KiwiSaver injustice 04 Sep 2019

As you will have noticed, Inland Revenue has discovered a large number of people contributing to KiwiSaver have been using a tax rate which is too low.

The Government is entitled to claim back the underpaid tax, but in practice is only going to do this for the year ended 31 March 2019. In the meantime, anyone who has overpaid their tax by selecting a tax rate which is too high won’t get any money back, in spite of it being obvious to the department who has overpaid. This is because the law has been written to favour the Government.

The latest tax Bill to be presented to Parliament will allow Inland Revenue to put this right. Once the law has been passed, anyone accidentally using the 28 percent rate (or who has been given the 28 percent rate by default) when they should have used a lower one, will be able to get a refund.

Will the law be backdated to the year ended 31 March 2019?

KiwiSaver is a PIE. This means the income you get doesn’t normally come into your tax return unless you have selected too low a tax rate. It’s taxed within the PIE entity.

You can have PIEs which are not KiwiSaver accounts. If you have a combined investment in a PIE, you can still be the loser. If one person is on a higher tax rate than the other, your PIE income has to be taxed at the higher person’s rate.

The solution is obvious – don’t have combined investments in PIEs. Take the same money and split it down the middle and invest it separately.

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