But Luxon said it will not only affect real estate investors, but also small business owners who have built their businesses and people who invest in KiwiSaver.

But people already pay tax on their KiwiSaver returns. Here’s how it works.

The income you invest is taxed

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

Your employer’s contribution is taxed

Your employer also pays Employer Superannuation Contribution Tax (ESCT) on their contribution, unless the contribution is 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 income you make in KiwiSaver, unlike many overseas retirement savings schemes, which are often tax-free.

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

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

You can use the Inland Revenue calculator to check if you have the correct PIR rate. Unless you’ve told your provider otherwise, you’re likely to pay 28%.

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

But investments in international shares are taxed according to foreign investment fund (FIF) rules. This means that each year, 5% of the value of those investments at the beginning of the year is counted as income from that investment and taxed at PIR. You may also end up paying tax on dividends through the FIF scheme even if the fund has not given 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 due to currency fluctuations.

The fee collected by your fund manager is handed over to the Tax Administration on your behalf.

Withdrawals are not taxed

When you withdraw money from KiwiSaver – whether it’s for a first home, for hardship reasons or when you retire – it’s tax-free.