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Sections MK 4, RD 5, RD 65 to 67, RD 69, YA 1 and schedule 1 of the Income Tax Act 2007
The new legislation introduces changes to member tax credits (MTC) and the taxation of employer superannuation contributions.
|An increase in the default and minimum employee contribution rate and the compulsory employer contribution rate (from 2% to 3%) were also announced in Budget 2011. These higher contribution rates do not take effect until 1 April 2013; this deferred application date meant it was not necessary, for implementation reasons, to include these changes in the Taxation (Annual Rates and Budget Measures) Act 2011. The necessary legislation will be included in a taxation bill scheduled to be introduced in September 2011.|
Member tax credits
Member tax credits are designed to encourage regular saving by members into their KiwiSaver account, or complying superannuation fund.
MTCs are paid each year to eligible members until they are able to withdraw their savings. An eligible member must be aged 18 or over and they must have either a principal place of residence in New Zealand, or else be an overseas employee of the State services, or working overseas as a charity volunteer.
The MTC amount is calculated in relation to a member's credit contributions over an annual period, starting on 1 July each year. MTCs are claimed by, and paid to, KiwiSaver providers or complying superannuation funds on behalf of their members; claims are usually made by providers after 1 July each year for the preceding MTC year.
For the MTC year ended 30 June 2012 and for following MTC years:
MTC claims relating to years ending on or before 30 June 2011 are not affected by these current changes. For these MTC years:
Employer superannuation contribution tax
Cash contributions made by an employer to a superannuation fund for the benefit of an employee are generally liable for employer superannuation contribution tax (ESCT).
ESCT is deducted from an employer's superannuation cash contribution.
Removal of exemption of KiwiSaver and complying superannuation funds
Compulsory employer contributions to KiwiSaver schemes and complying superannuation funds were previously exempted from ESCT.
This exemption is removed from 1 April 2012. ESCT will therefore need to be deducted on compulsory employer contributions to KiwiSaver and complying superannuation funds.
The ESCT flat rate of 0.33 cent has been removed as a default rate. The removal of the default flat rate applies to employer's superannuation cash contributions made to all defined contribution superannuation funds, not just KiwiSaver funds.
ESCT must be deducted at an annual ESCT rate based on either:
Employees and employers can still agree to treat the employer superannuation contribution as salary or wages, in which case the PAYE rules will apply instead.