Tax free savings in NZ?

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Forums › Finance and wealth management › Tax free savings in NZ?

Geektastic

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#154763 6-Nov-2014 23:39

Are there any tax free savings schemes in NZ?

I was talking to my brother in the US today and he was mentioning one he has there. In the UK there are several (including pension contributions from your salary, which come out before tax). I couldn't think of a single one here.

Why? Or am I wrong?

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Ultimate Geek
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#1170411 7-Nov-2014 00:28

What do you mean exactly by tax free savings?

Kiwisaver is tax free as it comes out before your salary gets taxed.

But all savings for nz residents are taxed at some point, usually when earning interest.

Regards
Stefan Andres Charsley

Kyanar

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#1170419 7-Nov-2014 02:44

charsleysa: What do you mean exactly by tax free savings?

Kiwisaver is tax free as it comes out before your salary gets taxed.

But all savings for nz residents are taxed at some point, usually when earning interest.

Kiwisaver is not tax free. The employer contribution is taxed at your highest marginal tax rate, the New Zealand earnings are taxed, and the overseas equity components are taxed on their capital value. Kiwisaver, like every other savings scheme in NZ, is very heavily taxed.

charsleysa

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#1170421 7-Nov-2014 02:48

Kyanar:
charsleysa: What do you mean exactly by tax free savings?

Kiwisaver is tax free as it comes out before your salary gets taxed.

But all savings for nz residents are taxed at some point, usually when earning interest.

Kiwisaver is not tax free. The employer contribution is taxed at your highest marginal tax rate, the New Zealand earnings are taxed, and the overseas equity components are taxed on their capital value. Kiwisaver, like every other savings scheme in NZ, is very heavily taxed.

I was meaning tax free as in it your contribution doesn't get taxed before it reaches your kiwisaver account.

The only time your kiwisaver should be taxed is employer contribution and investment income.

Regards
Stefan Andres Charsley

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#1170425 7-Nov-2014 05:55

Capital gains can be tax free under certain circumstances

Lotto winnings

Bonus bonds (the prizes are tax free)

With bonus bonds, if you have a large enough amount invested, your expected return is the same as the payout percentage (around 2-3%)

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#1170466 7-Nov-2014 08:48

PIE (Portfolio Investment Entity) investments give investors a reduced level of tax on the investment income they generate, which enhances the return on them as compared to non-PIE investments at the same rate. But certainly not tax-free.

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kiwitrc

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#1170468 7-Nov-2014 08:49

Start a religion.

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Geektastic

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#1170469 7-Nov-2014 08:50

So there's no actual tax free savings vehicles at all?

khull

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#1170479 7-Nov-2014 08:54

http://www.kiwisaver.govt.nz/already/contributions/tax/

Your contributions

Your KiwiSaver contributions are calculated on your before-tax pay. However, you still pay tax on the full amount that you earn.

For example, if you earned $100 and had 8% ($8) KiwiSaver contributions deducted, you would still pay tax on the full $100.

There is no free lunch in NZ for tax free savings - why else do you think financial institutions are making billion dollar profits?

charsleysa

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#1170497 7-Nov-2014 09:18

khull: http://www.kiwisaver.govt.nz/already/contributions/tax/

Your contributions
Your KiwiSaver contributions are calculated on your before-tax pay. However, you still pay tax on the full amount that you earn.
For example, if you earned $100 and had 8% ($8) KiwiSaver contributions deducted, you would still pay tax on the full $100.

There is no free lunch in NZ for tax free savings - why else do you think financial institutions are making billion dollar profits?

That comment makes no sense considering tax goes to the government and not to the financial institution you're with.

Also the quoted text is saying that your income is taxed for the same about earned regardless of any kiwisaver deductions. The actual kiwisaver deduction isn't taxed.

Regards
Stefan Andres Charsley

Sidestep

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#1170498 7-Nov-2014 09:19

New Zealand really has no Tax Free savings option.

Canada has a very good Tax-Free Savings Account (TFSA):

Every resident 18 or older can contribute up to $5,500 annually.
Income earned in a TFSA is tax-free. Withdrawals from a TFSA are tax-free.
Unused TFSA contribution room is carried forward and accumulates in future years.
Any withdrawals add to your contribution room for future years.
Neither income earned within, nor withdrawals from it affect eligibility for income-tested benefits.
Investment like bonds, GIC's Shares and mutual funds can be held within a TFSA.

The Canadian governments reasoning is: "Reducing taxes on savings is a powerful tool to support long-term economic growth and improve the standard of living of Canadians. There is no tax paid on the investment income in or on withdrawals from a TFSA—Canadians now have a greater incentive to save. Savings help to increase the funds available for investment. Reducing taxes on savings will encourage even greater levels of economic activity.

It seems to have succeeded in many ways.
The cynical would suggest the government hopes in the future to be able to reduce it's CPP (equivalent to Super benefits) by requiring people to draw down their Retirement Savings Plans (RRSP's another good idea!) and TFSA's with some type of income testing in the future..

charsleysa

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#1170499 7-Nov-2014 09:19

Geektastic: So there's no actual tax free savings vehicles at all?

Not if you're a NZ resident.

If you're a non-resident then there are ways.

