Tax rate on joint held term deposits with BNZ

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Forums › Finance and wealth management › Tax rate on joint held term deposits with BNZ - check yours.

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#2599558 7-Nov-2020 17:05

sbiddle:Last year's IRD system changes have caught out a lot of people who may have had their tax rate too low (whether accidental or intentional) because they had no way to check it was correct, and this has resulted in people having to pay the IRD.

Interest rates being as low as they are you'd be unlucky (or very lucky) to have to pay that much. I had the wrong rate at BNZ but the difference in tax got written off by IRD.

eracode

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#2599569 7-Nov-2020 17:36

sbiddle: I'm still puzzled how BNZ could open a term deposit without the end customer having to specifically state their tax rate at some point during the process.

Even if a bank has the IRD number and tax rate for a customer they simply can't assume that the same rate will apply.

Last year's IRD system changes have caught out a lot of people who may have had their tax rate too low (whether accidental or intentional) because they had no way to check it was correct, and this has resulted in people having to pay the IRD.

No - I’ve opened many new TDs with BNZ (i.e. additional to existing TDs) in recent times and they do not require you to re-confirm the RWT rate you wish to apply to the new TD. They just adopt the arrangement you have in place for the existing ones.

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Stu1

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#2599571 7-Nov-2020 17:42

sbiddle:

Surely when you opened the term deposit you would have had to enter your tax rate for that individual investment? This is a requirement for most banks because a) this won't always necessary be the same (even for all investments by an individual customer) and more importantly b) it puts the responsibility on the customer and not the bank to ensure that they are being taxed at the correct rate because it's only the customer who will know their tax rate, the bank has zero idea what it is.

often the bank just opens it and says provide it at a later date, it’s rare to have IRD number as a mandatory field in online account applications. Often there is just help text that advises the customer if they don’t provide it the customer will be charged at the default rate.

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#2599613 7-Nov-2020 19:52

sbiddle:

Surely when you opened the term deposit you would have had to enter your tax rate for that individual investment? This is a requirement for most banks because a) this won't always necessary be the same (even for all investments by an individual customer) and more importantly b) it puts the responsibility on the customer and not the bank to ensure that they are being taxed at the correct rate because it's only the customer who will know their tax rate, the bank has zero idea what it is.

Banks do not have the ability to store or apply different tax rates for different investments by any one customer. If you have a relationship with them, at the outset they require you to give them the RWT rate you wish them to use for you - and that rate is applied to all your accounts and TDs etc that earn interest with that bank. You can’t specify different rates for different accounts or investments. That’s why they don’t, and don’t need to, ask you to input your RWT rate for each new investment.

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sbiddle

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#2599664 7-Nov-2020 22:35

eracode:
Banks do not have the ability to store or apply different tax rates for different investments by any one customer. If you have a relationship with them, at the outset they require you to give them the RWT rate you wish them to use for you - and that rate is applied to all your accounts and TDs etc that earn interest with that bank. You can’t specify different rates for different accounts or investments. That’s why they don’t, and don’t need to, ask you to input your RWT rate for each new investment.

I have zero idea what your background knowledge of banking is but quite simply an incorrect statement.

PIE investments are a classic example of a customer having different tax rates for an investment. I have investments with ANZ that are taxed at both 33% and 28% because their are pros and cons to a PIE investment.

FWIW ANZ require a declaration of the interest rate for every investment with them as part of the application because many people do have different investments taxed at different rates.

eracode

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#2599668 7-Nov-2020 22:56

sbiddle:
eracode:

Banks do not have the ability to store or apply different tax rates for different investments by any one customer. If you have a relationship with them, at the outset they require you to give them the RWT rate you wish them to use for you - and that rate is applied to all your accounts and TDs etc that earn interest with that bank. You can’t specify different rates for different accounts or investments. That’s why they don’t, and don’t need to, ask you to input your RWT rate for each new investment.

I have zero idea what your background knowledge of banking is but quite simply an incorrect statement.

