The savings and investment industry has reacted positively to the New Zealand Gov-ernment’s anti tax avoidance measure on contributions to employer superannuation funds.
The savings and investment industry has reacted positively to the New Zealand Gov-ernment’s anti tax avoidance measure on contributions to employer superannuation funds.
Early this year, finance minister Michael Cullen opened a loophole for high income earners to avoid the new tax rate of 39 per cent on income over $60,000 by contrib-uting to employer super funds taxed at 33 per cent.
However, in order to counter abuse of this loophole, Cullen has announced a 5 per cent fund withdrawal tax for any money taken out of super schemes before retirement unless an employee is leaving their job or can claim hardship.
“It will be an effective anti-avoidance measure, without adversely affecting employ-ers, superannuation funds or people who are genuinely saving for retirement,” Cullen says.
He says the Government will also announce measures to halt avoidance of the new income tax through family trusts, companies and partnerships.
Head of the Investment Savings and Insurance Association (ISI), Vance Arkinstall, says the new measure will encourage long-term savings.
“The Government’s announcement represents a sound balance between encouraging high income earners to save through employer superannuation and protection against abuse of the taxation system. The approach is simple and it will assist to increase genuine superannuation savings by higher income earners without loading additional costs and complexity on employers,” Arkinstall says.
He says the ISI is pleased that earlier anti avoidance proposals, such as a cap on con-tribution levels, were not adopted as they would have limited contributions and bur-dened employers with compliance costs.
The Government move has also received the thumbs up from managing director of Armstrong Jones, Paul Fyfe.
“The Government has shown it is serious both about encouraging New Zealanders to save more, and offering a structure that simply and effectively discourages tax eva-sion,” Fyfe says.
He also welcomes Cullen¹s indication that the Government will now look at ways of removing the tax discrepancy on superannuation schemes for low income earners.
Currently all super schemes are taxed at 33 per cent which is above the marginal tax rate for those earning under $38,000.
The previous Government’s attempt to tackle this issue collapsed last year when it failed to gain enough support in Parliament to pass the so-called TOLIS legislation.
However, removing the disincentive for low income earners to save has remained a goal for the industry.
Fyfe says the new moves by the Government to regenerate employer super schemes will significantly boost New Zealand’s savings record.
“The easiest way to encourage people to save is by having money deducted straight from their salaries into registered superannuation schemes that are designed to facili-tate long term saving – principally for the purpose of retirement,” Fyfe says.
