People who don't pay enough tax on their KiwiSaver investment could face penalties of up to 150 per cent on the shortfall. But don't expect a refund if you accidentally pay too much.
KiwiSaver providers have been writing to the 1.3 million people signed up to KiwiSaver asking them to check they are on the right prescribed investor rate (PIR) because of changes to the way the schemes are taxed.
From April 1 middle-income earners will face an increase in the tax on their KiwiSaver scheme from 19.5 to 21 per cent. There is no change to the top rate of 30 per cent.
The PIR is based on what a person earns through combining their KiwiSaver investment income and their salary or wages.
KiwiSaver investors can claim a tax rate on their investment of 12.5 per cent if their taxable income (from salary or wages) in one of the last two years was below $14,000, and when combined with investment income remains below $48,000.
Investors with taxable income of between $14,001 and $48,000 which, when combined with their investment income, comes to less than $70,000, pay 21 per cent tax.
While investors with a taxable income of over $48,000 in both of the past two years will pay 30 per cent.
People who do not tell their KiwiSaver provider which rate they should be taxed at are automatically put into the highest bracket.
That could mean a person with $10,000 in their KiwiSaver account whose investments grow by 5 per cent pays $150 in tax compared to just over $62 at the lowest rate or $105 at the 21 per cent rate.
A spokesman for the Inland Revenue yesterday confirmed anyone who discovered they were on the wrong rate would not be refunded.
"If your PIR was higher than it should have been then the attributed income remains excluded income and there is no refund."
He could not give a reason why in time for deadline.
But he confirmed those who were on a lower rate than they should be on could face penalties which range from 20 per cent of the underpaid tax for "lack of reasonable care" up to a maximum of 150 per cent for "evasion".
The spokesman said people who realised they were on the wrong rate should contact their KiwiSaver provider as soon as possible.
"If the PIE has not done their tax calculation for the period (quarter or annual), they may be able to adjust it for the correct amount of tax."
All KiwiSaver schemes are PIES or portfolio investment entities.
Clarification
KiwiSaver investors can claim a tax rate of 12.5 per cent only if their taxable income in one of the past two years was below $14,000, and when combined with investment income remains below $48,000. A story on Tuesday omitted the $14,000 limit. To further clarify the same story, investors with taxable income of between $14,001 and $48,000 which, when added to their investment income, comes to less than $70,000, will pay 21 per cent tax. Investors with a taxable income of more than $48,000 in both of the past two years will pay 30 per cent.
