Tax rate on joint held term deposits with BNZ

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Forums › Finance and wealth management › Tax rate on joint held term deposits with BNZ - check yours.

floydbloke

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#279766 6-Nov-2020 17:01

Something to keep an eye on if you have a joint term-deposit account (at least with BNZ, other banks may do this better).

We just received a statement from BNZ for a TD that's maturing and noticed we're being charged 45% tax!! Even though they have our IRD numbers.

Mrs Floyd rung to query (after a 22 minute wait, they used to be real quick) this.

Apparently due to some legislation and this now being the top tax rate (??), and possibly a system anomaly, this is what it defaults to for joint accounts rather than picking the higher of the two tax rates from the account holders.

Looking at the account in BNZ online banking the tax rate isn't shown so didn't find this our until the maturity notice came out.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

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#2599199 6-Nov-2020 17:41

Good tip. My (individual) Westpac one's at the correct rate but I wouldn't have checked if you hadn't said anything. ASB doesn't appear to list it.

Stu1

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#2599200 6-Nov-2020 17:43

Sounds like a defect in their systems it should only be 45% if you have elected the rate or one of the accounts doesn’t have an IRD# and hasn’t got a selected a tax rate associated to one of the joint parties. Basically if you have a joint account the highest applicable rwt rate is used to deduct RWT. There will be lots of banks in the same position , often happens with TDS and joint accounts.

Stu

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#2599220 6-Nov-2020 18:32

It's not a defect. As of 1st of April IRD changed the non-declaration rate on RWT interest to 45%. Just because the bank has your IRD numbers, it doesn't mean you've declared which persons IRD number you wish to use for RWT on interest earnings for your joint entity. The bank are not allowed to just pick which of your IRD numbers to use for the joint entity, so therefore the non-declaration rate applies (per the IRD rules). Have a look at your past tax certificates and see what rate you were charged at over previous years, and also look to see whose IRD number is listed on the certificate. At a guess I would say it would have been the previous undeclared rate, which was 33%, and no IRD number listed on the certificate itself. You may not have picked up on that previously if 33% was the rate you were expecting anyway.

The bank can't change anything unless you advise them to. The non-declaration rate is set by the IRD and applies if you don't advise the bank otherwise.

People often mistake me for an adult because of my age.

Keep calm, and carry on posting.

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floydbloke

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#2599224 6-Nov-2020 18:51

Stu:

It's not a defect. As of 1st of April IRD changed the non-declaration rate on RWT interest to 45%. Just because the bank has your IRD numbers, it doesn't mean you've declared which persons IRD number you wish to use for RWT on interest earnings for your joint entity. ...

Understood and thank you.

They are the experts and service provider though, they could have advised and asked when we opened the account.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

marpada

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#2599227 6-Nov-2020 18:59

Same if you contract as a sole trader, your agency will withhold 45% unless you fill the IR330C form.

Stu

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#2599231 6-Nov-2020 19:12

The same applies for all banks.

To the OP, roughly how long ago was the term deposit initially opened, out of curiosity? Recent years or some time ago?

People often mistake me for an adult because of my age.

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floydbloke

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#2599241 6-Nov-2020 19:50

Stu: ...

To the OP, roughly how long ago was the term deposit initially opened, out of curiosity? Recent years or some time ago?

14 March 2020, it's due to mature on 14 November but it seems they can't retrospectively adjust the rate. (It may have automatically rolled over from a previous one, but that one would have only been a 6 or 9 monther as well.)

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

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Stu

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#2599253 6-Nov-2020 20:31

If it's a term deposit that's been just rolling over each time it matures, and was originally started before anti money laundering became something banks had to worry about, it could be a hangover that hasn't been noticed because the top rate and the non-declared rate were the same.

We changed from term deposit to term pie, as the rate was lower (at the time was 28%, and I think it still is) as you could use the prescribed investor rate.

The bank won't be able to retrospectively alter the rate on interest already earned, as it's tax and the IRD. However you might be able to claim it back from IRD at the end of the financial year.

People often mistake me for an adult because of my age.

Keep calm, and carry on posting.

