Tax issues - please note and change where relevant
We are coming up to the end of the 2021 Financial and Tax Year (on 31st March), and there are few things that we thought you should be aware of.
New Marginal Tax Rate from 01/04/2021
If your income is over $180,000, from 01/04/2021 there will be a new marginal tax rate of 39%. If this applies to you, please contact your adviser as it is important that your adviser has this tax rate set up properly on your investment portfolio.
You will also need to ensure that your bank knows that this is your new marginal tax rate.
This tax rate will only apply to the income that you earn over $180,000, but as such will need to be levied on your non earned income - eg interest and dividends.
PIE Tax - and changes you may see in your KiwiSaver and your investment portfolio after 31st March 2021
You may recall that last year we were in the middle of the Covid Crisis at the end of the financial year on 31st March 2020. What this meant was that your investments were near their low as a result of markets falling.
The market highs pre Covid crisis were around the 23rd February, with the bottom being around the 23rd March. What this meant is that your portfolios and KiwiSaver were still at low values at the end of the tax year on 31/03/2020.
As a consequence, at the start of this financial year, your investments were starting from a low base, and have gone up quite a bit during the year. PIE tax is only levied when you move an investment (eg if you have moved your KiwiSaver to another provider) or at the end of the financial year, eg on the 31st March 2021.
We anticipate that you are likely to see your KiwiSaver balance and possibly your investment portfolio balance go down between the 31/03/2021 and about the 10th April 2021 (as the audit process and reconciliations of taxes owing processes work their way through).
We are letting you know this so that you don't get a surprise, but remember, you haven't had to pay those taxes during the year, and your money has been invested and enjoying the upswings in the markets.
IF you are subject to the FIF (Foreign Investment Fund) tax regime with your portfolio - here is more information
Last year, as a result of the Covid crisis, the balances in your portfolio were lower on 31/03/2020 than they were on 01/04/2019 - meaning that the majority of Moneyworks clients did not have any tax liability under the FIF tax regime.
So... this year is the opposite. Because your balance was low on 01/04/2020, unless there is another shock that we aren't anticipating between now and 31/03/2021, you will have a higher balance on your portfolio and therefore there will be tax payable under the FIF Regime.
Remember, this tax doesn't get taken out during the year, which means that your money is working for you during the year, but you have to pay the tax after you have done your tax return.
If you have any concerns or questions about this, again, please don't hesitate to contact your adviser.
Have you had any changes in your life that will affect your tax rates?
It is important that your adviser and bank have the correct tax rates on their system and associated with your investments so that you are taxed at the correct rate (and therefore don't pay too much or too little tax).
If you have had any changes that your adviser or your bank may not be aware of (large income increase or decrease) during the year, please let them know, so that we can make sure that these are all correct on all the relevant systems.