Take action now to get full KiwiSaver tax credit
June is the month of reckoning for KiwiSaver members who want to be sure they get as big a tax credit as possible from the government. But judging from reader emails and questions at seminars, there’s a fair bit of confusion about it all.
The KiwiSaver year runs from July 1 to June 30, and the tax credit will be paid into KiwiSaver accounts some time after July. But most people won’t get the maximum $1,043 this year, for the following reasons:
You didn’t start at the beginning of KiwiSaver.
In your first year in the scheme, your maximum tax credit is proportionate to how much of the July-June year you have been a member.
When do you start counting from? Inland Revenue says generally it’s the earliest of: the date the account was opened; the first day of the month in which deductions were first made from your pay; or the first of the month when your provider or Inland Revenue received your first contribution.
But there is an exception for anyone who joined KiwiSaver directly through a provider before October 1, 2007. Your start date is the first of the month in which you signed up for KiwiSaver — even if you didn’t make any contribution for a while — as long as you contributed something by October 31, 2007.
Once you have worked out your start date, calculate your maximum credit at $20 a week until June 30.
After your first year in KiwiSaver, the maximum tax credit is $1,043 a year.
You haven’t contributed enough.
The tax credit matches your contributions dollar for dollar up to your maximum level. So you need to check whether your total contributions — not including money from the government or your employer — are as big as your maximum.
Any employee earning more than $26,075 and contributing 4 per cent of their pay or more will have put in enough, but others may not have. It’s the total on June 30 that matters — so if you need to deposit more to reach your maximum I suggest you move now to allow time for your provider to process your deposit.
Whether you are an employee or non-employee, the easiest way is to send the money directly to your provider, although you can also send it via Inland Revenue if you wish.
Not everyone will know just how much they have contributed. Your provider will give you a total if you ask, but if you are an employee some of your money may be with Inland Revenue en route to your provider. Make an estimate, erring on the side of putting in more than you need to. It won’t matter much if you save a little extra.
June — or perhaps July — is also the month in which a reader who works for Feltex expects to lose his job and doesn’t expect to find another because of “age and lack of other skills”. “What happens to our KiwiSaver contributions?”, he asks.
When you are not employed, you can contribute any amount you like directly to your provider. If you can possibly come up with up to $20 a week, or $87 a month, that’s great because it will be matched by the tax credit.
But if you can’t spare the cash, your KiwiSaver account can sit dormant until you reach NZ Super age. Or, if you experience serious financial hardship, you can apply to get your money out early. Here’s hoping that won’t be necessary for you or your workmates. All the best.
Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.