Did you or someone you know recently receive a letter in the mail stating that a change in KiwiSaver tax code is required otherwise there is a high chance of owing money with the next IRD tax return?
But, not sure what it’s all about? Let us break it down for ya…
How did this come about?
About three weeks ago, IRD announced that with a software update they had discovered that almost 1.5 million KiwiSaver members were in the wrong investment-based tax bracket (PIR) – most likely an error that occurred upon account set-up or changes over time. The department wrote to over half a million people with one of the three details:
- Change your tax bracket otherwise you will owe money with the next compulsory tax return
- Pay hundreds of dollars in tax owing
- Or, flipside, you’ve overpaid tax and unfortunately, the 950,000 who have over-paid tax will not get a refund from the IRD as current KiwiSaver legislation does not allow for refunds from PIE investments ($42 million in over-paid tax from KiwiSaver members to be exact)
What has caused this?
As a KiwiSaver member you’re part of a portfolio investment entity (PIE) which is a new type of entity (such as a managed fund) that invests the contributions from investors (you) in different types of investments. PIEs came into existence on 1 October 2007.
As part of PIE you’re required to pay a set amount of tax this is called ‘Prescribed Investor Rate’ (PIR). The set amount of PIR to pay is based on your income (just like your usual tax bracket). A lot of kiwi’s had set-up their KiwiSaver at a time when their income was a lot lower than what it is today. With IRD now looking into this, a lot of people have found themselves in issues with tax. The blame game could point to many avenues; your KiwiSaver adviser, IRD, your bank or just an overall lack of knowledge on all parts.
What is important moving forward?
Get your KiwiSaver set-up under the right prescribed investor rate and be sure to stay in contact with your KiwiSaver adviser/provider annually or when you have income and life changes.
Get in touch with IRD today to find out what PIR you should be on and then get in touch with your KiwiSaver adviser/provider to get them to update your details.
Ensure to get written confirmation of your update so you won’t be stung with debt or overpayments in the coming financial year.
Need more info, then get in touch with us
0800 771 331