August 12, 2011 9:00am by David Farrar

CGT will apply to KiwiSaver

In a press statement issued August 3, Labour’s finance spokesman David Cunliffe stated categorically “KiwiSaver funds will not incur capital gains tax on their share investments under Labour’s policy proposals. KiwiSaver funds which invest in shares are already taxed as portfolio investments entities (PIEs) at the PIE rate of 28%, or as widely-held superannuation funds taxed at 30%.”

So a categorical statement that CGT will not apply to share investments in KiwiSaver funds.

Revenue spokesman Stuart Nash added “in neither case would the KiwiSaver fund attract additional capital gains tax, as tax is already paid on a trading basis.” This is not correct. One of the big attractions of KiwiSaver funds is they do NOT pay tax on share trading gains.

So they got the current law wrong.

Based on a written response from Cunliffe to the Shareholders’ Association on July 20, in circumstances where currently no tax is payable on capital gains, the 15% CGT would apply under Labour’s proposal. So KiwiSaver funds would suffer CGT on share trading gains, which are currently exempt from CGT, at the rate of 15%.

And they got their own policy wrong. KiwiSaver funds will be subject to CGT on currently exempt share trading gains.

And where Labour says PIEs are taxed at 28%, the maximum rate, they are actually taxed at the rate of the investor, which could be lower than 28%, ie at 10.5%, or 17.5%.

So got that wrong also.