Tax on Investment Income in New Zealand
Contents (13 sections)
- How investment income is taxed in NZ: the overview
- Tax on interest income
- Tax on NZ dividends
- Tax on overseas dividends
- PIE fund tax rates
- FIF tax on overseas investments
- Capital gains: what NZ does and doesn't tax
- Effective tax rates comparison: all investment types
- Resident Withholding Tax (RWT) explained
- Prescribed Investor Rate (PIR): choosing the right rate
- How to declare investment income in your tax return
- Common questions
- What to do next
Investment income in NZ is taxed differently depending on what type it is. Interest and dividends are taxed at your marginal rate (up to 39%), PIE fund returns are capped at 28%, and overseas shares above $50,000 in cost are taxed under the FIF regime at 5% of their opening market value (IRD). There's no general capital gains tax, but there are specific situations where gains are taxable.
Use the Forge Money PAYE calculator to check your marginal tax rate, which determines how your investment income is taxed.
How investment income is taxed in NZ: the overview
NZ doesn't have a single "investment tax." Instead, different types of investment income have different rules, different withholding mechanisms, and different effective rates. Here's the summary (IRD):
| Investment type | How it's taxed | Tax withheld at source? | Effective rate (33% taxpayer) |
|---|---|---|---|
| Bank interest | Marginal tax rate via RWT | Yes (RWT) | 33% |
| NZ dividends (fully imputed) | Marginal rate, offset by imputation credits | Yes (partial) | 33% gross-up basis |
| Overseas dividends | Marginal tax rate | No | 33% |
| PIE funds (KiwiSaver, managed funds) | PIR rate (capped at 28%) | Yes (by fund) | 28% |
| Overseas shares (FIF, over $50K cost) | 5% of opening market value, taxed at marginal rate | No | ~1.65% of portfolio value |
| NZ share capital gains | Not taxed (unless acquired for resale) | No | 0% (usually) |
| Property capital gains | Bright-line test may apply | No | Marginal rate if bright-line applies |
The key takeaway: PIE funds are the most tax-efficient structure for anyone on a marginal rate above 28%. That's anyone earning over $53,500 (IRD).
Tax on interest income
Interest from bank accounts, term deposits, bonds, and peer-to-peer lending is taxable income. Your bank or financial institution deducts Resident Withholding Tax (RWT) before paying you the interest (IRD).
RWT rates for the 2025-26 tax year
Your RWT rate is based on your income tax bracket (IRD):
| Your taxable income | Your marginal tax rate | Your RWT rate |
|---|---|---|
| $0 to $15,600 | 10.5% | 10.5% |
| $15,601 to $53,500 | 17.5% | 17.5% |
| $53,501 to $78,100 | 30% | 30% |
| $78,101 to $180,000 | 33% | 33% |
| $180,001+ | 39% | 39% |
You need to tell your bank your correct RWT rate. If your rate is set too low, you'll owe tax at the end of the year. If it's too high, you'll get a refund. You can update your RWT rate with your bank at any time (IRD).
Worked example: $10,000 in a term deposit at 4.5%
On a $10,000 term deposit earning 4.5% per year, your gross interest is $450. If you're on the 33% marginal rate:
| Item | Amount |
|---|---|
| Gross interest earned | $450 |
| RWT at 33% | $148.50 |
| Net interest received | $301.50 |
| Effective after-tax return | 3.015% |
If the same $450 was earned inside a PIE fund, the tax would be capped at 28%, or $126, leaving you with $324. That's $22.50 more per year on a $10,000 balance (IRD).
Tax on NZ dividends
NZ dividends come with a unique feature: imputation credits. When an NZ company pays tax on its profits, it can attach those tax credits to the dividends it pays out. This avoids the profits being taxed twice, once at the company level and again at the shareholder level (IRD).
How imputation credits work
A fully imputed dividend means the company has already paid 28% company tax on the profits behind that dividend. You receive the dividend plus the imputation credits. You then gross up the dividend by adding the imputation credits to your income, pay tax at your marginal rate on the grossed-up amount, and offset the imputation credits against that tax (IRD).
