The manager of the Revenue Management Division at the Ministry of Finance and Economic Management (MFEM), Andrew Haigh, says as part of the 2013 Tax Review changes, all interest earned by local bank account holders became assessable as part of personal income.
Previously, a 15 per cent withholding tax applied to all individuals and only companies were fully taxable. Charitable organisations such as churches and schools continue to be exempt.
By providing their RMD number to the bank, those earning below $11,000 a year will ensure that they will pay no tax on their interest earnings, whereas previously, the withholding tax would have applied. For other income earners, their marginal income tax rate applies, with that tax being payable only at the end of the tax year.
To assist with overall compliance, from 2015 bank account numbers without RMD numbers can be charged the highest personal tax rate (a “non-declaration rate” of 30 per cent) until the account holder provides the bank with an RMD number.
This is similar to the no-notification rate of 39 per cent which applies in New Zealand and 45 per per cent (the highest marginal tax rate) in Australia, Mr Haigh says.
“From January 1, 2015, it is a requirement that everyone supply their RMD number to the bank. Once an RMD number is supplied, no tax will be deducted by the bank. However it is still a requirement that you declare this income in your personal Income Tax Return at the end of the year.
“Lodging your RMD number with your bank will assist taxpayers when the web-lodgement of tax returns becomes available in the future. Revenue Management will be able to pre-fill people's tax returns with interest details provided directly from the banks.”
For those people with no other income source, such as a child, it would require a term deposit of about $250,000 at an interest rate of more than 4.4 per cent a year to earn in excess of $11,000 in interest a year, Mr Haigh says.
“For example, someone with a $275,000 term deposit on the same conditions would be required to pay a total tax bill of around $200.”
An application for an RMD number can be obtained from the Revenue Management Division. If you need help completing the form, staff be more than happy to assist you, Mr Haigh says. You should also bring a copy of your passport or birth certificate.
If you are unsure whether your charitable organisation is exempt, the Revenue Management Division can supply you with a letter to confirm the exemption.