PIE investments are a classic example of a customer having different tax rates for an investment. I have investments with ANZ that are taxed at both 33% and 28% because their are pros and cons to a PIE investment.

FWIW ANZ require a declaration of the interest rate for every investment with them as part of the application because many people do have different investments taxed at different rates.

PIEs don’t use the RWT system. PIEs use PIR (Prescribed Investor Rate) - which is completely different. If you have TDs and PIEs you can be taxed at different rates because they have different and separate tax structures. This thread is about Term Deposits and RWT - not PIE investments.

I stand by my comment that banks cannot and do not apply differing RWT rates for different TD investments by any one investor. It simply doesn’t work that way.

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#2599735 8-Nov-2020 09:26

sbiddle:
eracode:

Banks do not have the ability to store or apply different tax rates for different investments by any one customer. If you have a relationship with them, at the outset they require you to give them the RWT rate you wish them to use for you - and that rate is applied to all your accounts and TDs etc that earn interest with that bank. You can’t specify different rates for different accounts or investments. That’s why they don’t, and don’t need to, ask you to input your RWT rate for each new investment.

I have zero idea what your background knowledge of banking is but quite simply an incorrect statement.

PIE investments are a classic example of a customer having different tax rates for an investment. I have investments with ANZ that are taxed at both 33% and 28% because their are pros and cons to a PIE investment.

FWIW ANZ require a declaration of the interest rate for every investment with them as part of the application because many people do have different investments taxed at different rates.

Eracode is correct. Consultant to the large banks on banking systems speaking here. You have investments at 33% tax rate - these are not PIE investments, and vice-versa 28% taxed investments are not TD’s. TD’s are not PIE investments and therefore taxed according to your customer-level declared RWT tax rate, which you need to change at this level and it applies to all investments under that customer number.

FWIW Investment management, including KiwiSaver, is regulated separately from banking, and banks seeking to provide investment services (and a Term Deposit is not an investment service, it is a bank deposit service) need to structure their corporation to provide a clear separation and relative independence between banking and investment. Hence why RWT applies to banking, and PIR (for PIE investments) apply to investing.

It is not correct to conflate investment and banking, they are separated and distinct activities.

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#2599789 8-Nov-2020 09:37

BlinkyBill:

You have investments at 33% tax rate - these are not PIE investments, and vice-versa 28% taxed investments are not TD’s. TD’s are not PIE investments and therefore taxed according to your customer-level declared RWT tax rate, which you need to change at this level and it applies to all investments under that customer number.

Which is 100% correct and exactly what I am saying.

It's not what eracode said which was "Banks do not have the ability to store or apply different tax rates for different investments by any one customer." - that in itself is simply not correct. Banks do have to store and apply different tax rates for different investments depending on whether it's a general savings account, a term deposit or a PIE fund.

I'm just still intrigued that BNZ seemingly don't specifically ask for tax details on opening a TD - I have TD and PIE funds with several other banks and it's been one of the key pieces of information on every application.

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#2599803 8-Nov-2020 09:57

sbiddle:

BlinkyBill:

You have investments at 33% tax rate - these are not PIE investments, and vice-versa 28% taxed investments are not TD’s. TD’s are not PIE investments and therefore taxed according to your customer-level declared RWT tax rate, which you need to change at this level and it applies to all investments under that customer number.

Which is 100% correct and exactly what I am saying.

It's not what eracode said which was "Banks do not have the ability to store or apply different tax rates for different investments by any one customer." - that in itself is simply not correct. Banks do have to store and apply different tax rates for different investments depending on whether it's a general savings account, a term deposit or a PIE fund.

I'm just still intrigued that BNZ seemingly don't specifically ask for tax details on opening a TD - I have TD and PIE funds with several other banks and it's been one of the key pieces of information on every application.

