In order to grow your savings, you need to earn money. And you have to pay tax on that money. So, you might earn $4,500 in a pay period but once the Inland Revenue Department have taken their slice, you are left with around $3,000 (not a quality tax calculation, just a rough example of your Gross Earnings vs your Take Home Pay). Here’s where the Member Tax Credit comes in.
The Government wants to encourage Kiwis to save into their KiwiSaver so they offer a “Member Tax Credit”. For every $1 that you contribute (or deposit) into your KiwiSaver account, the government will give you an additional 50c.
This more than covers the tax you pay to earn the money and is a great way to boost your savings.
Currently, the maximum deposit that is eligible for a Member Tax Credit refund is $1,042.86. You receive a credit of 50c for every $1 you deposit, so this gets you $521.43 in Tax Credit. If you contribute more than $1,042.86, you won’t get any more Tax Credit. It might seem like a strange number but amounts to almost exactly $20 per week.
Like most things with finance, try to avoid getting bogged down with details. The most important thing to do right now is to phone your KiwiSaver Provider and confirm that between 1st July last year and 30th June this year, you will have deposited at least $1,042.86 into your KiwiSaver account. If you haven’t, it might be a good idea to top it up and get that extra Tax Credit.
Call your KiwiSaver Provider and confirm that you have deposited at least $1,042.86 this year
You are able to get both your deposits and the 50c Member Tax Credit out if you qualify for a First Home Withdrawal.
If you don’t know who your KiwiSaver Provider is, don’t panic. About 40% of Kiwis don’t! This is because the sign-up to KiwiSaver is so easy and completely based on your IRD number that you often don’t need to know who you’re with.
If you don’t know who your KiwiSaver Provider is, get in touch with us and we can help relocate it to a trusted provider. There is usually no cost for this.
Approximately 40% of Kiwis don’t know who their KiwiSaver Provider is
The one main thing to consider is that your money (the $1,042 and the MTC) is locked into your KiwiSaver account until you purchase your first home or you retire. If you can’t spare the money, in other words, if you aren’t going to be able to afford groceries next week if you put money into your KiwiSaver, then it doesn’t seem like a good idea to lock that money away.
One way to lessen the pain is, if you can afford it, set up an automatic payment to your KiwiSaver of $20 per week. By the end of next year, you will have deposited the maximum amount ($1,040) and will automatically receive the Member Tax Credit.
Every self-employed person, with the ability to spare $20 per week, should have an Automatic Payment setup into their KiwiSaver.
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