KiwiSaver & Property Investing

[Perry]

The blurb goes, in part:

Kiwisaver
* A voluntary saving scheme for people aged 18 to 65 in full-time
and part-time work.
* Employees choose to save 4 or 8 per cent of gross pay.

Does anyone know if the 4 or 8% of gross is a tax-free contribution?

[drelly]

Either way, property prices will jump a little when people start using it to buy their first homes

[roseneath_rat]

No it will still be taxable income, though earnings sacrificed directly to approved super-schemes are usually taxed at a lower marginal rate. Assuming the contributer is earning above $60K p.a. the 4-8% contribution should then be taxed at 33% instead of 39%.

[roseneath_rat]

Dave, I wouldn't expect there to be much of a jump at all. The contribution will only be around $1,000 per year and is intended to be structured so that up to 30,000 households will qualify for it (read-lowest income earning households).

[Perry]

Re-election Gimmickery

I've looked at lots of Media Releases and various forms
of analysis and none of them even suggest that contributions
will be tax exempt.

My view is simple:
If the socialists were serious, they would tax exempt any contributions
as well as waive any RWT interest/dividend, thereby encouraging
savings. The fees subsidy and $1k "top-up" are - IMNSHO -
charitably described as re-election gimmicks.

Once there's any draw upon such savings "accounts," the gov't
of the day would be getting GST, at the very least.

I HATE socialism and socialists!!!

[cube]

I agree - the contributions should be tax free.

I haven't seen/heard much about this yet, but is there any mention of the return on the savings?

cube

[whitt]

I think this is basically a poor effort on the governments behalf. They are dreaming if they think 25% of people will use it like they quote.
Why would a worker save this way? There is no incentive at all. No tax breaks etc..
Why would a company encourage workers to use it? Increased admin and overheads and no tax break. Infact if they make contributions towards it for the worker would they not be liable for Fringe benefit tax also.

It is a shame Winston's attempt years ago never worked out. Look at Oz and how well theres has taken off now..

[Perry]

Rewards

I think this is basically a poor effort on the governments behalf. They are dreaming if they think 25% of people will use it like they quote.
Why would a worker save this way? <snipped>

For some perverse reason, it seems that governments most
everywhere become ensnared in the fallacious construct of
rewarding bad behaviour and penalising good behaviour.

I'm not sure what that tells us, but it tells me that they are
simply inept and totally unsuited to running a fish 'n' chip shop,
let alone a country.

[CJ]

I think this is basically a poor effort on the governments behalf. They are dreaming if they think 25% of people will use it like they quote.

The idea is people want to save but are just to lazy so an opt out scheme rather than an opt in scheme might work.

Why would a worker save this way? There is no incentive at all. No tax breaks etc..

see above. Remember most investors are activ investors (ie, have managed funds)

Why would a company encourage workers to use it? Increased admin and overheads and no tax break.

It is all administered by the IRD. All they have to do is provide a pamplet supplied by IRD and use a different pay rate when doing PAYE forms so not that much of a major for the employer.

Infact if they make contributions towards it for the worker would they not be liable for Fringe benefit tax also.

employees are not expected to make a contribution to the amount - the goverment are giving everyone a jump start (of $1,000).

It is a shame Winston's attempt years ago never worked out. Look at Oz and how well theres has taken off now..

We digress.

Other points:

Admin costs of the fund will be born in part by the goverment. I dont think this has been detailed but one of the main disadvantages of a managed fund is the fees but if the govt are paying, good for the invest (note. High fees is why Mary holmes recommends low fee index funds. Direct investment is even cheaper).

Returns will not be guaranteed but will be what ever the fund returns. I am guessing but the funds will be very similar to those retime funds offered by Tower/ANZ/ASB/.... In fact they may be the very same funds.

My only issue with it is the distortion effect. if you already own a home yiou cant get the first home buyers grant (it isn't but essentuall is) of up to $5,000. People setting up a business cant draw down on it but they cound buy a house instead.

I am already planning when my first house will be in 5 years time (to qualify for maximum governement subsidy). Until then, any purchases will be in company or trust name.

[duwi]

I am already planning when my first house will be in 5 years time (to qualify for maximum governement subsidy). Until then, any purchases will be in company or trust name.

So far, I only have one (investment) property and its under a company name. - I still live in my dad's house . So, if I join this scheme, can I still get the first home buyers grant ? Or I am out of this scheme since I already "own" a property?

[CJ]

So far, I only have one (investment) property and its under a company name. - I still live in my dad's house . So, if I join this scheme, can I still get the first home buyers grant ? Or I am out of this scheme since I already "own" a property?

YOu dont own a property, your company does so you should still qualify.

[artemis]

It is a shame Winston's attempt years ago never worked out. Look at Oz and how well theres has taken off now..

I agree - I was amazed at the time that people could not see the benefit of having their own money in their own name. As I recall it, only 8% of the votes were for the scheme. Obviously the remaining 92% preferred the government to "look after" their money and give it back if and when they feel like it.

[Perry]

I agree - I was amazed at the time that people could not see the benefit of having their own money in their own name. As I recall it, only 8% of the votes were for the scheme. Obviously the remaining 92% preferred the government to "look after" their money and give it back if and when they feel like it.

I suspect it was more of a deep and abiding distrust
of governments financial management abilities, generally,
as well as a poor fidelity record.

[Gerrard]

Impact of Kiwisaver

I haven't seen it discussed here yet. Anyone got thoughts on the impact of Kiwisaver when it is introduced in July?

From July anyone can sign up for it, and anyone changing jobs is automatically signed up but has the opportunity to get out. Employers can match your donation tax free for up to 4%.

If we see a decent uptake then people have less money to spend, therefore economy slows down, and maybe unemployment rises.

Employers may also offer the 4% tax free through Kiwisaver rather than a bonus or pay rise next time round.

Whatever happens, some money is going to be taken out of circulation. Nice way of controlling the economy Mr Cullen!

The scale of the impact is obviosuly dependant on the uptake. However there's got to be some flow on impact to the property market from this.

It's a fools game to try and speculate what or how big that impact will be, so instead of asking that I'll ask what are you doing to take advantage of it or manage the risk of it?

Gerrard

[sarahd]

Although many politicians are saying otherwise, there is talk in the industry that we are one election away from compulsory super.