Taxation and retirement planning
This domain tests the New Zealand tax settings that shape advice and the retirement framework clients are saving into - where there is no broad capital gains tax, but there are accrual regimes that catch the unwary.
Tax settings to know
Personal marginal rates step up to 39% above $180,000. Resident withholding tax applies to interest and dividends; dividends carry imputation credits for the 28% company tax already paid. There is no comprehensive capital gains tax, but gains can be taxed where the asset was acquired for disposal or the person is in the business of dealing.
Offshore shareholdings fall under the foreign investment fund (FIF) rules once the total cost exceeds NZ$50,000. Income can be calculated using the fair dividend rate (5% of opening value) or the comparative value method, with a cap so that FDR income cannot exceed the actual gain in most cases. Australian-resident companies listed on the ASX are generally outside the FIF rules.
Retirement framework
KiwiSaver offers member contribution rates of 3%, 4%, 6%, 8% or 10%, an employer contribution of 3%, and a government contribution of 50 cents per dollar up to about $521 a year. Withdrawal is normally at age 65, with earlier access for first-home purchase and significant financial hardship. New Zealand Superannuation is universal but residency-tested: from 1 July 2024, 20 years' residence is required, including 5 years after age 50.
Worked example
A client holds NZ$120,000 of United States shares directly, above the $50,000 FIF threshold. Under FDR, taxable income is 5% × $120,000 = $6,000; at 33% the tax is $1,980. If the portfolio rose to $135,000, the comparative value method would produce $15,000 of income and $4,950 of tax, so FDR is better that year.
Traps
Assuming no capital gains tax means no tax. Forgetting total cost across all offshore holdings counts toward the $50,000 threshold. Mixing PIE tax rates with personal rates.