Regards
Stefan Andres Charsley

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bazzer

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#1170794 7-Nov-2014 13:14

charsleysa:
khull: http://www.kiwisaver.govt.nz/already/contributions/tax/

Your contributions
Your KiwiSaver contributions are calculated on your before-tax pay. However, you still pay tax on the full amount that you earn.
For example, if you earned $100 and had 8% ($8) KiwiSaver contributions deducted, you would still pay tax on the full $100.

There is no free lunch in NZ for tax free savings - why else do you think financial institutions are making billion dollar profits?

That comment makes no sense considering tax goes to the government and not to the financial institution you're with.

Also the quoted text is saying that your income is taxed for the same about earned regardless of any kiwisaver deductions. The actual kiwisaver deduction isn't taxed.

Not sure if you're saying the same thing in a different way or not but imagine, you earn $100 and your marginal tax rate is 33%:
a) You have 8% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $8, Money in your pocket $59 (ignoring ACC/employer contributions etc)
b) You have 4% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $4, Money in your pocket $63
c) You have no kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $0, Money in your pocket $67

So, not sure what you mean about "actual kiwisaver deduction isn't taxed". It's true that it's not taxed per se, but it comes out of your earnings after tax, right?

charsleysa

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#1170818 7-Nov-2014 13:24

bazzer:
charsleysa:
khull: http://www.kiwisaver.govt.nz/already/contributions/tax/

Your contributions
Your KiwiSaver contributions are calculated on your before-tax pay. However, you still pay tax on the full amount that you earn.
For example, if you earned $100 and had 8% ($8) KiwiSaver contributions deducted, you would still pay tax on the full $100.

There is no free lunch in NZ for tax free savings - why else do you think financial institutions are making billion dollar profits?

That comment makes no sense considering tax goes to the government and not to the financial institution you're with.

Also the quoted text is saying that your income is taxed for the same about earned regardless of any kiwisaver deductions. The actual kiwisaver deduction isn't taxed.

Not sure if you're saying the same thing in a different way or not but imagine, you earn $100 and your marginal tax rate is 33%:
a) You have 8% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $8, Money in your pocket $59 (ignoring ACC/employer contributions etc)
b) You have 4% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $4, Money in your pocket $63
c) You have no kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $0, Money in your pocket $67

So, not sure what you mean about "actual kiwisaver deduction isn't taxed". It's true that it's not taxed per se, but it comes out of your earnings after tax, right?

Kiwisaver is taken out before tax.

The misunderstanding is that when tax is calculated they include the deducted amount.

So $100 with 8% kiwisaver will mean your contribution to kiwisaver will always be $8 regardless of the tax rate.

So your remaining amount is $92 but when your tax is calculated it is calculated using your initial $100.

Regards
Stefan Andres Charsley

bazzer

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#1170843 7-Nov-2014 13:42

charsleysa:
bazzer:
charsleysa:
khull: http://www.kiwisaver.govt.nz/already/contributions/tax/

Your contributions
Your KiwiSaver contributions are calculated on your before-tax pay. However, you still pay tax on the full amount that you earn.
For example, if you earned $100 and had 8% ($8) KiwiSaver contributions deducted, you would still pay tax on the full $100.

There is no free lunch in NZ for tax free savings - why else do you think financial institutions are making billion dollar profits?

That comment makes no sense considering tax goes to the government and not to the financial institution you're with.

Also the quoted text is saying that your income is taxed for the same about earned regardless of any kiwisaver deductions. The actual kiwisaver deduction isn't taxed.

Not sure if you're saying the same thing in a different way or not but imagine, you earn $100 and your marginal tax rate is 33%:
a) You have 8% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $8, Money in your pocket $59 (ignoring ACC/employer contributions etc)
b) You have 4% kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $4, Money in your pocket $63
c) You have no kiwisaver deductions, Income $100 -> Tax $33, Kiwisaver $0, Money in your pocket $67

So, not sure what you mean about "actual kiwisaver deduction isn't taxed". It's true that it's not taxed per se, but it comes out of your earnings after tax, right?

Kiwisaver is taken out before tax.

The misunderstanding is that when tax is calculated they include the deducted amount.

So $100 with 8% kiwisaver will mean your contribution to kiwisaver will always be $8 regardless of the tax rate.

So your remaining amount is $92 but when your tax is calculated it is calculated using your initial $100.

That's a kinda backwards way to look at it, imo. If they "take it out before tax" and then "include the deducted amount" when calculating the tax, I'd call that after tax. The fact is kiwisaver contributions come out of tax paid earnings. The level of those contributions is irrelevant (they happen to calculate the contributions on your pre tax earnings but that doesn't mean the contributions haven't been taxed).

hangon

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#1170854 7-Nov-2014 13:44

charsleysa:
Kiwisaver is taken out before tax.

The misunderstanding is that when tax is calculated they include the deducted amount.

So $100 with 8% kiwisaver will mean your contribution to kiwisaver will always be $8 regardless of the tax rate.

So your remaining amount is $92 but when your tax is calculated it is calculated using your initial $100.

Kiwisaver is taken out before tax, but the it doesn't reduce your tax base.

In that sense, personal kiwisaver contribution is not tax free. The full $8 goes into kiwisaver because it's already taxed under the income tax.

employer contribution is considered additional income, which was taxed then put into kiwisaver.

neither is tax free.

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