How is KiwiSaver taxed?

How is KiwiSaver taxed?

The investments within the Defensive, Conservative, Balanced, Growth and High Growth Funds are taxed based on the tax regime that relates to each of them. So, for example, there is no tax paid on capital gains from New Zealand and Australian shares; only on dividends. International shares are taxed under the fair dividend rate (FDR) regime, where tax is paid on a 5% rate of return, regardless of the actual return. All returns from bonds, both local and international, are taxed as income.

As the Investment Fund is a portfolio investment entity (PIE), taxable income is calculated daily within the Fund and only accounted for at an investor level, if the investor makes a withdrawal. Otherwise, your PIE tax is accounted for at the end of each financial year at your personal investor rate (PIR). Any tax payable or tax rebate is based on each investors' PIR. The tax is deducted or rebated to each investors' account. Although every investor receives a PIE tax statement in May, for the vast majority of investors PIE income and tax paid does not need to be accounted for in a tax return.

You nominate your PIR (the options are 10.5%, 17.5% or 28% based on the last two years of income) when you initially invest in a PIE and you are expected to change it if your circumstances change. If you nominate a rate that is too low you will need to deal with Inland Revenue to pay the correct amount and any penalty. If you nominate a rate that is too high, the refund will be included as part of your end of year square up.

We, as the Fund Manager, deal with the tax on your behalf in a Portfolio Investment Entity (PIE). Any tax owing is deducted either in the event of a withdrawal, or at the end of the financial year, and we send you a statement reflecting this. You should ensure we have the correct PIR for you. You can see information about tax return and PIE income on the Inland Revenue website here.

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