Vector’s approach to imputation credits – February 2021

Industry Updates

New Zealand companies pay tax on any profits they make. Then, when they pay dividends to their shareholders, they can pass on a tax credit to their shareholders, so tax isn’t paid twice on the same money – i.e. once by the company and then again by the shareholder. This is called an imputation credit. Dividends can be fully or partially imputed or carry no imputation at all. Fully imputed means a tax credit at 28%.
 

What is Vector’s imputation credit policy?
In February 2020, Vector changed its policy and reduced imputation credits on its dividends from 28% to 10.5% for financial performance reasons. This change was first applied to dividend payments from our 2020 financial year which ends on June 30.
 
How is the Vector dividend distributed?
Entrust is our majority shareholder. Once the Vector board has determined whether a dividend is going to be paid, this is paid to Entrust along with our other shareholders.  Entrust then distributes its dividend to its 360,000+ Auckland beneficiaries who are energy consumers. 
It’s worth noting that for all listed companies, dividends are not guaranteed and are at the discretion of boards.
 
What does this mean for the Entrust pay out (dividend)?
As Vector has reduced the imputations on dividends from 28% to 10.5% Entrust is required to pay the remaining tax on the dividend on behalf of beneficiaries. This generally means Entrust will have a smaller pool of overall funds left over to distribute to beneficiaries, compared to previous years even if the dividend from Vector remains the same.
 
The exact amount of the dividend payment is determined by Entrust after Vector distributes any final dividend to Entrust which would be around September each year.
 
We suggest you talk to your tax adviser to see if you’re eligible for a tax refund on the dividend payment.

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