During a visit to wellington to meet with Ministers and minisries we discussed
this matter with the Minister of Finance and he advised in writing the following
“ To confirm our discussion about the tax status of New Zealand Superannuation.
As we discussed NZS is taxed for administrative simplicity.
This does not affect the amount received by superannuitants as NZS is first set
at a higher level so that the rate after tax comes down to the level guided
by the New Zealand Superannuation Act 2001.
It is the net rate of NZS that is defined in the legislation.
So the only affect is that of IRD recognising NZS as income.
As a result of this changes to income tax rates or thresholds
would have no impact on the rate of NZS paid under the Act.
The government does this because the tax system operates more efficiently
when the number of tax exemptions are minimised.
As NZ Super is a non-means tested universal payment most NZ Superannuitants do,
or are able to, earn additional taxable income to supplement their NZ Super.
In order to determine the appropriate amount of tax to pay on the additional income
it is simpler for IRD to treat all income received as taxable and
calculate the tax accordingly an the total amount.
If NZ Super was paid out as non-taxable income this would involve IRD making complex
calculations to determine the appropriate tax to pay on the additional income,
It would also make it difficult for employers to determine the appropriate tax
rate deduction to apply under PAYE and may result in Superannuitants
with end of year tax payments to make.
Similarly, the main welfare benefits are also grossed up and treated as taxable income. “
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