Barbara Buckett and Associates Barristors and Solicitors

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recent changes to kiwsaver act

employer contributions and other changes introduced

Changes amending the KiwiSaver Act to give effect to the requirement that employers contribute to the savings of their employees apply from 1 April 2008.

The Taxation (KiwSaver) Act 2007 amended KiwiSaver and tax legislation. In addition to establishing the requirement for employer contributions for KiwiSaver this Act also addressed a number of other measures such as:

new rules for the member tax credit
rules to establish the employer tax credit
rules for dealing with "invalid KiwiSaver enrolments"
amendments to the definition of "salary or wages"
new rules for minimum employee contributions

rules applying to employer contributions

New Subpart 3A of Part 3 of the KiwiSaver Act sets out the requirements for employers to contribute to the KiwiSaver account of employees. This requirement will be phased in over four years commencing on 1 April 2008. Initially employers will have to contribute one percent of the gross salary or wages of KiwiSaver members. The contribution rate will subsequently increase by one percent each year until 1 April 2011 when the contribution will become four percent.

The Act makes it clear that the KiwiSaver contribution made by employers must be ‘on top of’ an employee’s gross salary or wages. To cover situations where employers and their employees have contractually agreed that the employee must pay the cost of employer contributions from their existing salary or wages, such as a ‘total remuneration’ arrangement, the agreement will have no effect. However employers and employees can agree new contractual terms and conditions that ignore the "on top of" remuneration requirement if this is done after 13 December 2007, but in doing so will be required to apply good faith obligations as described in the Employment Relations Act 2000, which would include matters such as taking into account the value of the employer tax credit.

employers tax credit

New section MK 1(2) of the Income Tax Act 2007 (section KJ 6 of the Income Tax Act 2004) provides a tax credit to employers to help offset the costs of making matching compulsory employer contributions to an employee’s KiwiSaver scheme or a complying superannuation fund. The tax credit will be equal to the lesser of the employer’s contribution or $20 a week for each employee. Sections MK 9 to MK 16 of the 2007 Act (sections KJ 7 to KJ 12 of the 2004 Act) set out the eligibility rules and how the credit is to be applied. It is expected that employers will pay Inland Revenue a net amount after deducting the tax credit from their PAYE liability for the payment period.

what about existing employer superannuation contributions?

If an employee is a KiwiSaver member but their employer is already making a contribution to an existing superannuation scheme on their behalf, in certain circumstances the employer may be exempt from making a KiwiSaver contribution. Alternatively it may be possible to offset the payment being made against required KiwiSaver contributions. Subject to certain conditions an employer who is contributing to a defined benefit scheme is not required to make contributions for KiwiSaver. Payments made by employers to other forms of superannuation scheme may be subject to prescribed criteria offset payments required to KiwiSaver. These include:

the scheme (or the prior scheme if the scheme is a successor scheme) was registered before 17 May 2007;
the scheme provides access to eligible employees before 17 May 2007;
the employee is employed by the employer before 1 April 2008 and the employer makes or has agreed to make employer contributions before that date, or the employee is covered by a collective agreement that is in force before 17 May 2007 and expires after 1 April 2008 requiring employer contributions to the registered superannuation scheme; and
the registered superannuation scheme provides that the contributions fully vest in the employee within five years of becoming a member.

more Information

We are happy to advise on changes to the KiwiSaver legislation and associated tax regime. Further information, such as changes to the rules that allow employers to pay employee contributions, is available from the special report produced by IRD which we have used in producing this article.

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Disclaimer: This article is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. Please refer to our Legal Notices.