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Sustainability and impact
Tax changes will hurt super payments; more compliance issues for employers
20 Mar 2012
Employer contributions to Kiwi Saver and other superannuation funds are about to take a hit, when financial measures first announced in last year’s Budget kick in on 1 April 2012.
Contributions, which were previously exempt from tax, will no longer have this immunity. The Government is also cutting down on its contribution to Kiwi Saver (previously $1 for $1 up to $1042 per annum) reducing to $0.50c for $1 to a maximum of $521.
Geordie Hooft, partner Tax and Privately Held Business for accountants Grant Thornton New Zealand Ltd, said that the Government has removed the exemption that was introduced as part of KiwiSaver, which now means that the employer’s minimum 2% contribution of an employee’s gross pay will be taxed.
“It was viewed as a partial tax exemption and was introduced as an incentive for joining KiwiSaver, but the Government’s fiscal responsibility stance in the 2011 Budget has seen the removal of the Employer Superannuation Contribution Tax (ESCT) exemption,” he said.
Employee contributions are not affected by these changes as they are paid from the after-tax earnings of the employee.
“The other sting to this change is the added compliance cost that falls on the employer, who now has to calculate and pay ESCT, on top of the existing ACC, PAYE, employer KiwiSaver, employee KiwiSaver, student loans, child support deductions and more.
“These are only some of a raft of tax changes that will be introduced on 1 April 2012, including changes to ACC, Student Loans and Working for families. A full summary of these changes includes:
KiwiSaver
- The 2% exemption from employer superannuation contribution tax (ESCT) is to be removed. Contributions by employers to an employee’s KiwiSaver scheme or a complying fund will now be liable for ESCT.
- Employers will need to check their employment contracts with employees in order to determine whether the ESCT costs fall on the employer or employee.
- The ESCT flat rate of 0.33 cents has been removed as a default rate.
- There are two ways to calculate the ESCT threshold amount depending on whether the employee was employed for the full 12 months of the previous tax year:
- where the employee was employed for the full 12 months, the annual salary or wages plus gross employer cash contributions paid to the employee in the previous standard tax year
- where the employee was not employed for all of the previous tax year, an estimate of the total amount of salary or wages plus gross employer cash contributions that the employee will earn in the year ahead
New ACC rates
- The earners’ levy is set at $1.70 (GST inclusive), down from $2.04 the previous year
- The minimum liable earnings for self-employed workers increases from $26,520 to $27,040
- The maximum liable earnings will increase for:
- self-employed people under the Work and Earners’ Account from $110,018 to $111,669
- employees, private domestic workers and earners other than self-employed under the Work and Earners’ Account from $111,669 to $113,768
- employees and private domestic workers for calculating the residual portion of the Work Account from $110,018 to $111,669.
Student loan
- New student loan repayment codes have been introduced and require employees to add “SL” to tax codes unless they are exempt
- Those repaying student loans will no longer be able to use a special tax code to change the amount of student loan repayment deductions from salary or wages. However there are some exceptions to this including:
- Student loan special deduction rates for secondary income
- Student loan repayment deduction exemption for full-time students
- Making extra repayments through salary or wages
- Employers may also need to use the new student loan repayment codes for extra deductions made on salary or wages:
- SLBOR - used to identify extra repayments made through employers
- SLCIR – used if significant under-deductions have been made and the employee is required to make catch-up deductions
Working for Families
The abatement rate will increase by 1.25 cents at every inflation adjustment round from 1 April 2012 until it reaches 0.25 cents in the dollar
The current abatement threshold of $36,827 will also be decreased by $477 to $36,350 (and will continue to reduce by $450 at subsequent inflation adjustment rounds until it reaches $35,000)
Further enquiries, please contact:
Geordie Hooft
Partner Tax & Privately Held Business
T +64 (0)3 379 9580
M +64 (0)21 670 330
E geordie.hooft@nz.gt.com
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