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floydbloke

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#2599422 7-Nov-2020 10:27

The fun continues. I sent them a sh1ttogram to complain. They replied saying they don't hold our IRD numbers and tax rates (hence the 45% default as described above). I sent them an internet banking screenshot to prove that they do have these (and have had for a long time). I'll await their response.

Just checked our savings accounts, the RWT on those is also 45% at the moment.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

Stu1

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#2599424 7-Nov-2020 10:33

Stu:

It's not a defect. As of 1st of April IRD changed the non-declaration rate on RWT interest to 45%. Just because the bank has your IRD numbers, it doesn't mean you've declared which persons IRD number you wish to use for RWT on interest earnings for your joint entity. The bank are not allowed to just pick which of your IRD numbers to use for the joint entity, so therefore the non-declaration rate applies (per the IRD rules). Have a look at your past tax certificates and see what rate you were charged at over previous years, and also look to see whose IRD number is listed on the certificate. At a guess I would say it would have been the previous undeclared rate, which was 33%, and no IRD number listed on the certificate itself. You may not have picked up on that previously if 33% was the rate you were expecting anyway.

The bank can't change anything unless you advise them to. The non-declaration rate is set by the IRD and applies if you don't advise the bank otherwise.

The IRD guide states If the IRD number is on file and the customer hasn’t elected a deduction rate it’s 17.5 for existing accounts and 33 for new accounts. The OP said the bank has their IRD numbers so shouldn’t of been deducted at 45% .

Banks have been required to collect IRD numbers for all joint clients since 2008. BNZ state on their website that if there are 2 RWT rates on file the highest Will be deducted this is regardless of what the customer elects. This is common across other banks as well they will deduct at the highest rate of a joint account. The OP can’t backdate the RWT as it’s already paid however can claim it back at the end of the tax year via their tax summary as the RWT payments are now sent to IR on the 20th of the month. The other option is for the bank to do a manual interest adjustment , this was a common workaround applied to keep customers happy when the bank didn’t load the IRD number or apply the correct rate.

sbiddle

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#2599438 7-Nov-2020 11:23

Surely when you opened the term deposit you would have had to enter your tax rate for that individual investment? This is a requirement for most banks because a) this won't always necessary be the same (even for all investments by an individual customer) and more importantly b) it puts the responsibility on the customer and not the bank to ensure that they are being taxed at the correct rate because it's only the customer who will know their tax rate, the bank has zero idea what it is.

floydbloke

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#2599453 7-Nov-2020 12:02

sbiddle:

Surely when you opened the term deposit you would have had to enter your tax rate for that individual investment? This is a requirement for most banks because a) this won't always necessary be the same (even for all investments by an individual customer) and more importantly b) it puts the responsibility on the customer and not the bank to ensure that they are being taxed at the correct rate because it's only the customer who will know their tax rate, the bank has zero idea what it is.

I can't recall, I think my wife set that one up.

What I did just do was go through the steps to open a new one. I got as far as step 4, the 'Confirmation' window with an 'Open' button (after having entered the amount, a/c to take the money from, term and acknowledge the interest rate) and no, it didn't ask for the tax rate at any stage.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

mdf

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#2599529 7-Nov-2020 14:54

It is just withholding tax though. You should get it back if you fill out a tax return at the end of the financial year and you've paid more tax than you should.

floydbloke

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#2599540 7-Nov-2020 15:40

Thanks for all the advice.

I have no doubt that I will get back any RWT that I've overpaid and that BNZ are doing this to comply with the law.

My gripe with them is that they don't make this transparent at all, and I still fell they've messed up ours because they have our IRD numbers and applicable rates.

My initial post was to let others know that BNZ did this to us so it may be happening for others too (possible with other banks as well). Apologies that it became a bit of rant.

Did Eric Clapton really think she looked wonderful...or was it after the 15th outfit she tried on and he just wanted to get to the party and get a drink?

sbiddle

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#2599543 7-Nov-2020 15:52

I'm still puzzled how BNZ could open a term deposit without the end customer having to specifically state their tax rate at some point during the process.

Even if a bank has the IRD number and tax rate for a customer they simply can't assume that the same rate will apply.

Last year's IRD system changes have caught out a lot of people who may have had their tax rate too low (whether accidental or intentional) because they had no way to check it was correct, and this has resulted in people having to pay the IRD.

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