Tax changes to include automatic refunds from IRD, new Kiwisaver rates, contributions holidays slashed
By Sophie Boot
June 29 (BusinessDesk) - The government is proposing changes to tax law including automatic tax refunds, new KiwiSaver contribution rates and allowing over 65-year-olds to join KiwiSaver, along with slashing the contributions holiday that KiwiSaver members can take.
The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill, which has been tabled and has its first reading next week, sets the annual tax rates for the 2018-19 tax year, unchanged from previous tax years, along with other changes.
Revenue Minister Stuart Nash said the bill will remove the need for individuals to file a personal tax summary (PTS) to get a tax refund, with 750,000 people currently missing out on their tax refunds every year currently. Inland Revenue will group taxpayers according to whether it thinks it has all the income information for them or not, and if it does will automatically calculate that refund and pay it.
The regulatory impact statement for this change says this will return $150 million to individuals, both from refunds they otherwise would not have received and in money saved from those who currently do file a PTS. The government could collect up to $50 million in taxes not currently collected, though the RIS notes this is not a forecast but a static analysis of unpaid sums larger than $20 in the 2016 tax year.
The bill also seeks to change the way people pay tax on secondary sources of income, so that fewer people end up paying the secondary rate of tax and getting a refund but instead pay a tailored tax rate from the outset.
Added to the current individual contributions to Kiwisaver - 3 percent, 4 percent and 8 percent - will be rates of 6 percent and 10 percent. These changes come from the Retirement Commissioner’s December 2016 review of retirement income policies.
The new contribution rates will likely have a positive impact on savings, with the 6 percent rate likely to be attractive to those who think the gap between 4 percent and 8 percent is too large, the RIS says. Some 24 percent of members contribute at a 4 percent rate and 9 percent at the 8 percent rate.
The current maximum KiwiSaver contributions holiday period will be cut from five years to one year, and the name will be changed to a “savings suspension” under the bill.
Over-65-year-olds will be allowed to join KiwiSaver as a provider of low cost managed funds. Employers would not be obliged to contribute for over-65s but may do so voluntarily, Nash said.
Additionally, the current lock-in period for members aged between 60 and 65 who joined the scheme after the age of 60 will be removed, as it was intended to prevent people from joining up solely to receive and withdraw the $1,000 kick-start payment, which was removed in Budget 2015.