Archive for 'super'

Introduction of new KiwiSaver Bill

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill contains proposals to simplify and modernise the administration of KiwiSaver. The Bill proposes a number of changes to improve the administration of the KiwiSaver scheme, facilitating faster transfers of funds, improving the administrative efficiency and enhance members’ experience with the scheme.

The implementation of a new information technology project known as Business Transformation (BT) has allowed Inland Revenue (IRD) to detect more clearly what rate of tax that people should be paying on their KiwiSaver accounts and other investment savings.

Though the New Zealand tax system has a broad-base, low-rate framework, the IRD has identified that approximately 1.5 million people have been paying the wrong prescribed investor rate (PIR) on their KiwiSaver accounts and other managed funds.

Currently, KiwiSaver investors and others with savings in Portfolio Investment Entities must be the ones to notify savings providers of their appropriate PIR tax rate. As many individuals do not do this step, they are charged the default rate of 28%. The tax paid is final and any overpayment cannot be refunded.

The proposed law will allow for the IRD to notify the provider to correct the PIR from 1 April 2020. The IRD has also announced that from mid-July it will begin contacting taxpayers who are on the wrong rate.

Posted on 10 September '19 by , under super. No Comments.

Use KiwiSaver to buy your first home

You may be entitled to the KiwiSaver HomeStart Grant after you have been contributing to your KiwiSaver for three years. The Grant is administered by Housing New Zealand which operates outside of KiwiSaver and will be paid to your solicitor.

What are the grants?
There are two HomeStart Grants. These are:

  • For purchasing an existing home, it is between $3,000 and $5,000 based on $1,000 each year of KiwiSaver membership.
  • For building or purchasing a new home or for purchasing land to build a home on, it is doubled to $2,000 per year of membership. This can be up to a maximum of $10,000 for five years of membership.

Eligibility:
To be eligible for the HomeStart Grant, you must be a member of KiwiSaver, another complying superannuation fund or exempt employer scheme, be 18 years or older, and have not received a HomeStart Grant or a KiwiSaver withdrawal before. You must have contributed the minimum percentage of your income to a KiwiSaver scheme for at least three years, although they do not need to be consecutive. You must have a household income, before tax, of less than $85,000 per year for one person, or less than $130,000 per year for two or more people. You must have a deposit that is 10% or more of the purchase price, including the addition of the grant. You should note that income and house price caps will also apply.

In some circumstances, you may still be eligible for the HomeStart Grant if you’ve owned a house before. Housing New Zealand will need to determine if you are in the same financial position as a first home buyer. For further advice or information, consult your financial advisor.

Posted on 12 August '19 by , under super. No Comments.

Understanding KiwiSaver for employers and employees

KiwiSaver is New Zealand’s approach to a taxpayer-subsidised, personal retirement savings regime. Under the scheme, employers make payroll deductions for each employee through the Pay As You Earn (PAYE) tax system. Employees are required to save these to a KiwiSaver account. Here are some of the key features of KiwiSaver that employers and employees should be aware of.

Eligibility:
KiwiSaver is eligible for anyone under the age 65 who is a New Zealand citizen. While people over age 65 cannot join, they can remain as members if they have joined before turning 65. They are also eligible if they are entitled to live in New Zealand indefinitely, and are normally living in New Zealand at the time they join.

Employee contributions:
Employees who are members of KiwiSaver must contribute a minimum of 3% of their gross taxable pay. Individuals can choose to increase the amount to 4%, 6%, 8% or 10%, but can reduce it back to the minimum amount of 3% at any time. Gross taxable pay includes all bonuses, holiday pay and overtime pay. It does not include things such as redundancy pay, accommodation benefits, taxable overseas living or accommodation allowances.

Employer contributions:
While employees must contribute to their own KiwiSaver savings, it is also compulsory for their employers to put money in. These KiwiSaver deductions must be at the default rate of 3% of their pay. However, an employer is not required to make compulsory contributions to an employee’s KiwiSaver if they are already paying into another registered eligible superannuation scheme, the employee is under 18 years or if they are over 65 years.

Posted on 15 July '19 by , under super. No Comments.

Why you should check your KiwiSaver tax rate

Inland Revenue has identified that 450,000 people have been paying the wrong rate of tax on their KiwiSaver accounts and other managed funds. This highlights the importance of understanding what rate of tax you should be paying on your KiwiSaver, and to check that you are paying the correct amount.

