Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

CGT benefits low income KiwiSavers at high earners' expense

UPDATE [26/2]: CGT Clarification Shows Kiwisaver Gains For Lower Earners
Clarification on the benefits of increased Member Tax Credits has led Simplicity to revise its estimates. Simplicity interpreted the wording of the final report as meaning that a 75c tax credit for every $1 contributed would apply, up to the current maximum of $521. However this has now been clarified, and a maximum government benefit of $781.50 p.a. would apply, provided a member contributed at least $1,042 p.a. ...
More>>


Simplicity Research, a division of Simplicity NZ Ltd, has calculated the impact of the Tax Working Group recommendations on the average KiwiSaver member at retirement. These are our findings below.

If all four recommendations (outlined below) are implemented, a member earning $40,000 p.a. and contributing at 3% of salary will have between $47,892 and $65,069 more in their KiwiSaver account at retirement.

For someone earning $70,000 p.a. and contributing at 3% of salary, the KiwiSaver member balance at retirement will be between $20,406 and $36,876 lower.

For someone earning $100,000 and contributing at 3% of salary, the balance will be between $27,438 and $49,570 lower.

Assumptions:

· An investor starts at age 20, earns either $40,000, $70,000 or $100,000 per year and has contributions of 6% (3% employee and 3% employer).
· Their salary increases by 1% per annum.
· Their starting balance is $0.
· They retire at age 65.
· The capital appreciation from NZ Shares that would be subject to CGT is 3.8% p.a. (based on 20-year data).
· The capital value from Australian shares that would be subject to CGT is 3.6% p.a. (based on 20-year data).

The key recommendations of the Tax Working Group (TWG) for KiwiSaver members were:

1) Elimination of tax-free capital gains on NZ and Australian shares.

Assuming no changes to current asset allocations, this would reduce returns for all KiwiSaver members. The impact on KiwiSaver growth fund returns is estimated at -0.30% p.a., and -0.20% p.a. for balanced funds.

For the average KiwiSaver investor on a salary of $40,000 and contributing at 3% their whole working life, the reduction in returns is $34,170 and $18,047 respectively.

For someone earning $70,000 and contributing at 3% of salary, the negative impact will be a $36,876 and $20,406 respectively.

For someone earning $100,000 and contributing at 3% of salary, the impact will be a reduction of $49,570 and $27,438 respectively.

2) A 5% drop in the PIR tax rates for the 10.5% and 17.5% PIR investors.

The new rates of 5.5% and 12.5% would improve KiwiSaver fund returns for those earning less than $70,000.

For the KiwiSaver member on a salary of $40,000, the impact is positive and the gain is $65,368 for a growth fund and $40,671 for a balanced fund.

3) Removal of the current Employer Superannuation Contribution Tax (ESCT) for those earning under $48,000.

This benefits a member earning under $48,000, with no change for those earning more.

For the KiwiSaver member on a salary of $40,000, the impact is $33,871 for a growth fund and $25,268 for a balanced fund

4) The government tax credit contribution to increase from 50c per $1 invested up to 75c per $1.

However, because the maximum recommended credit stays at $520 per annum, it will not impact most regular KiwiSaver contributors.

Combined Impact:

Assuming all changes come into effect, the impact of the various components is summarised below:

Growth fund Employer Superannuation Contribution Tax removed Prescribed Investor Rate reduced from 17.5% to 12.5% Capital Gains Tax introduced Net impact
$40,000 $33,871 $65,368 ($34,170) $65,069
$70,000 no benefit no benefit ($36,876) ($36,876)
$100,000 no benefit no benefit ($49,570) ($49,570)

Balanced fund Employer Superannuation Contribution Tax removed Prescribed Investor Rate reduced from 17.5% to 12.5% Capital Gains Tax introduced Net impact
$40,000 $25,268 $40,671 ($18,047) $47,892
$70,000 no benefit no benefit ($20,406) ($20,406)
$100,000 no benefit no benefit ($27,438) ($27,438)


This challenges the notion that the recommended changes will be revenue neutral from a KiwiSaver perspective. What the calculations indicate is that higher earning KiwiSaver members will be subsidising those on lower incomes.


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Reserve Bank: RBNZ To Implement $30bn Large Scale Asset Purchase Programme Of NZ Govt Bonds

The Monetary Policy Committee (MPC) has decided to implement a Large Scale Asset Purchase programme (LSAP) of New Zealand government bonds. The negative economic implications of the coronavirus outbreak have continued to intensify. The Committee ... More>>

ALSO:

Elevate NZ: Venture Fund To Lift Productivity

The Government’s new $300 million venture capital fund - announced in last year’s Budget – is now open for business as the Elevate NZ Venture Fund. Finance Minister Grant Robertson says lifting New Zealand's productivity requires well-functioning ... More>>

ALSO:


COVID-19: Case Confirmed In NZ – Expert Reaction

After spreading across the globe for months, the first case of COVID-19 has been reported in New Zealand. The Ministry of Health says the risk of a community outbreak is low, due to their preparedness and the high awareness of the disease. The Science ... More>>

ALSO:

Agriculture: New Legislation To Boost Organics

New organics legislation will boost consumer confidence and help grow an innovative sector, says Food Safety Minister Damien O’Connor. “The Organics Product Bill, introduced to Parliament this week, aims to increase consumer confidence when purchasing ... More>>

ALSO:

Biodiversity Policy: Misinformation Circulating

Forest & Bird is concerned at misinformation circulating regarding a policy statement aimed at protecting New Zealand’s unique biodiversity. The National Policy Statement for Indigenous Biodiversity is being consulted on by the ... More>>

ALSO: