Effective from 1 April 2025, Commissioner of Inland Revenue has changed its stance on cash collateral.
Previously, cash collateral used in security lending and derivative transactions was not considered a loan, meaning interest payments on it were not subject to Resident Withholding Tax (RWT) or Non-Resident Withholding Tax (NRWT). However, the Commissioner now views cash collateral as “money lent”, meaning interest payments may require tax withholding.
Key Points:
- Cash collateral in certain agreements (e.g., ISLA Global Master Securities Lending Agreement, ISDA Master Agreement) is now considered a loan.
- Interest paid on this collateral is subject to RWT or NRWT, unless the recipient has exempt status.
- The new approach applies prospectively—businesses must comply from 1 April 2025 but Inland Revenue won’t investigate past compliance.
What this means for you:
If your business is involved in security lending or derivative transactions, ensure your tax systems align with this new interpretation.
For further details, consult a tax expert or refer to the official operational statement issued on 18 March 2025 by IRD.
Source: https://www.taxtechnical.ird.govt.nz/operational-statements/2025/os-25-01
Disclaimer: This summary reflects my interpretation of the operational statement issued by Inland Revenue on 18 March 2025. It is intended for general informational purposes only and should not be considered professional tax advice. Businesses should consult with a qualified tax advisor or refer to the official Inland Revenue statement to ensure compliance with their specific tax obligations.