The Government plans to introduce legislation this month to help correct tax problems with superannuation and life office funds caused by tax cuts.
Investors on tax rates of less than 33 per cent who use super funds and life products are essentially overpaying their taxes as income in these funds is taxed at a flat and final rate of 33 per cent.
Treasurer Winston Peters and Revenue minister Bill Birch say the Government will introduce legislation for a tax credit regime this month.
"Under the new proposal the marginal tax rate on investment earnings from these schemes will fall for savers earning less than $38,000 from 33 per cent to 21 per cent, after an interim rate of 21.75 per cent applied in the year to March 1999," the ministers say in a statement.
Investors who opted for credits would increase their taxable income, and it may affect any social assistance received on the basis of taxable income.
This legislation stems from the Tolis working party that was established in 1996 to address the problem. While Tolis wasn't unanimous on its solution to the problem, the government favoured tax credits.
Under the regime fund managers will be able to offer tax credits to policyholders and members on tax rates of less than 33 per cent.
However, it is unclear at this stage if all managers who offer the affected types of funds will offer their investors credits.
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The Government plans to introduce legislation this month to help correct tax problems with superannuation and life office funds caused by tax cuts.