KiwiSaver tax-take comment a case of the glass is half empty

Posted by Bruce Kerr on 5 November 2008

The Association promoting workplace superannuation in New Zealand says it is generally comfortable with the framework for taxation of investment savings currently in place.

The Association of Superannuation Funds of New Zealand (ASFONZ) says KiwiSaver investments are taxed on exactly the same basis as any other form of collective investment vehicle.

That follows a warning on KiwiSaver tax from the investment consultancy firm, Mercer. It says KiwiSaver investors will pay more tax on their investment earnings than the incentives given to them by the Government unless the rates are lowered.

And Mercer says under the current model, the incentives to join KiwiSaver would be wiped out over the lifetime of a saver as they would pay more tax on investment earnings.

KPMG Tax partner and ASFONZ councilor Murray Sarelius says KiwiSavers – just like investors in any other form of collective investment vehicle - face tax on their investment earnings.

“However that doesn't undermine the benefit of the incentives provided by the Crown to contribute to KiwiSaver, or mean that KiwiSavers are disadvantaged.

“The incentives are significant and should not be compared with the amount of tax you pay on your KiwiSaver investment over the period you invest,” he says.

ASFONZ chair David Ireland of law firm Kensington Swan agrees: “They are two different things.  A tax on KiwiSaver earnings doesn’t wipe out the incentives you receive. You get to keep those. If you are fortunate enough to make a positive investment return then there will be tax to pay on that return – that’s the way our tax system works.

“Lowering the tax rate on retirement savings might be on our wish list, but we have other targets that are more realistic in the short term that are higher on that list.”

Mr Ireland says whatever the outcome of the General Election this weekend, the main incentives to participate in KiwiSaver seem set to remain.