Dude - general savings and TD’s are not investments - they are banking products. One tax rate per customer head account. Funds, PIE or not, are managed separately under a different regulatory regime. The bank does not hold details of the investments, and the investment manager does not hold details of banking products. ANZ Bank and ANZ Investment Management Ltd (or whatever they are called) are different corporate entities. Obviously ANZ Bank owns ANZ Investment Management Ltd (or whatever it is called).

eracode

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#2599817 8-Nov-2020 10:43

@sbiddle Quote: “It's not what eracode said which was "Banks do not have the ability to store or apply different tax rates for different investments by any one customer." - that in itself is simply not correct”.

At that point in the thread, the discussion was about TDs and RWT - as per OP. I was saying banks are not able to apply differing RWT rates to any given customer’s TD investments - which is correct. At that point PIE investments weren’t part of the discussion. When PIEs are brought in the discussion, there can be different tax rates involved because TDs and PIEs use completely different tax structures - as already said.

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Sam91

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#2599850 8-Nov-2020 11:15

BNZ offers Term Pie which works like a TD but is taxed based on your PIR:
https://www.bnz.co.nz/personal-banking/investments/term-pie

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#2599854 8-Nov-2020 11:24

Sam91:

BNZ offers Term Pie which works like a TD but is taxed based on your PIR:
https://www.bnz.co.nz/personal-banking/investments/term-pie

That’s right - they’ve had that product for years. Other banks probably do the same. Back in the good ol’ days of higher rates, you could get a nice positive rate kicker from PIE investments of this type - not as attractive these days.

The kicker (i.e. an effective return on the PIE that was higher than the standard TD rate for the same term) came from the fact that your PIR could be a lower rate than your effective marginal income tax rate that drives your RWT.

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BlinkyBill

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#2599862 8-Nov-2020 11:34

Sam91:

BNZ offers Term Pie which works like a TD but is taxed based on your PIR:
https://www.bnz.co.nz/personal-banking/investments/term-pie

They also offer a Managed Fund in the same section of their website. The managed Fund and the Term PIE are administered under the rules of the FMA and associated legislation, and a regular non-PIE term deposit are regulated by the Reserve Bank and associated legislation. The BNZ has two separate systems for managing their investment offerings and their banking offerings.

I can set up a TERM PIE without being a BNZ customer. You’ll notice that you need to fill in an application form to set up the TERM PIE (or their Cash PIE) including nominating the PIR for this investment.

I can’t set up a regular TD without being a BNZ customer, or become one in the setup process. If I am already a customer I can set up a TD via internet banking, and my RWT bracket is not asked for and can’t be changed for the TD specifically. If I’m not already a customer my RWT bracket will be asked for, and will apply to ALL accounts under that customer ID, for the banking products.

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#2599917 8-Nov-2020 14:04

BlinkyBill:

Sam91:

BNZ offers Term Pie which works like a TD but is taxed based on your PIR:
https://www.bnz.co.nz/personal-banking/investments/term-pie

They also offer a Managed Fund in the same section of their website. The managed Fund and the Term PIE are administered under the rules of the FMA and associated legislation, and a regular non-PIE term deposit are regulated by the Reserve Bank and associated legislation. The BNZ has two separate systems for managing their investment offerings and their banking offerings.

I can set up a TERM PIE without being a BNZ customer. You’ll notice that you need to fill in an application form to set up the TERM PIE (or their Cash PIE) including nominating the PIR for this investment.

I can’t set up a regular TD without being a BNZ customer, or become one in the setup process. If I am already a customer I can set up a TD via internet banking, and my RWT bracket is not asked for and can’t be changed for the TD specifically. If I’m not already a customer my RWT bracket will be asked for, and will apply to ALL accounts under that customer ID, for the banking products.

Thank you.

Even though you say earlier that TDs are not technically ‘investments’ and are part of ‘banking’ overseen by the RBNZ (whereas PIEs are investments that come under the jurisdiction of the FMA) - on their websites banks still use the word investments in relation to TDs.

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BillyAnderson

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#2600042 8-Nov-2020 18:07

It's always good to check such things, but with such disgustingly pathetic interest rates at the moment 😢 you'd have to have a very very large amount of money invested to lose more than a few dollars anyway.

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