KiwiSaver providers have been granted interim disclosure relief from some of the swarm of changes heading their way.
Under a supplementary order paper tabled early in March for the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, schemes will be exempt from immediately updating product disclosure statements once the new measures come into force.
Among the changes included in the omnibus bill, KiwiSaver providers – and all ‘multi-rate’ portfolio investment entity (PIE) funds – will be required to change members’ prescribed investor rates (PIR) on instruction from the Inland Revenue Department (IRD).
Currently, PIE schemes can only alter PIRs on request from members.
Following the tax debacle last year that revealed about 1.5 million PIRs were wrong, of which almost 1 million had been set too high.
In December last year, the Finance and Expenditure Committee noted: “Because so many taxpayers are having PIE tax applied at the wrong rate, we recommend amendments to clauses 99 and 99B to widen the Commissioner’s powers to correct this. In particular, we recommend amending the Income Tax Act 2007 so that IRD could instruct the PIE directly to change the rate of tax applied to an investor when they believe they are on the wrong rate.”
But while the new bill, in House Committee phase last week, might clear one headache, the PIR pain will persist for PIE providers.
According to industry sources, KiwiSaver members living overseas who should be taxed at the highest PIR of 28 per cent could instead see their rate cut to 10.5 per cent on IRD command.
The glitch arises as the IRD could see zero income reported by offshore-based KiwiSaver members who may not have informed the tax department of their overseas residency.
Often, though, KiwiSaver providers have been told by overseas-based members to set the PIR at the correct 28 per cent. Once the new law is in place, however, providers must follow IRD direction even if they know the resulting PIR is wrong.
As well as tidying up the PIR mess, the in-transit legislation also will allow for investors to claim back over-paid PIE tax at year-end. Previously, investors were liable for under-paid PIE tax but could not recoup overpayments.
Furthermore, the late amendments “remove the proposed requirement for listed PIEs to report investment income information for dividends paid to investors”.
Following system changes introduced over the last year or so, the IRD can now more easily match up taxpayers’ real income against PIR and other disclosures.
And the all-seeing IRD vision will be further enhanced in the next technology upgrade due to tick over in April.
Revenue Minister Stuart Nash noted in parliament last week that the fourth tranche of the IRD ‘business transformation’ is “coming out in Easter of this year—that includes KiwiSaver”.
“It is a massive, massive undertaking: $1.4 trillion worth of funds, I think, are being transferred from the old system to the new system, but as a result of that, the Inland Revenue is going to have a much greater oversight of the whole KiwiSaver scheme,” Nash said.