KiwiSaver tax ‘injustice’ lingers on

People on low incomes are likely to overpay at least another $30 million of tax on their KiwiSaver investments this year because of the Government’s unwillingness to put in an immediate fix, National Party revenue spokesman Andrew Bayly says.

Inland Revenue revealed in June that 950,000 people paid

$42m too much tax in total in the

2018-19 tax year, because they had either selected or been defaulted to too a high a prescriber investor tax rate (PIR) on KiwiSaver and other PIE investments.

Another 550,000 people paid about $45m to $50m too little tax, because they had instead selfselected a PIR rate that was too low.

Bayly has said it is an injustice that people who unknowingly overpaid tax last year as a result of being on a wrong PIR – or who do so this year – won’t be able to claim refunds, while those who accidentally underpaid the tax in those years will need to pay what they owe.

Revenue Minister Stuart Nash has introduced legislation to Parliament that would allow Inland Revenue to notify KiwiSaver providers and other PIE fund managers if investors were on the wrong PIR rate, so they could correct that.

However, the law change won’t apply until the start of the

2020-21 tax year, so won’t fix the problem until then.

Inland Revenue spokeswoman Gay Cavill said it also expected to send out 930,000 letters between May and the end of next month to people who are on the wrong PIR, in an effort to encourage them to tell their KiwiSaver providers or fund managers to put them on the right rate before then.

But Bayly believed many people would continue to overpay tax this financial year because they were on default KiwiSaver schemes or were not inclined or didn’t have the persistence to chase their fund manager to change their PIR rate.

Nash’s approach would adjust the situation from the 2020-21 financial year ‘‘but that leaves the accrued overpaid balance ... in respect of the 2018-19 and 2019-20 years going off to the Government’s coffers’’, Bayly said.

The overpayments this year might not reach $42m, but were ‘‘likely to be $30m plus’’, he said.

Since it is only possible for people to be paying too high a PIR if they have been on incomes of less than $48,000 a year, the people who were being overtaxed would be those who could least afford it, he said.

Bayly said it would be a simple matter to change the law to allow people who had overpaid tax on KiwiSaver and other PIE investments since the start of the

2018-19 tax year to claim a refund for both that year and the current one.

He has drafted a Supplementary Order Paper (SOP) that he said would give effect to that rule change.

Nash’s spokeswoman did not respond directly to Bayly’s claim the SOP would be a simple fix, but pointed to a statement Nash made in Parliament when he said he would ‘‘take direction’’ from the select committee.

The problem of people being on the wrong PIR dated back to

2007 and reflected ‘‘the way the old system worked’’, he said.