One sure way to get in trouble with Inland Revenue is to set up your affairs in such a way as to avoid paying tax. While tax considerations should not be the driving force behind financial decisions, there is nothing wrong with being sensible and using tax implications to help choose between options. A good place to start is to check that your tax rates are correct, particularly on bank deposits. If you haven’t given your bank your IRD number, Resident Withholding Tax (RWT) will be deducted from interest at the highest tax rate. Make sure the tax rate you have given your bank is the correct one. If in doubt about your correct rate, check the Inland Revenue website. For KiwiSaver or other managed funds, you will need a Prescribed Investor Rate (PIR), which is based on your last two years of income. If your income has changed recently, this may affect your RWT or PIR.
KiwiSaver is a form of Portfolio Investment Entity (PIE). There are many other PIEs, including managed funds and bank term deposit PIEs. The highest tax rate for a PIE is 28% which means these are tax efficient for those in higher tax brackets. PIE’s were introduced when KiwiSaver was launched and they are much more tax efficient than earlier investment products which paid tax at the company tax rate. Chances are, if you have an old investment fund you are paying more tax than you need to and it may be time to switch your funds into a PIE.
Although filing a tax return is optional for many people now, it pays to go online to the Inland Revenue website and check if you are due a refund at the end of the tax year. Never pay more tax than you need to.