Worked example: $700 fully imputed dividend
Assume you receive a $700 cash dividend with full imputation credits. The company tax rate is 28%.
| Item | Amount |
|---|---|
| Cash dividend received | $700 |
| Imputation credits attached (28/72 x $700) | $272.22 |
| Gross dividend (cash + credits) | $972.22 |
| Tax at 33% marginal rate | $320.83 |
| Less imputation credits | -$272.22 |
| Additional tax to pay | $48.61 |
| Total tax paid (company + you) | $320.83 |
| Effective tax rate on gross dividend | 33% |
If your marginal rate is 28% or below, a fully imputed dividend results in zero additional tax. The company has already paid enough. If your rate is above 28%, you pay the difference (IRD).
For investors on the 39% bracket, the additional tax on a fully imputed $700 dividend would be $107.17 ($972.22 x 39% = $379.17, minus $272.22 imputation credits).
Tax on overseas dividends
Dividends from overseas companies don't come with NZ imputation credits. They're taxed at your full marginal rate. If foreign withholding tax was deducted in the country of origin (for example, 15% US withholding tax on US share dividends), you can claim a foreign tax credit to avoid double taxation (IRD).
The foreign tax credit is limited to the lesser of the foreign tax paid or the NZ tax on that income. So if you paid 15% withholding tax in the US and your NZ rate is 33%, you'd claim the 15% as a credit and pay an additional 18% to IRD.
If you hold overseas shares worth more than $50,000 at cost, the FIF regime applies instead of taxing actual dividends. See the FIF section below.
PIE fund tax rates
PIE funds (Portfolio Investment Entities) include KiwiSaver funds, most NZ managed funds, and some term deposit PIEs. The tax advantage is straightforward: your PIR (Prescribed Investor Rate) is capped at 28%, even if your marginal income tax rate is 30%, 33%, or 39% (IRD).
PIR rates for the 2025-26 tax year
| Your income in the past two years | Your PIR |
|---|---|
| $14,000 or less (each year) | 10.5% |
| $14,001 to $48,000 (one or both years) | 17.5% |
| $48,001 or more (either year) | 28% |
Your marginal tax rate determines which investment structure saves you the most. Check your marginal rate →
The income thresholds for determining your PIR include your taxable income plus any attributed PIE income. Most working Kiwis earning over $48,000 are on a 28% PIR (IRD).
Why PIE funds save you tax
The savings depend on your marginal rate (IRD):
| Your marginal tax rate | PIR rate | Tax saving per $1,000 of investment return |
|---|---|---|
| 10.5% | 10.5% | $0 (no difference) |
| 17.5% | 17.5% | $0 (no difference) |
| 30% | 28% | $20 |
| 33% | 28% | $50 |
| 39% | 28% | $110 |
On a $100,000 portfolio returning 8% gross ($8,000), a 39% taxpayer saves $880 per year by holding investments in a PIE rather than directly. Over 20 years, that compounds significantly.
PIE income is also excluded from your individual tax return. The fund handles the tax, and you don't need to declare it unless your PIR was set incorrectly (IRD).
FIF tax on overseas investments
The Foreign Investment Fund (FIF) regime applies if the total cost of your overseas investments exceeds $50,000 at any point during the tax year. Below that threshold, you simply declare any actual dividends or gains as regular income (IRD).
The $50,000 de minimis threshold
The threshold is based on the original cost of your overseas investments, not market value. If you invested $45,000 in overseas shares and they grew to $80,000, you're still under the threshold because your cost was $45,000. Australian shares listed on the ASX are generally exempt from FIF if you hold less than 10% of the company (IRD).
Fair Dividend Rate (FDR) method
Most people use the FDR method. It's the default and usually the simplest. Here's how it works (IRD):
- Take the market value of your overseas investments on 1 April (the start of the tax year)
- Multiply by 5%
- That amount is your taxable "FIF income," regardless of whether the investments actually went up or down
- Pay tax on that amount at your marginal rate
Worked example: $80,000 in overseas shares
| Item | Amount |
|---|---|
| Opening market value (1 April 2025) | $80,000 |
| FDR deemed income (5%) | $4,000 |
| Tax at 33% marginal rate | $1,320 |
| Effective tax rate on portfolio value | 1.65% |
If your overseas shares actually returned 12% ($9,600), you're only taxed on $4,000 under FDR. That's a significant advantage. However, if your shares dropped in value, you're still taxed on $4,000 of deemed income, unless you elect the Comparative Value (CV) method, which can result in nil FIF income in a loss year (IRD).
