Chair, Summer Investment Committee
What is the Member Tax Credit? My guess is if you walked down the main street and asked that question of all and sundry you would get a lot more blank looks and shoulder shrugs than intelligent replies.
Finance is full of jargon – it is one of the things that makes money so difficult for people, and stops them from ever tuning in to stuff about money. And in my view, “Member Tax Credit” is one of the worst jargon offenders.
The “Member Tax Credit” has nothing to do with tax. The term makes it sound like you have to file a return and jump through bureaucratic hoops. In fact, this is not so, the Member Tax Credit is simply some free money for eligible KiwiSavers. Put in place as an added incentive for people to save, the Member Tax Credit is the Government’s contribution to many KiwiSavers' savings plans.
As such, the name “Member Tax Credit” is a seriously silly name. It sounds complicated and inaccessible instead of the sweet little gift that it is.
Although it has a silly name steeped in a long tradition of bureaucratic and financial jargon, the Member Tax Credit is actually a good saving incentive and something that is important for you to know about. There is free money on the table and, like any free money, it is important that you get some of it.
So, what is it and how do you get it?
The Member Tax Credit is a contribution that eligible KiwiSavers get from the Government, who gives 50 cents for every $1 that you contribute to your KiwiSaver account up to a maximum of $521.43 – for that you would have had to contribute $1,042.86.
You have to be eligible to get this free money. Generally this means that you have to be over the age of 18 and not eligible to withdraw your KiwiSaver account balance (withdrawal is currently permitted at age 65 provided you have had five years of membership in a KiwiSaver scheme). You also need your primary residence to be in New Zealand.
To get the Government contribution each year, you must make personal contributions (employer contributions do not count). Most full-time employees who are contributing at least 3% of salary and earn over $35,000 will have contributed enough to get the maximum Member Tax Credit of $521.43 (although it pays to check).
Self-employed and part-time workers along with those who have taken a contributions holiday may not have contributed enough to get the maximum amount available to them. Some will be simply unable to afford to make a contribution, but those who can find some money need to take heed.
In some cases, nil or insufficient contributions will be a simple oversight and, it seems to me that now is a good time to have a look at your KiwiSaver account to see what you have contributed. If your contributions are short of the amount to get the maximum free money, you should make a top up with a lump sum if you can possibly afford it. After all, there are few other instances where $1 turns into $1.50.
You will no doubt have seen a lot in the media about the Member Tax Credit. This is because 30 June is the annual cut-off date for making contributions. In line with your eligibility, whatever you have deposited by that date will be counted for your Member Tax Credit – anything that is deposited after that date will be in next year’s contributions and you will have missed out this year.
Hence the media interest – you have only days to see if you will get the maximum and to make any contributions.
In my view, the very name “Member Tax Credit” is one of the reasons that an estimated 1.1 million people missed out on getting the maximum amount in the past. The name reeks of form-filling and official hoop-jumping rather than the easily accessible free money that it is.
Provided you are eligible and you contribute, the Member Tax Credit will be added to your account balance without you having to raise a finger. It seems to me that the $521.43 Government contribution will be the easiest money you have ever earned – take a moment now to see if you will get it.
You might like to discuss the views in this article with your Authorised Financial Adviser. Please call your Adviser directly or toll free on 0800 11 55 66.
If you are interested in other investor education insights from Martin visit the Media Investor Education page.
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