Editor’s note: This is general educational information about how dividends on NZX-quoted shares reach, or fail to reach, a shareholder’s bank account. It is not investment or tax advice and does not describe any particular company. The rules and figures below come from the official sources listed at the end.
A dividend is declared, the payment date passes, and the money is not in the account. There are several distinct reasons for that in New Zealand, and they sit in different rulebooks. Some are elections the shareholder made. One is a deduction the payer is legally required to make. One is a power the company has over very small holdings. And one is a statute from 1971 that eventually sends the money to Inland Revenue. Knowing which of them applies is the difference between a paperwork fix and a permanent change to what the shareholder owns.
The election that converts cash into shares
Rule 4.8 of the NZX Listing Rules covers dividend reinvestment. An issuer may issue equity securities in lieu of dividends, or as part of a dividend reinvestment plan, if the plan taken up in full by all holders would not affect the proportionate voting or distribution rights of each holder, subject only to rounding. The rule allows one carve-out from that proportionality test: a plan may exclude holders in a jurisdiction outside New Zealand where, in the issuer’s reasonable opinion, it would be unduly onerous to make the offer there.
The timing is set by Rule 4.8.2. The last date for a holder to elect into the plan must be at least one business day after the Record Date for the dividend payment to holders who do not participate. Election therefore closes after the register has already been fixed, which is why an investor who buys shares shortly before a record date can end up holding shares with an entitlement while having no election on file.
Rule 4.8.3 deals with the leftovers. An issuer may issue the securities that were not taken up under the plan, or that were held back because of fractional entitlements, provided the price, terms and conditions are not materially more favourable to the recipient than the original offer, the issue is completed within three months of allotments under the plan, and the issue reduces the issuer’s placement capacity under Rule 4.5.1. That last condition is the interesting one. Shares placed out of a reinvestment plan shortfall are not free capital. They come out of the same fifteen per cent allowance the issuer would otherwise use for a placement.
The deduction the payer must make
Even a shareholder who elects for cash does not receive the gross amount. Inland Revenue’s position is short: the payer of interest or dividends withholds tax before making the payment, and dividends and unit trust distributions are all taxed at a resident withholding tax rate of 33 per cent. Portfolio investment entities are taxed at different rates depending on the type of fund. Where an interest recipient has not given the payer an IRD number, the non-declaration rate applies, which has been 45 per cent since 1 April 2020.
For an overseas holder the regime is different again. Non-resident withholding tax is a tax withheld from New Zealand payments of interest, dividends and royalties to non-residents, and those payments are called non-resident passive income. The tax is paid to Inland Revenue by the New Zealand based payer, who must register as a payer, deduct the tax and send the deductions on.
The reporting is automatic in both cases. Details of all investment income are reported to Inland Revenue by payers on a regular basis, and the information appears in the recipient’s income profile in myIR, classified by income type and by source, with the tax withheld shown alongside the income paid. A shareholder who cannot find a dividend in a bank statement can usually find it there.
The holding that is too small to keep
The Listing Rules define a Minimum Holding as a holding of a class of financial products with a value of at least $1,000, or a lower amount determined by the issuer and released through MAP. That threshold does real work.
Rule 8.1.6© allows an issuer’s governing document to prescribe procedures entitling the issuer to sell quoted financial products held in less than minimum holdings and to account to the holders for the proceeds of sale after deducting reasonable sale expenses. At least three months’ prior notice must be given to the affected holders before such an action. Rule 8.1.4(b) allows an issuer to decline to register a transfer that would leave either the transferee or the transferor holding below a minimum holding. Rule 4.14.2 requires three business days’ notice through MAP before an issuer acquires its own equity securities, except where the acquisition is from a holder with less than a minimum holding.
A holder in that position may find that the next thing arriving is not a dividend but sale proceeds, and that the shareholding itself has gone.
The statute that takes the money away
Uncashed money does not sit forever. The Unclaimed Money Act 1971 requires defined holders to send certain categories of money to Inland Revenue, and Inland Revenue’s own table of holders and types lists limited companies, including liquidated companies, against uncashed cheques among other categories. There is a searchable database on the Inland Revenue site for people trying to claim money back.
The disclosure that precedes the payment
The rules give shareholders advance notice of the distribution itself. Rule 3.14.1 requires an issuer to release through MAP, at least five business days before the Record Date, the details of a proposal to pay or distribute a benefit on quoted financial products. Rule 3.14.4 adds that where directors recommend or pay dividends other than in accordance with the issuer’s most recently published dividend policy, they must fully explain the reasons for the divergence in, or at the same time as, that notice. Rule 3.14.6 carves out supplementary dividends paid under the Income Tax Act 2007, which are not treated as dividends for the purposes of Rule 3.14.1 and carry their own notice obligation.
Analysis: four different problems that look identical from a bank statement
The four mechanisms above produce the same observation, no cash on the payment date, and they have almost nothing else in common. A reinvestment election changes the shareholding permanently and is reversible only for future dividends. Withholding tax reduces the cash but the money is not lost, it is credited against the holder’s tax position and visible in myIR. A minimum holding sale ends the shareholding entirely and is the only one of the four that removes the investor from the register. Unclaimed money is a timing problem that becomes a recovery problem.
The one worth watching most closely is the minimum holding provision, because it is the only mechanism that operates without any act by the shareholder and the only one that requires the shareholder to notice a notice. The three months’ notice under Rule 8.1.6© goes to the affected holders at the address recorded on the register, so a holder whose registered address is out of date does not receive it. On the mechanics of the rule, a dividend that stops arriving and a notice that is never received have the same cause, and the parcel can be sold at the end of the notice period.
There is also a structural point in the reinvestment rules that is easy to miss. Rule 4.8.1 tests proportionality on the counterfactual of full take-up by all holders, not on the actual take-up. In practice take-up is never full, so a plan that satisfies the rule still dilutes non-participants relative to participants at every dividend. That is not a defect in the rule. It is the price of allowing a plan without a shareholder vote, and the offsetting protection is Rule 4.8.3, which forces the shortfall shares back through the placement capacity limit rather than letting them be issued freely.
What a careful reader would check next is specific and short. Look at the issuer’s most recent Rule 3.14.1 notice for the record date and the stated dividend policy. Look at the issuer’s dividend reinvestment plan terms for the election cut-off relative to that record date. Check the registered address and the bank account held by the share registry. And, if the parcel is small, work out whether it is above or below the thousand dollar minimum holding, because that single number determines whether the issuer has a power over the holding at all.