The implementation of a new automated tax system has allowed the IRD to detect more clearly what rate of tax that people should be paying on their KiwiSaver accounts and other investment savings. The IRD will be contacting those who have been paying the incorrect prescribed investor rate (PIR) on managed funds like KiwiSaver.

The PIR determines how much tax you pay on your portfolio investment entities (PIEs). Members and their employers both make contributions to KiwiSaver, before the fund manager then invests those both locally and overseas. Any returns are then taxed by the IRD. The prescribed guideline rates are 10.5% for those earning a taxable income of below $14,000, 17.5% for those earning between $14,000 and $48,000, and 28% for those earning over $48,000.

To avoid paying the wrong tax rate, members should work out their estimated income, which will then tell you what your PIR rate is likely to be. You may consider contacting your fund manager to further check the details of what tax rate you are paying and to inform them of your correct PIR, as your income earned from a fund may be taxed at the default rate of 28% without your knowledge.

For further information on taxable income, PIRs and to determine your correct PIR, you should consult your professional tax advisor.

Posted on 18 June '19 by , under super. No Comments.

Take advantage of government contribution to your KiwiSaver

To help you add savings into your KiwiSaver account, the Government will make an annual contribution of up to $521 to all contributing members over the age of 18. Over a KiwiSaver member’s working life, the government contribution could be worth as much as $36,000.

Check your eligibility:
The Government contribution stops when a member reaches the age of eligibility for NZ Super or has been a member for 5 years. If you’re an employee who earns at least $34,762 a year (before tax) and you contribute the minimum 3% into KiwiSaver, then your contributions will be at least $1043, the amount required to receive the full payment from the government. In this case, the full amount of $521 will automatically be paid into your account by late July or August.

See if you’ve contributed the correct amount:
Contractors, freelancers, part-time workers or those who earn less than $34,762 a year, will need to check how much has been contributed to their KiwiSaver account in the past year. There is still time to top your account to receive the full government contribution if you find that you come up short.

Top-up your KiwiSaver by mid-June:
The official deadline to top-up your KiwiSaver account is 30 June. However, many providers will prefer members to have a minimum amount of $1043 in their account by mid-June in order to process the government contribution efficiently. You could consider making arrangements to top-up your account either by automatic payments or a lump sum, as the government will match each dollar with 50 cents.

Posted on 20 May '19 by , under super. No Comments.

Succession planning for small businesses

Retirement is a big commitment and even more so for those who are self-employed or run their own business. All the factors that go into the decision to retire are magnified with a business to consider. Selling or closing are not the only paths if you choose to move on, this is why succession planning for your business is a great start for you to see where you want to go. For business owners, planning for your business’s future can be the key to its survival after you leave.

With the succession planning process, you will need to set ultimate goals, such as what you want to happen to your business, if you still want a role and what would it be, who should run the business in the future and when you want to leave. To make the best plan for you and your company, know all your assets and liabilities. This will help to value your business so you can calculate shares or a sale price. Having a timeframe and early planning will make it easier to leave comfortably when the time comes. Professional advice at various stages of your planning and exit will greatly help with your strategies as well as documenting your plans, having key decisions written down for advisors or successors to easily access.

Everyone’s retirement needs are different, with no official retirement age in New Zealand, super can start being collected from age 65 in conjunction with you continuing to work part-time or having a smaller role in your business. If moving on completely isn’t for you just yet, you could decide to keep a stake or shareholding to give you an income in retirement. Alternatively, you may decide to still offer advice in a director or consultant role. If this is the case, you and your successor will need to have a discussion about how this process will work. Whatever option you want to go with, seeking professional advice will help you make informed decisions.

Posted on 8 March '19 by , under super. No Comments.

KiwiSaver benefits

A KiwiSaver account is a great resource for compiling and saving for your retirement and future security. It is a voluntary, government-run initiative designed to help you financially plan ahead, but what exactly are the benefits? Here are a few ways having a KiwiSaver account would aid you throughout your life.

Member Tax Credit:
This credit depends on how much you deposit into your account each year. The government will pay 50 cents to every dollar up until you’ve reached the maximum government payment of $521.43.The government will help you save by making an annual contribution to your account as long as you fit their guidelines.

