NZ Retirement Savings Overtaxed, Claims Expert

October 11, 2017 Taxation in New Zealand

Kiwisaver taxationWELLINGTON – Property investors in New Zealand are seeing tax liabilities which are only a fraction of those paid by people saving for their retirement.

In a statement issued on October 10th, Peter Neilson, the former chief executive of the Financial Services Council of New Zealand, called for a rethink of the taxation of the country’s retirement savings system, KiwiSaver.

KiwiSaver is a nationwide retirement savings system, whereby a percentage of an employee’s pay is deducted from their wages and invested into a managed fund.

Over the previous financial year, approximately NZD 25.4 million was invested in the default funds assigned to taxpayers upon entry into KiwiSaver, and a further NZD 140.8 million was deposited into funds which were specifically chosen by the saver.

Currently, the earnings from the held funds are taxed every year.

Peter Neilson claimed that due to the effect of taxing the compounding profits, the effective tax rate on KiwiSaver for a top-income earner is approximately 54 percent.

Alternatively, a property investor seeing annual returns of 6 percent per year would face an effective tax rate of 1 percent.

It was explained that the difference is due to the fact that property gains are taxed at the time of sale, while KiwiSaver returns are taxed annually.

Peter Neilson called on the disparity to be addressed, as it results in an unfair tax burden for savers, which will only increase as the amount deposited by New Zealanders into KiwiSaver grows.