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CGT clarification shows Kiwisaver gains for lower earners

Capital Gains Tax clarification shows big gains in retirement income for lower income 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.

The changes show that higher earning KiwiSaver members in growth-oriented funds are receiving less than they would have under current law. For higher-earning members in balanced funds, the benefits are minor.

The big winners from the proposed changes remain lower income KiwiSaver members eg. A member on a $40,000 salary in a growth fund would be $108,000 better off in retirement if all changes were implemented over their working life.

Please see tables showing our revised estimates with the original estimate below. Please note these figures are based on Simplicity KiwiSaver Scheme data and not industry averages.


Revised data assuming a maximum of $781.50 Member Tax Credit
.

Growth Fund
Income Employer Superannuation Contribution Tax removedPrescribed Investor Rate reduced from 17.5% to 12.5%Capital Gains Tax introducedMember tax credit increasedNet impact on total retirement savings
$40,000$33,871$65,368($34,170)$43,861$108,932
$70,000no benefitno benefit($36,876)$36,034($841)
$100,000no benefitno benefit($49,570)$36,034($13,536)

Balanced Fund
Income Employer Superannuation Contribution Tax removedPrescribed Investor Rate reduced from 17.5% to 12.5%Capital Gains Tax introducedMember tax credit increasedNet impact on total retirement savings
$40,000$25,268$40,671($18,047)$32,233$80,125
$70,000no benefitno benefit($20,406)27,713$7,307
$100,000no benefitno benefit($27,438)27,713$274


Original Estimates assuming a maximum $521 Member Tax Credit

Growth Fund

Income Employer Superannuation Contribution Tax removedPrescribed Investor Rate reduced from 17.5% to 12.5%Capital Gains Tax introducedNet impact on total retirement savings
$40,000$33,871$65,368($34,170)$65,069
$70,000no benefitno benefit($36,876)($36,876)
$100,000no benefitno benefit($49,570)($49,570)

Balanced Fund

IncomeEmployer Superannuation Contribution Tax removedPrescribed Investor Rate reduced from 17.5% to 12.5%Capital Gains Tax introducedNet impact on total retirement savings
$40,000$25,268$40,671($18,047)$47,892
$70,000no benefitno benefit($20,406)($20,406)
$100,000no benefitno benefit($27,438)($27,438)

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