Will you be caught short or discover a windfall when you look at your tax return from IRD this financial year? Here’s how to check if you’re paying the right amount of tax.
Why being in the right tax rate matters
The end of the 2019/2020 financial year is fast approaching. If you have KiwiSaver it’s a good time to check you’re in the right tax bracket. If you’re not you could be caught out owing IRD a little or a lot. Or you could discover the opposite – imagine finding out you’ve been paying too much tax which the IRD will not refund to you? Either way it’s worth checking out if you’re paying the right amount of tax. Here’s how.
1. Check your PIR – is it right for your income?
Your Prescribed Investor Rate (PIR) is the compulsory tax you pay on your KiwiSaver and is related to your income.
When you first set up your KiwiSaver account you work out your Prescribed Investor Rate (PIR) based on your income at the time. If over time you earn more or less you could move into a higher or lower tax bracket. Unless you tell your KiwiSaver scheme provider about your change in income you could end up being in the wrong PIR.
As a general rule if you have:
- An annual income above $48,000 you’ll pay tax on KiwiSaver at the rate of 28 per cent
- An annual income between $14,000 and $48,000 you’ll pay tax on KiwiSaver at the rate of 17.5 per cent
- An annual income $14,000 or less you pay tax on KiwiSaver at 10.5 per cent
It’s worth knowing, the tax doesn’t come out of your pay packet but out of the investment itself so effectively reduces the gains you make on your investment.
To calculate your correct PIR, use the calculator on the Inland Revenue website here.
2. Update your details
Remember, it is your responsibility to keep your KiwiSaver scheme provider informed of your correct PIR to ensure you are paying the right amount of tax on your investment returns and avoid the consequences of having the wrong rate.
If you're already with Kiwi Wealth, you can find instructions on how to update your PIR here.