KiwiSaver and Tax
We often get asked about KiwiSaver and tax. In short, you pay tax on the money your KiwiSaver fund earns (the profit it makes on your behalf), but you do not pay tax on any money you withdraw from your KiwiSaver account.
Not all of the money that your KiwiSaver fund earns will be taxed. This is because there are certain tax advantages to being a member of a KiwiSaver scheme, as well as advantages in the way the assets are treated. For example, the rate at which you are taxed may be lower than your personal tax rate. There are also advantages in the treatment of capital gains for New Zealand companies, and some Australian companies.
Your KiwiSaver provider will manage the tax, along with Inland Revenue.
Your role is to provide the right KiwiSaver tax rate to your KiwiSaver provider. Most KiwiSaver Schemes are Portfolio Investment Entities (PIE’s), meaning that your investment earnings are taxed at your Prescribed Investor Rate (PIR) – either 28%, 17.5%, or 10.5% depending on your individual circumstances. We can help you calculate your PIR, which is based on your income for the last two years.
Other than that, your KiwiSaver provider will manage the tax for you:
• The fund manager will take advantage of, and manage, credits for tax paid on investments. For example, imputation credits attached to dividends received.
• The fund manager will manage your tax and send a tax statement each year summarising the tax on investment income for the prior tax year.
• For most investors the statement is simply for reporting purposes, as IRD will check that you have paid the correct tax and make an adjustment in your return if you haven’t.
• You pay tax on the money your investment earns, but you do not pay tax on any money you withdraw from your KiwiSaver scheme.
Your role is to ensure the Fund Manager has the correct Prescribed Investor Rate (PIR). We can help with that. Contact us at Invest Link if you would like to check that you have the right PIR, or if you have any other KiwiSaver questions you would like answered.
Of course, our financial advisers are there to answer any questions you may have.
Calculating your Prescribed Investor Rate
This is the rate at which your KiwiSaver is taxed – 10.5%, 17.5% or 28%.
The maximum rate is 28%. The default rate is also 28%.
To calculate the rate that applies to you, work out your income for each of the last two years and use the flow chart below.
