NZ News 17/08 – Withdrawal tax workable, says ISI

The Investment Savings and Insurance Association (ISI) has claimed a victory following Government amendments to the superannuation funds withdrawal tax, included in the Taxation Bill.

Head of the ISI, Vance Arkinstall, says the final shape of the superannuation funds withdrawal tax is significantly different from the original proposal and follows many of the ISI suggestions.

"While we didn't necessarily agree with the policy, we worked with the Government to get the best result possible," Arkinstall says.

The super fund withdrawals tax was brought in by the Government to counter abuse of the tax breaks given to high income earners if they contribute to an employer super fund.

All income over $60,000 taken as salary or wages is now taxed at 39 per cent but if diverted to a super fund the money is only subject to the 33 per cent tax on funds.

The ISI contended that the withdrawals tax proposal was a clumsy and inefficient way of preventing the tax abuse and, in its original form, would have placed undue liabilities on fund trustees.

Arkinstall says one of the major changes accepted by the Government is the requirement that employees and employers supply their super fund trustees with the correct information so the trustees can determine which of their members are liable for the withdrawals tax.

"Before, the onus was on the trustees to find out that information themselves but now there are no extra liabilities imposed on trustees," Arkinstall says.

The withdrawals tax took effect from July 31 this year, not April as first intended. Arkinstall says the harsh retrospective aspects of the original proposal have been deleted.

"The impact of the tax has also been softened where people withdrawing from a super fund can defer the tax by deferring their benefit or taking it as an annuity," he says.

"Also, the definitions of hardship and how the tax would apply in a matrimonial settlement situation have also been clarified."

Another change to the withdrawals tax legislation will ease the liability of people close to retirement but still working a reduced number of hours.

"Many people close to retiring continue to work but only a few hours each week.

Previously, such people were deemed to have resigned and were subject to the withdrawals tax but that has now changed."

While not all its demands were met, particularly in the case of smaller employer funds, Arkinstall says the ISI is very happy with the changes to the withdrawal tax and is pleased with the rapport built up with Government officials.

"The worrying aspect of the tax proposal was its complexity. Its still complex but at least now it is workable," Arkinstall says.

Positive quarterly results

Despite high volatility, hedged overseas shares was the only glitch on an otherwise positive June quarter for investments, according to the latest Mercer Managed Funds Survey.

"The highest return for the quarter came from Colonial First State with 3.9 per cent, aided by a strong Australasian equity performance from a portfolio that did not include Telecom," Mercer says.

"Last quarter's top-performer, Arcus Investment Management, suffered the impact of the fall in technology-related stock prices, with the lowest return at negative 1.1 per cent for the quarter."

The median return for the June quarter was 1.8 per cent with only two of the surveyed fund managers failing to achieve a positive return.

Returns for the past 12 months ranged from a gross 20 per cent for BT Funds Management (BTFM) to an 8.2 per cent return for Tower Asset Management (TAM). The median return for the year was 12.2 per cent before tax. Comparing three-yearly results from June 1997 the survey found BTFM dropped from first to fifth today while WestpacTrust, the lowest performing manager in 1997, are now above the median.

"The most consistent managers, having above median three-year results in both Surveys, have been Armstrong Jones, BTFM and Guardian Trust Funds Management," Mercer says.