The quick rule: use FDR in good years, consider CV in bad years. You can choose the method each year.
For more detail on FIF calculation methods and compliance, see our FIF tax guide.
Capital gains: what NZ does and doesn't tax
NZ has no general capital gains tax. If you buy NZ shares, hold them, and sell at a profit, that profit is generally not taxable. The same applies to most personal assets (IRD).
However, capital gains are taxable in specific situations:
Property: The bright-line test taxes gains on residential property sold within 2 years of purchase (both new builds and existing homes, as of July 2024). See our guide to tax on rental income for details (IRD).
Shares bought for resale: If you acquired shares with the intention of selling them for a profit (rather than holding for long-term investment), any gains are taxable. IRD looks at your pattern of trading, how long you held the shares, and your stated intention at the time of purchase (IRD).
Cryptocurrency: Similar to shares. If you bought crypto with the purpose of disposal, gains are income. IRD treats most crypto traders as being in the business of trading and expects them to declare profits (IRD).
Personal property bought for resale: If you buy goods specifically to resell at a profit (not personal use items you later sell), that's taxable income.
Effective tax rates comparison: all investment types
Here's what different investment types effectively cost you in tax, assuming a gross return of 8% and a $100,000 portfolio (IRD):
| Investment type | 17.5% taxpayer | 30% taxpayer | 33% taxpayer | 39% taxpayer |
|---|---|---|---|---|
| Bank interest ($8,000) | $1,400 | $2,400 | $2,640 | $3,120 |
| NZ shares (fully imputed dividends, $8,000 gross) | $1,400 | $2,400 | $2,640 | $3,120 |
| PIE fund ($8,000 return) | $1,400 | $2,240 | $2,240 | $2,240 |
| Overseas shares via FIF ($5,000 deemed) | $875 | $1,500 | $1,650 | $1,950 |
| NZ share capital gain | $0 | $0 | $0 | $0 |
The PIE row shows the advantage clearly. A 39% taxpayer saves $880 per year on $100,000 compared to holding the same investments outside a PIE structure. FIF can also be favourable in strong growth years because you're only deemed to earn 5% regardless of actual returns.
Resident Withholding Tax (RWT) explained
RWT is the tax deducted at source from your interest and dividend payments by NZ financial institutions. It's not a separate tax. It's a prepayment of your income tax, collected by your bank or investment provider and sent to IRD on your behalf (IRD).
If your RWT rate matches your actual marginal rate, you won't owe any extra tax on that income. If there's a mismatch, IRD squares it up in your end-of-year assessment (either an automatic assessment or your IR3).
Common situations where RWT creates a mismatch:
- You forgot to update your RWT rate when your income changed
- You have multiple income sources that push you into a higher bracket
- You earned income for only part of the year
You can check and update your RWT rate with your bank at any time. It's worth getting it right to avoid a surprise bill (IRD).
Prescribed Investor Rate (PIR): choosing the right rate
Your PIR determines how much tax your PIE fund deducts from your returns. Getting it wrong means either overpaying tax (if too high) or owing tax later (if too low). Unlike RWT, if your PIR is set too high, you don't get a refund, the tax is final. If it's set too low, you'll owe the difference (IRD).
To work out your correct PIR, look at your taxable income (including PIE income) for each of the past two income years. Use the highest income year to determine your rate:
| Taxable income + PIE income | Taxable income only | PIR |
|---|---|---|
| $14,000 or less | $14,000 or less | 10.5% |
| $14,001 to $48,000 | $14,001 to $48,000 | 17.5% |
| Over $48,000 | Over $48,000 | 28% |
If either of the past two years puts you in a higher bracket, use that higher PIR. When in doubt, 28% is the safe default. You won't get a refund for overpaying, but you also won't owe extra (IRD).
How to declare investment income in your tax return
If you file an IR3, investment income goes in specific sections (IRD):
- Interest: Usually pre-populated from bank RWT certificates. Check the totals match your records.
- NZ dividends: Pre-populated or entered from your dividend statements. Include imputation credits.
- Overseas income: Entered manually. Include any foreign tax paid for the foreign tax credit claim.
- FIF income: Calculated using your chosen method (FDR, CV, etc.) and entered as overseas income.
