They say tax and death are two of life's certainties. While we all hate paying tax, there's no avoiding it. In early April, your KiwiSaver account was adjusted to take into account the tax on your investment earnings for the last 12 months. But it's far from bad; here's why.
The Fisher Funds KiwiSaver Scheme is classified as a Portfolio Investment Entity (or PIE for short) for tax purposes. The PIE regime provides a number of tax advantages for investors and makes the administration of it all very easy. The key advantages are:
Firstly, there is no tax on gains in New Zealand shares and certain Australian shares. Investments in companies outside that criterion are taxed as if they have earned 5% total income (regardless of how they have actually performed). Fisher Funds invests in growing companies which often have a low dividend yield and the majority of returns come from the increase in the value of the shares. This is a significant advantage for investors.
Secondly, investors are taxed at their marginal tax rate with a maximum of 28%. For investors on a top personal income tax rate of 33% this represents a 5% saving.
Thirdly, the Scheme takes care of all tax obligations on behalf of investors so there is nothing to include in your personal tax return. As long as we have the correct tax rate (known as your Prescribed Investor Rate or PIR) for you we will claim a tax refund or pay your tax liability on your behalf and adjust your KiwiSaver account accordingly.
Tasty PIEs indeed!
Calculating your correct PIR
There are three PIRs available for individuals to choose from: 10.5%, 17.5% or 28%. The correct rate for you depends on your income. We have a simple diagram that helps you calculate the correct PIR for you.