The biggest, and best, news for savers in the latest budget was the reduction in PIE tax rates in line with marginal income tax levels.

This was something of a relief for the savings industry, which was slightly nervous the government would remove the tax incentives for investing in PIEs.

Finance Minister Bill English has heeded the calls by the Reserve Bank to help boost incentives for savings by cutting tax on investment vehicles, including PIEs, to 28%. [includes ISI comments]

The final report of the Victoria University Tax Working Group on strengthening the New Zealand tax base is due out next Wednesday.

The government should look at lifting the portfolio investment entity (PIE) rate above its current top rate of 30%, says Labour Party finance spokesman David Cunliffe.

The government is to align resident withholding tax (RWT) rates on interest and portfolio investment entities (PIE) tax rates with recent changes to personal income tax rates and the 30% company tax rate - but there's a deft sting in the tail.

Revenue Minister Peter Dunne announced his intention this morning to bring in a tax bill containing the changes.

The announcement was made ahead of the law change so banks and other financial institutions can start preparing for the changes now, Dunne says.

"New resident withholding tax (RWT) rates will be 12.5%, 21%, 33% and 38%, depending upon the personal tax rates of individual recipients. The new RWT rates will generally apply from 1 April 2010."

The sting is the default rate is being moved from the bottom rate to the top rate - 19.5% to 38%. That will mean savers who do not lodge a tax return are likely to be paying more tax than they might otherwise.

The tax changes will also bring rates on portfolio investment entities (PIEs) into line with recent threshold changes, with rates ranging from 12.5% to 30% for income over $70,000.

For companies, there will be a new 30% RWT rate for firms which invest in financial institutions.

That will be optional the first year and mandatory thereafter.

 

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The government is to align resident withholding tax (RWT) rates on interest and portfolio investment entities (PIE) tax rates with recent changes to personal income tax rates and the 30% company tax rate - but there's a deft sting in the tail.