INDEPENDENT NEWS

KiwiSaver tax rates addressed in law change

Published: Tue 2 Jul 2019 10:39 AM
Hon Stuart Nash
Minister of Revenue
2 July 2019
MEDIA STATEMENT
Inland Revenue will gain greater powers to alert savings providers if a KiwiSaver investor is on the wrong tax rate, under new legislation introduced to Parliament.
Revenue Minister Stuart Nash says the administration of the tax system has markedly improved as a result of the new information technology project known as Business Transformation (BT).
“Stage three of BT rolled out in April and has given Inland Revenue greater insight into the status of taxpayers, in real time, throughout the year,” Mr Nash says.
“We propose to use that technology to make the system fairer. We want to ensure taxpayers receive their correct entitlements. We also want to make it easier for people to meet their tax obligations in a timely way.
“Currently KiwiSaver investors and others with savings in Portfolio Investment Entities must notify savings providers of their appropriate PIR tax rate (Prescribed Investor Rate). But many don’t do this and go on the default rate of 28 per cent. The tax paid is final and any overpayment cannot be refunded.
“The proposed law allows Inland Revenue to notify the provider to correct the PIR from 1 April 2020. Inland Revenue has also announced that from mid-July it will begin contacting taxpayers who are on the wrong rate. This could be the default rate which is too high for their circumstances.
“An estimated 550,000 people are on rates that are too low, and are underpaying their tax by an average of $80-90 per year. An estimated 950,000 people are on a PIR that is too high, and have overpaid tax by an average of $44 per year.
“Our tax system relies heavily on self-assessment. However we clearly need to make it easier for people to do this and help with financial literacy where we can. We want to make the tax system fairer, and that includes the way we administer it.
Mr Nash says other proposed changes in the omnibus tax bill address a range of remedial issues relating to KiwiSaver and student loan arrangements.
“When KiwiSaver was introduced in 2006, Inland Revenue’s systems could not easily calculate interest on employee contributions from their payday. Options were available but they would have imposed considerable compliance costs on employers.
“However the recent introduction of payday filing overcomes this obstacle. We propose that interest on both employer and employee contributions begins to accrue from payday, until the contributions are forwarded to the KiwiSaver scheme provider,” Mr Nash says.
The Bill also addresses the problem where some employers take too long to pass on their required KiwiSaver contributions to the IRD, which means investors miss out on valuable investment returns.
The bill proposes to allow Inland Revenue to pay some employers’ KiwiSaver contributions to scheme providers before the amount must be paid. This would align with the current practice for KiwiSaver employee contributions.
The legislation also makes a number of remedial changes to the student loan scheme to ensure people receive the correct entitlements and find it easier to meet their obligations.
Overseas-based borrowers who sustain a serious illness or disability and are unable meet their repayment obligations will not be subject to interest on their loan.
“We don’t want to add further to their stress by having a loan hanging over their heads accruing interest, so we’re proposing that people in this situation are treated as New Zealand-based borrowers,” Mr Nash says.
It also limits the changes in a borrower’s repayment obligations prior to 1 April 2013. This seeks to reduce the complexity of administering the regime. Borrowers will not be adversely affected by the changes.
Full details of the Bill and accompanying explanatory material can be found athttps://taxpolicy.ird.govt.nz/
ENDS

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