KiwiSaver tax on returns

NZ Funds says KiwiSaver's should work out what the tax on their return will be when considering which fund to put their savings in.

It asks how many investors are aware that they pay little or no tax at all if they invest in shares or New Zealand listed property.

All KiwiSaver providers are required to use Portfolio Investment Entities (PIEs). All investors fall into one of four PIE tax brackets, which from 1 April, 2010 have been set at either: 0%, 12.5%, 21% or 30%.

The tax rules for each of the major asset classes have also been changed which means that investors need to consider the merits of the asset class they are investing in such as term deposits, bonds or shares - as well as the amount of the return which is taxed.

NZ Funds says the new tax regime means that investors who play it safe and therefore have a large allocation to cash and bank deposits end up paying a lot more of their return in tax.

"For example, let us assume that a bond, a New Zealand share and a global share all return 8% before tax. Does this mean they all return the same after taking tax into account? No.

"An investor on a 21% PIE tax rate would receive 6.32% from the bond investment, 8% on the New Zealand share investment and 6.95% on the global share investment.

"It is these returns that an investor should be focusing on."

To read the full report click here.

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