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.
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