Tax rate cor­rect for Su­per

Ki­wiSaver tax rate is called pre­scribed in­vestor rate, says SHEL­LEY HANNA

The Northern Advocate - - Money -

In­come from NZ Su­per is ‘earn­ings’ even though you are no longer work­ing.

Q

My wife and I sold our busi­ness three years ago to re­tire. We were ad­vised at the time our term de­posits and bank ac­counts and Ki­wiSaver would have a tax rate of 10.5 per cent. Out of the blue four months ago we re­ceived a call from our pre­vi­ous ac­coun­tant. The IRD had re­quested last year’s Ki­wiSaver and our bank’s an­nual in­ter­est re­turn. We ended up with an ac­coun­tant’s bill of $126 and a tax bill of $256. We were in­formed by the ac­coun­tant we should be pay­ing RWT of 17.5 per cent, not 10.5 per cent. On the Ki­wiSaver form the way we read it, as be­tween the two of us we do not earn and have an in­come well be­low the $48,000, our RWT comes out at 10.5 per cent. I have been on the IRD site and have come to the same con­clu­sion. I also looked up the mean­ing of earn­ings and it was ‘re­ward for money ob­tained for labour or ser­vices’. That went by the board for us three years ago when we went on the pen­sion. Can you please ex­plain?

A

You do not say who ad­vised you to select 10.5 per cent as your tax rate three years ago, but I doubt it was the cor­rect rate for you. If you were re­ceiv­ing NZ Su­per then your rate should be 17.5 per cent (or higher if ei­ther of you earns over $48,000 with other in­come). Do not com­bine your in­come with your wife’s to work it out — each per­son has their own tax rate de­pend­ing on what they earn in their own name. In­come from NZ Su­per is ‘earn­ings’ even though you are no longer work­ing.

In­land Rev­enue ex­plains the in­come bands quite clearly on its web­site. At the end of the tax year you can check if you are due a re­fund. Ev­ery­one pays 10.5 per cent on the first $14,000 that they earn, 17.5 per cent on the in­come from $14,001 to $48,000, 30 per cent on the in­come from $48,001 to $70,000 and 33 per cent on in­come over that.

If the pro­posed tax changes go­ing through Par­lia­ment are im­ple­mented, start­ing in 2019 In­land Rev­enue will au­to­mat­i­cally pay out re­funds to tax­pay­ers who have paid too much dur­ing the year.

There is a dif­fer­ence be­tween the RWT tax rate I have de­scribed above and tax on PIE in­vest­ments such as Ki­wiSaver. The tax rate on Ki­wiSaver is called the pre­scribed in­vestor rate or PIR. PIE tax rates are a bit more gen­er­ous than RWT for larger in­come earn­ers as they have an up­per limit of 28 per cent. Ki­wiSaver providers are re­quired to ask their in­vestors each year to con­firm their PIR and change it up or down ac­cord­ing to their cir­cum­stances.

The 10.5 per cent is a rate gen­er­ally only used by chil­dren or peo­ple on very low in­come — eg. a stay at home par­ent whose part­ner is the only one in paid work. It is likely IRD has done a sweep of su­per­an­nu­i­tants who are us­ing 10.5 per cent as a tax rate. IRD will know you are re­ceiv­ing NZ Su­per and should at least be on 17.5 per cent tax rate — both for with­hold­ing tax and PIR (PIR is based on the last two years of in­come so if in the year be­fore they get Su­per a per­son earns very lit­tle then 10.5 per cent may be the cor­rect rate for them at that time. But within one or two years of re­ceiv­ing NZ Su­per they should be on the 17.5 per cent.) As you can see, the tax dif­fer­ence ($256) is not great but it has caused you stress.

Shel­ley Hanna is an Au­tho­rised Fi­nan­cial Ad­viser FSP12241. Her dis­clo­sure state­ment is avail­able on re­quest and free of charge by call­ing 06 870 3838 or go to peak.net.nz. The in­for­ma­tion con­tained in this ar­ti­cle is of a gen­eral na­ture and is not per­son­alised. Send your Ki­wiSaver ques­tions to shel­[email protected]

Newspapers in English

Newspapers from New Zealand

© PressReader. All rights reserved.