Tax Working Group recommends changes to the taxation of savings
Who needs to read it? Why?
Yesterday the Tax Working Group released its highly anticipated interim report on the “Future of Tax”.
The media coverage of the Interim Report has largely focussed on the Tax Working Group’s work-in-progress consideration of capital gains taxation, but the Interim Report also contains a number of other proposals and recommendations.
Those in the managed funds industry will be particularly interested in the Group’s recommendations on the taxation of savings, which will likely be included in the Group’s Final Report that is due to be released in February 2019.
What does it cover?
The Group has considered additional concessions for retirement savings, targeting low and middle income earners, and recommends:
- removing the employer’s superannuation contribution tax (ESCT) on employer KiwiSaver contributions where the relevant KiwiSaver member earns up to $48,000 per annum;
- reducing the 10.5% and 17.5% PIE rates for KiwiSaver PIEs by five percentage points each to 5.5% and 12.5% respectively; and
- considering mechanisms that would simplify the determination of PIE rates.
The Group notes that it will continue to consider the taxation of savings in light of its ultimate position on capital gains tax. Importantly, the Group anticipates that if capital gains tax is implemented, KiwiSaver members with annual income of less than $48,000 will still receive a net tax benefit from the changes, but KiwiSaver members on higher incomes may face a net increase in tax on their savings. These comments suggest that there may not be an exemption from capital gains tax for managed funds.
The Group’s recommendations on the taxation of savings are relatively modest, but would have significant implications for fund managers’ tax processes, systems and documentation. The recommendations will need to be revisited if the Group forms the view that New Zealand should implement a capital gains tax.
If you have any questions in relation to the Group’s report or are keen to provide the Group with feedback, please contact one of our experts.
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