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Paying tax on KiwiSaver

The return you make on your KiwiSaver investment is subject to tax, which is deducted by your KiwiSaver provider and paid to Inland Revenue on your behalf.
The amount of tax you pay depends on whether your scheme is a portfolio investment entity (PIE) and if so, what your prescribed investor rate (PIR) is. 
Here is some information to help explain the ins and outs of PIRs. The info provided below relates to KiwiSaver schemes that are PIEs only.

What is a PIR?

You need to provide both your IRD number and your PIR when you invest in a PIE. Your PIR is the rate of tax you pay on the taxable returns (not all returns are taxable) on your investments in a PIE. Your KiwiSaver provider makes the appropriate tax payments on your behalf from your KiwiSaver account to Inland Revenue, according to your PIR.

This means that you don’t need to file a tax return for your KiwiSaver interests, unless you have been paying an incorrect rate.

There are three PIRs that apply to KiwiSaver members (rates valid from October 2010 and current as at March 2016):

· 10.5%,
· 17.5%,
· and 28%.

The rate that applies to you will depend on your taxable income, plus the income or loss from any PIEs you are a member of, in each of the previous two income years.

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Working out your PIR

The key thing to look at is the taxable income you earned in each of the previous two years. This includes your wages, bonuses and other payments from employment, plus Government benefits, rental income, allowances, and any other sources of income that would be included in an income tax return.

Once you have your total taxable income, you will then need to add to this your PIE income, which is the value of the taxable income from all of your PIE investments from each of the last two years. If you are a Kiwi Wealth KiwiSaver Scheme member you can find this information on your annual member statement.

The total of these is your combined income for the purposes of working out your PIR. 

It is important to note that, if each of your last two income years gives you a different PIR, then the lower PIR will apply. 

Inland Revenue’s website has a really useful page to help you make sure you’re using the correct PIR. For anyone working out their PIR for the first time, or confused about the process, it’s well worth checking out.

We are not permitted to give you tax advice, including advising you on which PIR you should select.

Getting your PIR right

It is your responsibility to advise your KiwiSaver provider of the PIR that applies to your circumstances. It is important that you get your PIR right. Choosing an incorrect PIR can have significant consequences.

If you do not provide a PIR to your KiwiSaver provider, your provider will apply the maximum rate of 28%. If you pay too much PIE tax, you cannot claim the extra tax back but if you pay too little –by choosing a PIR that is too low – you will be required to file a tax return including your PIE income and you will be subject to tax on that income, at your marginal tax rate (which can exceed the top PIR of 28%). You could also be subject to penalties. So it is important you let your provider know the correct PIR for your investment income. 

If you do not nominate a PIR on your application form, your provider will set it at the default rate of 28%.

 

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How do I work out what my current registered PIR is? 

If you are an existing KiwiSaver member, your KiwiSaver provider can advise you of the PIR they have registered for you. (Your registered PIR should also be on the statements and annual tax certificate you receive from your KiwiSaver provider.)

Your KiwiSaver provider should ask you to confirm your PIR on an annual basis. This is a good opportunity to review your PIR. It is your responsibility to keep your KiwiSaver 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.

 

This information is intended to be used as a guide only and does not constitute tax advice. Please contact an independent tax adviser to seek advice specific to your circumstances.

Related Information

You can find more information on PIRs on Inland Revenue’s website.

Alternatively, the “IR855 - Portfolio Investment Entity: Information for resident individuals who invest in PIEs” booklet can be obtained either by visiting an Inland Revenue branch or by calling 0800 227 774.