RWT on mortgage investment interest in NZ: choosing the right rate before the first payment

RWT on mortgage investment interest in NZ is tax taken off the interest before you receive it, at a rate you choose from IRD’s list and tell the payer. It is not an extra tax. It is an instalment against the income tax you owe on the interest, which you still declare in your return. Pick the wrong rate and the difference arrives later, as a bill or a refund.

Is private mortgage interest taxable income in New Zealand?

Yes. Interest is income, and it makes no difference whether it came from a bank, a fund or a loan you co-fund directly with HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland. It is added to your other income and taxed at your marginal rates for the year.

Two points sit alongside that:

• No GST. Lending money is a financial service, which is an exempt supply under the Goods and Services Tax Act 1985, so GST is not added to the interest.
• No special regime for “private” lending. There is no separate tax treatment because you are named on a registered mortgage. The ordinary rules for interest apply. Our returns guide sets the same position out alongside the loan figures.

What is RWT, and who has to deduct it?

Resident withholding tax is deducted at source from interest paid to New Zealand residents. IRD’s guidance for payers says anyone making resident passive income payments must deduct RWT and send the deductions to IRD, and that you must register as an RWT payer if you pay more than $5,000 a year in interest or have been issued a certificate of exemption.

What matters to you as the investor is the mechanics at your end. The payer takes tax off before paying, you receive the net amount, and the tax deducted shows up as a credit when your return is assessed. Who the deducting party is in any particular arrangement depends on how the money flows, so ask for it in writing and have your accountant confirm your position before you commit.

Which RWT rate should I choose?

The choices depend on the kind of taxpayer you are. They come from IRD’s RWT rate page, last updated in September 2026:

For individuals, the aim is to mirror the income tax rate on your total taxable income for the year, not just the interest. Since 31 July 2024 the bands are:

Since 31 July 2024 the thresholds are $15,600, $53,500, $78,100 and $180,000. Total income at or under $15,600 maps to 10.5%; above that and up to $53,500 to 17.5%; up to $78,100 to 30%; up to $180,000 to 33%; and anything higher to 39%.

The adjustment to these bands matters if you set your rate before mid-2024 and never revisited it. Someone who locked in a rate years ago and has since had a pay rise or new income should check that it still fits. So revisit the rate whenever your income shifts, and pass any change to the payer.

What does the wrong rate actually cost?

Less than the headline suggests, but not nothing. RWT is a prepayment, so a mismatch is settled when your return is assessed.

Illustrative example. You place $250,000 in one loan for six months, and the loan pays at the top of our 12% to 18% p.a. range, which comes to $22,500 of interest over the six months (simple interest, before tax, assuming repayment on the due date).

• Your marginal rate is 39%, but you told the payer 33%. RWT of $7,425 is deducted. Your true tax is $8,775, so you owe about $1,350 more when you file.
• Your marginal rate is 17.5%, but you left the default of 33%. RWT of $7,425 is deducted. Your true tax is $3,937.50, so you are owed about $3,487.50 back, though not until your return is processed.

The first case is a nasty surprise if you have spent the money. The second is a cash flow cost: nearly $3,500 sitting with IRD for months that could have stayed in your account.

The worst case is the 45% non-declaration rate. Give the payer no IRD number and 45% comes off, which can overshoot even the top personal rate by six percentage points. The fix is free and takes minutes: supply your IRD number before the first payment.

How do trusts and companies handle RWT?

The mechanics are the same, but the rate you can choose follows the structure.

Family trusts. Trustees can use 17.5%, 30%, 33% or 39%. The sensible match is the trust’s own tax position. IRD’s trustee rates put the trustee rate at 39% from 1 April 2024, falling to 33% where the trust’s net income for the year is $10,000 or less. Income distributed to beneficiaries as beneficiary income is taxed on their side instead, so a trust that distributes to low-income beneficiaries may suit a lower withholding rate. That is a planning decision for the trustees and their accountant, and our guide on whether a family trust can invest in private mortgages covers the Trusts Act 2019 duties around it.

Companies. A company must tell the payer it is a company to use 28%, 33% or 39%. Without that, the rate may not apply as intended. Which of the three suits depends on the company’s own position and what it does with the income, so settle it with your accountant.

Joint holders. Where two people hold the investment together, IRD splits the income equally between holders who have supplied valid IRD numbers, yet only one rate can apply to the whole. If one partner earns far more than the other, weigh that before you pick. Our page on family trusts and companies explains how co-funding works in each structure.

Can you be exempt from RWT, and what about overseas investors?

A minority hold a certificate of exemption, for example because their income is exempt under New Zealand law or a double tax agreement. IRD says payers should not deduct RWT from anyone with a valid exemption, and it keeps an exemption register by IRD number. This is not something to claim on a hunch: if you are not entitled to the exemption, the unpaid tax comes back to you.

New Zealanders living overseas are in a different regime. Interest paid to non-residents generally attracts non-resident withholding tax rather than RWT. The usual rate is 15%, commonly reduced to 10% under a double tax agreement, or the payer can register as an approved issuer and deduct a 2% approved issuer levy instead, where that is available. Your tax residency decides which applies, not your passport, and your home-country tax rules may add their own layer. Our overseas investors guide covers the practical side, and an accountant who knows both countries is worth the fee.

What should you do before the first payment lands?

A short checklist, in order:

1. Work out your likely total taxable income for the tax year, including the interest you expect to earn.
2. Choose the RWT rate that matches the band you will be in.
3. Supply your IRD number and rate to the payer in writing, and keep a copy.
4. Ask your accountant how the interest should appear in your return, and whether any structure (trust, company, joint) changes the answer.
5. Diarise a review each time your income changes materially, and after any change to the band thresholds.

It also helps to see tax in context. After tax at 33%, the interest on a loan in our range still compares well with the post-tax figure on a term deposit; our guide to alternatives to term deposits shows how to compare like with like, and how private credit returns are generated explains where the interest comes from.

If you would like to see how a co-funded loan looks in practice, including what the pack shows about the interest, register your interest and our Funding Manager will walk you through it.

Ready to see how it could work for you?

Tax is one part of the picture. The rest is the security: you choose each loan from its due diligence pack, you are named on the mortgage registered with LINZ for your exact contribution, and HomeSec’s own money sits in the same loan. Interest is paid directly to your own bank account, so what you do about RWT is a simple conversation with your accountant rather than something buried in a fund’s accounts.

Registering interest takes about a minute and commits you to nothing. We don’t hand your details around, and a real person from our team will call to talk through your situation and your structure, whether you invest personally, through a trust or through a company. Please give us accurate details about who will be investing, so that the pack and the paperwork suit the right name first time.

Register your interest →