Tax change 'nightmare' for KiwiSaver administrators

Changing the tax rate for portfolio investment entities in October will probably create a "compliance nightmare" for KiwiSaver administrators because it will have to be calculated twice in one year, a tax expert says.

The Government last Thursday announced the top tax rate for all PIEs including KiwiSaver schemes would drop from 30 per cent to 28 per cent by October 1. Other PIE tax rates will also be adjusted to match new personal tax rates.

Deloitte tax partner Greg Haddon said most large PIEs only calculated tax once a year.

"It probably creates a compliance nightmare for PIE administrators. A lot of the larger publicly available PIEs tend to be annual attributors - they calculate it at the end of the year."

He said PIE administrators would have to split the year between income earned before October and income earned after to ensure people were on the right prescribed investor rate.

The prescribed investor rate determines how much tax a person pays on the investment returns from their PIE.

If a person overpays tax it is not refunded and an under-payer is supposed to fill out an income tax return.

The latest tax change comes just six months after the income brackets for PIE tax were changed in April.

Tower investment head Sam Stubbs said it could be another nail in the coffin for KiwiSaver providers struggling to gain mass. "KiwiSaver is a very low-margin product. This will be another cost of doing business for any sub-scale provider."