- PIE income: Not included in your return (unless PIR was wrong).
If you only earn salary/wages plus interest and NZ dividends, IRD's automatic assessment handles everything. You only need to file an IR3 if you have more complex investment income like overseas shares or FIF (IRD). See our guide to filing a tax return for the full process.
Common questions
How is investment income taxed in New Zealand?
It depends on the type of investment. Bank interest is taxed at your marginal rate (10.5% to 39%) via RWT. NZ dividends are taxed at your marginal rate but offset by imputation credits. PIE fund income is taxed at your PIR, capped at 28%. Overseas shares over $50,000 in cost are taxed under FIF rules. There's no general capital gains tax on NZ shares (IRD).
What is the PIR rate and why does it matter?
Your Prescribed Investor Rate (PIR) is the tax rate applied to your returns in PIE funds, including KiwiSaver. The rates are 10.5%, 17.5%, or 28%. The 28% cap is the key advantage: if your income tax rate is 30%, 33%, or 39%, you save between 2% and 11% on every dollar of PIE investment return compared to holding the same investments outside a PIE (IRD).
Do I pay tax on share profits in NZ?
Generally, no. NZ has no broad capital gains tax on shares. If you buy shares as a long-term investment and sell at a profit, that profit is usually not taxable. However, if you bought shares with the intention of reselling them for profit (share trading), the gains are taxable as income. IRD looks at your trading pattern and stated intention (IRD).
What is FIF tax and when does it apply?
FIF (Foreign Investment Fund) tax applies when the total cost of your overseas investments exceeds $50,000. Under the default Fair Dividend Rate method, you're taxed on 5% of the opening market value of your overseas holdings, regardless of actual returns. For a 33% taxpayer, this works out to about 1.65% of your portfolio value per year (IRD).
How do imputation credits work on NZ dividends?
When an NZ company pays company tax (28%) on its profits, it can attach those tax credits (imputation credits) to dividends. You include both the cash dividend and the credits in your income, pay tax at your marginal rate, and then subtract the credits. If your rate is 28% or below, you owe nothing extra. If your rate is higher, you pay only the difference (IRD).
Is KiwiSaver income taxable?
KiwiSaver funds are PIEs, so returns are taxed at your PIR (10.5%, 17.5%, or 28%). The tax is deducted by the fund before it's reflected in your balance. You don't need to declare KiwiSaver returns in your tax return. Withdrawals from KiwiSaver (at retirement or for a first home) are not taxed because the tax has already been paid on the returns (IRD).
Do I need to declare bank interest on my tax return?
If you're an employee with only salary and interest income, IRD handles it through your automatic assessment. You don't need to file a return. If you file an IR3 (because you have other income types), your interest is usually pre-populated from bank RWT certificates. Check the figures match your records (IRD).
What's the difference between RWT and PIR?
RWT (Resident Withholding Tax) is deducted from interest and dividends by banks and companies. Your RWT rate matches your marginal tax rate (up to 39%). PIR (Prescribed Investor Rate) is the tax rate on PIE fund returns, capped at 28%. The difference is why PIE funds are more tax-efficient for anyone earning over $53,500 (IRD).
How do I report overseas share income in my NZ tax return?
If your overseas share portfolio cost less than $50,000, declare actual dividends and any taxable gains in your IR3. If the cost exceeds $50,000, calculate your FIF income using the Fair Dividend Rate method (5% of opening market value) or an alternative method, and declare that amount. Claim foreign tax credits for any overseas tax already paid (IRD).
Can I reduce my tax on investment income?
The most straightforward way is to hold investments inside PIE funds where possible, which caps your tax at 28% instead of your marginal rate. For overseas investments, the FIF regime can be favourable in high-growth years because you're only deemed to earn 5%. Structuring your portfolio with tax efficiency in mind can save thousands over a lifetime, though the best structure depends on your income level and investment mix (IRD).
What to do next
- Calculate your take-home pay to understand your marginal tax rate
- Understand NZ tax brackets and how they apply to investment income
- Learn about PIE tax rates and how to check your PIR
- Read the FIF tax guide if you hold overseas investments over $50,000
- See how to file a tax return including investment income
Last updated: 28 March 2026. Sources: IRD (ird.govt.nz). This is educational content, not financial advice.
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This is educational content, not financial advice.