Tax rate needs to be correct for KiwiSaver investors
Q. My parents signed me up to the Fisher Funds KiwiSaver Scheme in 2007 when I was 16. Even though I was a student for most of the past 8 years, contributions from my part-time and holiday jobs along with Government top-ups and investment returns (I am in the growth fund) have all helped grow my balance to over $7,000. I am now working full time and my question is, what tax rate should I be on? On my statements it says 10.5% but I think I should be on a higher rate. If it's wrong, how do I change it?
A. Your KiwiSaver Scheme is a PIE or Portfolio Investment Entity. This was a new tax entity created in 2007, partly to provide tax benefits to KiwiSaver investors. A PIE pays tax on investment income based on their investors’ individual tax rate. Investors in a PIE must give their fund manager their IRD number and their Prescribed Investor Rate (PIR).
The PIR for NZ resident individuals is based on the taxable income in either or both of the last two income years, for example income from salary, wages and any additional sources of income included in your income tax return. PIE income is also taken into account. The prescribed rates are 10.5%, 17.5% and 28%. If an incorrect rate is applied to the income on your investment it will be taxed incorrectly, which may result in further tax to pay and penalties being considered.
If investors don’t provide the fund manager with their PIR and/or IRD number, they will deduct PIE tax at the rate of 28% which may be higher than their actual PIR. If the 28% rate has been applied, but they should have had a lower PIR (10.5% or 17.5%), they can’t include the attributed income in their income tax return to get a refund of the balance.
To determine your PIR income for the 2015 income year use your income details for 2013 and 2014. If your taxable income was MORE than $14,000 but less than $48,000 in either of the last two tax years, your PIR is 17.5%. If it was less than $14,000 you can stay on your current rate, and review it again next year.
How do you change your PIR rate? Fund managers have a form that investors should fill out and send to them. Some fund managers, including Fisher Funds Management, make it easy for investors to change details such as their PIR by offering them online access to their account. If you have online access (through your email address and password) you can very easily log in and change your PIR. You can also get detailed reports showing the growth of your savings since inception, a breakdown of where your contributions have come from, information on your asset allocation as well as a list of all the investments you have in the fund.
Not all KiwiSaver fund managers provide this service and online access alone is not a good reason to switch schemes. As fund balances grow and investors become more interested in the growth of their savings it is likely to become more widely available.
Hawkes Bay Today 3 March 2015
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.