Because I practice as a barrister and solicitor I run a trust account. A trust account is an account which is separate to the firm's normal trading bank account. The trust account is used to hold all monies that I hold on behalf of clients. My trust account is set up and run in compliance with the rules of the New Zealand Law Society, and subject to audit by the New Zealand Law Society auditors.
Generally I hold monies for clients when I am assisting them with certain types of transactions, for instance sales and purchases of businesses and properties, or when I am assisting clients with financing transactions. New Zealand law provides that any monies held in a solicitor's trust account will not earn interest. For this reason I have an arrangement with my banker, ASB Bank Limited (ASB), to earn interest on monies that I hold in trust for clients for more than a few days. If I am aware that monies will be held in my trust account for more than a few days, I will request the ASB to put those monies on interest bearing deposit.
All interest earned from monies on interest bearing deposit will be subject to withholding tax. Monies invested on behalf of a non resident will be subject to Non Resident Withholding Tax. The current rate of non resident withholding tax is 15 per cent in most cases. Interest earned on behalf of New Zealand residents will be subject to Resident Withholding Tax (RWT). The rate at which Resident Withholding Tax is deducted depends upon the details that are provided to the ASB by me on your behalf. If I provide the ASB with your income tax number, RWT will be deducted at the lower rate of 33%. If no income tax number is provided, RWT is deducted at the higher rate of 39%. When you lodge an income tax return for the year in which the interest is earned, you must include details of the interest earned and RWT paid in that return. If you have paid RWT at an inappropriate rate, an adjustment should be made in your tax return.