  • You are 18 years or older
  • Mainly reside in New Zealand (exceptions for government employees serving overseas, regulated volunteer work or meets requirements under the Student Loan Scheme Act 2011)

Compulsory employer contributions:
Provided you are a member making contributions from your pay, your employer has to put money in, equalling 3% of your pay. Since 2012, employer contributions have been liable for tax, meaning their additions may be reduced.

KiwiSaver HomeStart Grant:
Having contributed to your account for three to five years, you could be entitled to the HomeStart Grant. There are two types of grants available:

  • When purchasing an existing home, a grant can be between $3,000-5,000 based on $1,000 each year of membership
  • When building/purchasing a new home or land on which to build a home, a grant can be doubled to $2,000 each year of membership, making the maximum amount $10,000.

Whilst eligibility criteria applies, if you have owned a home before you may still qualify under certain circumstances. Housing New Zealand would be the ones to determine if you are eligible to receive funding.

Posted on 7 February '19 by , under super. No Comments.

Impacts of overseas travel on your KiwiSaver

KiwiSaver members who go overseas for an extended period will not receive all the benefits their accounts usually give them. Find out what you are entitled to when you go away so you can make the right financial moves.

Contributions while you are away
Your contributions will automatically stop once you cease work in New Zealand and you may need to contact your KiwiSaver provider about this. However, you can make voluntary contributions at any time while you are away. Refer to KiwiSaver information on how to do this.

Benefits you are eligible for
You will not receive a member tax credit while you’re not living in New Zealand unless you are a:

  • New Zealand government employee living overseas, or
  • New Zealander volunteering or working abroad for token payment for a specified charitable organisation.
  • You will not receive compulsory employer contributions as you are no longer employed in New Zealand.

Permanent departure from New Zealand
If you emigrate to countries other than Australia permanently, you can apply to withdraw your savings and close your KiwiSaver account after one year. Member tax credits you have received since joining will be returned to the Government, and you may keep any interest on the tax credits you have earned. You can leave your savings in a KiwiSaver account or transfer to an Australian complying superannuation scheme if you permanently emigrate to Australia.

Posted on 26 November '18 by , under super. No Comments.

KiwiSaver investors should stay calm after market drop

The Retirement Commissioner Diana Maxwell has urged KiwiSavers to remain calm after the steep decline in world share markets has affected savings.

The NZX-50 Index dropped 3.65 per cent on 11th October and had since slowly edged up by 1.17 per cent.

Maxwell urged KiwiSaver investors to remain calm and refrain from meddling with their funds. She advised that any long-term investment will fluctuate but riding out economic downturn is the best option and your balance will inevitably rise.

You should avoid switching funds, providers or suspending your super contributions as the fees or decline in the growth of your investment will not be worth it once the market’s rough patch ceases. Maxwell advised that the KiwiSaver banking apps are fantastic in tracking growth, but investors should avoid watching the apps too closely to prevent panic at small changes in the market.

However, if you are more risk averse and changes in the market provoke anxiety, consider changing your super risk profile to something more conservative.

Posted on 26 October '18 by , under super. No Comments.

Divorce and your KiwiSaver

Going through a divorce is an extremely difficult experience; among the emotional challenges are the financial issues, particularly when you consider what will happen to your KiwiSaver?

The good news is the balance in your KiwiSaver prior to the relationship is safe and will not be divided between you and your partner when you divorce. However, the amount in funds contributed, and the growth incurred in your KiwiSaver during the relationship falls under the category of relationship property and as such is to be divided equally amongst a divorcing couple.

Regardless of whether the value is made from government contributions, employer contributions or individual contributions, it will still be categorised as relationship property and divided appropriately. The value of your KiwiSaver (to be divided) will usually be at the date you and your partner separate or the date of resolution.

Generally, the Court will order your KiwiSaver fund to pay out a portion of your funds to your partner’s bank account or KiwiSaver unless there is another option available. For instance, you and your partner may agree that he or she will take a larger share from the relationship’s other financial assets instead of from your KiwiSaver.

It is also important to know if full disclosure is not given during the divorce settlement in relation to your assets, your former spouse will have the option to take proceedings against you.

Posted on 29 August '18 by , under super. No Comments.