The new Convention with New Zealand will limit the rate of withholding tax to:
- A new 5% rate for dividends paid between affiliated companies
- 15% for dividends paid in all other cases
- 5% for copyright and rights to use computer software royalties
- 10% for payments of interest and all other royalties (which were previously taxed at 15%).
This new Convention will enter into force after each country has notified the other that the Convention has been ratified by its government. In Canada, the Convention will apply to tax withheld at source on amounts paid or credited to non-residents beginning on the first day of the second month following the date the new Convention has entered into force and, for other taxes, for taxation years beginning on or after January 1 in the calendar year after the Convention has entered into force.
So if, for example, the treaty is ratified in December 2012, a corporation that has a March 31 year-end will be subject to the new treaty for its March 31, 2014 taxation year (i.e., the treaty will take effect on April 1, 2013). However, withholding tax will be required beginning on February 1, 2013.
For more information, contact your KPMG adviser.