By Susan Edmunds of RNZ

Prime Minister Christopher Luxon might have told Guyon Espiner he has ruled out any form of capital gains tax (CGT) – but the conversation continues to roll on.

It follows a recent episode of 30 with Guyon Espiner, in which Labour’s finance spokesperson Barbara Edmonds challenged National for being “afraid” of a CGT.

ANZ chief executive Antonia Watson came out in support of some form of CGT on another previous episode of the programme.

A recent poll showed support for some form of CGT.

But Luxon said it would not just affect property investors, but also small business owners who had built up their businesses and people investing in KiwiSaver.

But people already pay tax on KiwiSaver returns. Here is how it works.

Income you invest is taxed

While the amount you contribute to the scheme is based on a percentage of your before-tax income, the contribution is made from your taxed income.

Your employer’s contribution is taxed

Your employer also pays employer superannuation contribution tax (ESCT) on their contribution, unless the contribution is being treated as wages and is taxed under the PAYE rules.

The Government collected nearly $2 billion in ESCT in the year to June.

Your returns are taxed

Tax rules apply to the returns you make in KiwiSaver, unlike many superannuation savings schemes overseas, which are often tax-exempt.

You only pay tax on the returns, not the entire balance.

Most KiwiSaver schemes, and all the default providers’ schemes, are portfolio investment entities (PIEs). In these funds, the amount you pay in tax (your prescribed investor rate or PIR) depends on your income and could be 10.5%, 17.5% or 28%.

You can use Inland Revenue’s calculator to check you have the right PIR rate. If you haven’t told your provider differently, it’s likely you’ll be paying 28%.

How the individual investments are taxed depends on the area in which they are held. In New Zealand and Australia there is no tax on capital gains in shares, just the dividends.

But investments in international shares are taxed under the foreign investment fund (FIF) rules. This means each year, 5% of the value of those investments at the start of the year is counted as your income from that investment, and taxed at your PIR. You can end up paying tax on dividends and through the FIF scheme even if the fund has not delivered a positive return in the year.

This financial arrangements regime applies to bonds and overseas currency accounts and taxes interest and capital gains on bonds, including movements that are because of currency fluctuations.

Tax collected by your fund manager is handed to Inland Revenue on your behalf.

Withdrawals are not taxed

When you withdraw your money from KiwiSaver – whether that’s for a first home, hardship reasons or when you retire – it is not taxed.