Dividend Treatment in Zato

This article explains how Zato treats NZ dividends within its workpapers, including the two ways dividends can be recorded in Xero, and the steps required in each case so that Investment Income, the Imputation Credit Account, and Taxation Due all reconcile correctly.

The default assumption

Zato assumes NZ dividends are recorded in Xero net of imputation credits. The gross-up to include imputation credits is handled inside the Investment Income (IIC) workpaper through an auto-triggered journal; it does not need to be posted manually in Xero.

How the gross-up flows through

●       Investment Income (IIC): once the NZ Dividends Received section is completed, a Gross up Dividend journal triggers automatically, bringing dividend income up to gross and recognising the imputation credit.

●       Imputation Credit Account (ICA): the credit recognised in IIC flows through and forms part of the imputation credit movement for the year.

●       Taxation Due (ITD): the credit also flows here, reducing tax payable.

●       Tax Calculations (TCP): calculates tax on taxable profit only; it doesn't contain an imputation credits utilised line, since that movement is tracked in ICA and ITD instead.

Where dividends are recorded gross in Xero

Where a client has already posted a manual journal in Xero recording dividends gross of imputation credits, Zato's automatic gross-up would double-count the credit unless adjusted for. In this scenario, add an Imputation Credits row directly in the IIC workpaper's NZ Dividends Received section, and set the Taxation Due workpaper's “Have you posted the tax journal to the GL?” question to Y. Raise a query with your reviewer if you're unsure which scenario applies to a given client.

How to access: Job Details, then Job Results, then Workpapers, then select IIC.