Hon Peter Dunne
Minister of Revenue
Technical tax changes for savings reforms
The government will introduce a number of technical tax changes to ensure the smooth introduction this year of KiwiSaver and associated reforms of the tax rules on investment income, Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced today.
"Last year's flagship reforms were aimed at promoting greater fairness in the taxation of income from share investments here and overseas, a fundamental step in developing a savings culture in New Zealand," the Ministers said.
"A key aspect of the reforms was to prevent the over-taxation of lower income people who invest through managed funds, which are the first investment choice for many thousands of ordinary New Zealanders.
"In the lead-up to the introduction of KiwiSaver in July and the application of the associated portfolio investment entity (PIE) rules in October, funds have now identified a number of technical concerns that may affect their ability to convert their systems on schedule.
"Therefore, to aid the changeover, the government will ensure that the necessary technical changes to the law are enacted at the earliest opportunity.
"The proposed technical changes will focus on problems relating to the PIE tax calculation – including the use of formation losses, how to deal with partial exits by investors, how to deal with switches between investment portfolios within a PIE and the treatment of investor expenses.
"These amendments will ensure that KiwiSaver funds that are PIEs can operate with certainty from the start of the new rules.
"The government also plans to introduce legislation to allow investors in unit-linked life insurance products to have access to some of the benefits of the new PIE rules.
"The proposed changes will allow policyholders in unit-linked life products to be excluded from tax on realised New Zealand and Australian listed equity gains, in the same way that investors in PIEs are excluded.
"Life insurers will be able to choose whether or not to elect into these new rules, which, once enacted, are also expected to take effect from 1 October.
"The changes to the tax treatment of unit-linked life products have emerged from the first stage of the government's review of the taxation of life insurers and were originally considered at the request of the industry.
"Further changes to achieve greater alignment between the taxation of life insurance products and similar financial products are being considered as part of stage 2 of the review of life insurance tax rules," they said.
Details of the proposed technical changes to assist managed funds to make systems changes relating to the portfolio investment entity rules are available at http://www.taxpolicy.ird.govt.nz
Further information on KiwiSaver is available at:
Contact: Mike Jaspers, press secretary, 04 471 9412 or 021 270 9013