An interesting tax change

Revenue minister Peter Dunne

This might be difficult to believe but the recently-passed Taxation (Consequential Rate Alignment and Remedial Matters) Bill is interesting.

Not all of it, of course. I wouldn't recommend anyone read the whole text, it's very hard on the eye.

However, the legislation - championed by Revenue Minister Peter Dunne - provides some welcome tax relief for certain investors but only if they look out for themselves.

The law was designed primarily to align new income tax rates with the withholding tax levied on bank account interest. But account-holders will have to nominate their correct tax level or they will be assigned the highest withholding tax level of 38 per cent (this applies to all new accounts opened from April 1, 2010, and for all other accounts from April 1, 2011).

But the new tax rates also apply to income derived from portfolio investment entities (or PIEs), including KiwiSaver accounts.

For those earning up to $14,000 in ordinary income - which would presumably mean most of the 200,000 under-18s enrolled in KiwiSaver schemes - the PIE tax rate will drop from 19.5 per cent to 12.5 per cent.

As I noted in a previous blog, however, you can't rely on KiwiSaver providers to get your tax rate right - it's up to members to ensure they're not being overtaxed.

There's another quirk in Dunne's legislation that allows those who have earned $14,000 and under in "either of the two income years before the relevant tax year" to earn up to $48,000 from PIE investments, which would be taxed at the low rate of 12.5 per cent.

And that is sure to be of interest to plenty of people with a lazy million or so to invest.