Tax fix too late to stop KiwiSavers losing another $30m, says National

Sunday, 27 October 2019

The rise of KiwiSaver.

People on low incomes are likely to overpay at least another $30 million of tax on their KiwiSaver investments this year because of the Government's unwillingness to put in an immediate fix, National Party revenue spokesman Andrew Bayly says.

Inland Revenue revealed in June that 950,000 people paid $42m too much tax in total in the 2018-19 tax year, because they had either selected or been defaulted to too a high a prescriber investor tax rate (PIR) on KiwiSaver and other PIE investments.

Another 550,000 people paid about $45m to $50m too little tax, because they had instead self-selected a PIR rate that was too low.

Bayly has said it is an injustice that people who unknowingly overpaid tax last year as a result of being on a wrong PIR – or who do so this year – won't be able to claim refunds, while those who accidentally underpaid the tax in those years will need to pay what they owe.

People on low incomes paid $42m too much tax on KiwiSaver and other PIE investments last year and may accidentally pay more than another $30m too much this year, National believes.

* Revenue Minister Stuart Nash asks IRD to investigate allowing investment tax refunds

* KiwiSaver tax dodgers may have got away with $200m-plus reward

* Huge numbers who underpaid tax on KiwiSaver last year 'off the hook' for previous years**

Revenue Minister Stuart Nash has introduced legislation to Parliament that would allow Inland Revenue to notify KiwiSaver providers and other PIE fund managers if investors were on the wrong PIR rate, so they could correct that.

However, the law change won't apply until the start of the 2020-21 tax year, so won't fix the problem until then.

National Party revenue spokesman Andrew Bayly says there is quick fix to allow for overpaid tax on investments to be refunded.

Inland Revenue spokeswoman Gay Cavill said it also expected to send out 930,000 letters between May and the end of next month to people who are on the wrong PIR, in an effort to encourage them to tell their KiwiSaver providers or fund managers to put them on the right rate before then.

But Bayly believed many people would continue to overpay tax this financial year because they were on default KiwiSaver schemes or were not inclined or didn't have the persistence to chase their fund manager to change their PIR rate.

National had time to fix the tax flaws with KiwiSaver when it was in power, says Revenue Minister Stuart Nash.

Over the past week, Inland Revenue has frequently not been accepting phone calls from taxpayers who have queries about their KiwiSaver tax situation because its contact centres have been overloaded.

Nash's approach would adjust situation from the 2020-21 financial year 'but that leaves the accrued overpaid balance … in respect of the 2018-19 and 2019-20 years merrily going off to the Government's coffers', Bayly said.

The overpayments this year might not reach $42m, but were 'likely to be $30m plus', he said.

Since it is only possible for people to be paying too high a PIR if they have been on incomes of less than $48,000 a year, the people who were being overtaxed would be those would could least afford it, he said.

Bayly said it would be a simple matter to change the law to allow people who had overpaid tax on KiwiSaver and other PIE investments since the start of the 2018-19 tax year to claim a refund for both that year and the current one.

He has drafted a Supplementary Order Paper (SOP) that he said would give effect to that rule change.

Nash's spokeswoman did not respond directly to Bayly's claim the SOP would be a simple fix, but pointed to a statement Nash made in Parliament when he said he would 'take direction' from the select committee.

The problem of people being on the wrong PIR dated back to 2007 and reflected 'the way the old system worked', he said.

'There is a bill before the select committee that is looking at this issue. National actually had nine years to address it, and I'm doing something about it,' he said.

Inland Revenue commissioner Naomi Ferguson said in June that Inland Revenue had decided to 'draw a line in the sand' by choosing not go back through its records to see whether those people who had selected too low a PIR in 2018-19 had also underpaid the tax on their investments in prior years.

That may result in people on higher incomes getting away with the historical underpayment of about $200m in unpaid tax on investments.