Kanu Jeram Chartered Accountant Limited
Kanu Jeram Chartered Accountant Limited

NEWSLETTER    Issue 3    August 2011 – October 2011
KiwiSaver Changes

 

 

 

 

 

Following the KiwiSaver changes announced by the Government in the 2011 Budget, legislation was enacted on 24 May 2011 to implement the amendments, which are being phased in over the next two years. The changes are intended to
reduce the Government?s costs to fund the scheme. Employers need to be aware of the changes to correctly administer their employees? contributions and meet their own obligations under the scheme.

The changes are to come into  effect as follows:

  

 

  • From 1 July 2011 the member tax credit will reduce by half to 50 cents per $1 dollar contributed, up to a maximum of $521 per annum. The maximum was previously $20 per week ($1,040 per annum). The $1,000 kick-start payment available to members when they sign up to KiwiSaver remains unchanged.
  • Prior to the introduction of KiwiSaver, contributions made by an employer?s minimum  required contribution. From  1 April 2012 that exemption will be removed and the total employer contribution will be subject to ESCT. This change represents an increase in Government tax revenue and a decrease in the amount a member receives from their employer.

The method for calculating ESCT has also changed.

Before  1  April  2012  an  employer  could  calculate ESCT at a flat rate of 33 cents in the dollar. After this date ESCT must be calculated at a progressive rate based on either:

  • Where the employee has been employed for the whole of the previous year – the employee?s annual salary or wages plus the gross employer contributions paid in the previous tax year, or
  • Where the employee was not employed for the total previous tax year - an estimate of the employee?s   gross   salary   or   wages   plus   an estimate of employer?s gross contributions for the current year.

Although not legislated at this stage, the Government has also signalled its intention to change the minimum contribution rate for employers and employees from 1 April 2013. These are currently set at a minimum of 2%for both employee and employer contributions. Both are expected to increase to a minimum of 3%. Members will still have the option to select a higher rate of 4% or 8% if they wish. This change is expected to apply to both existing and new members.

Employers will need to update their wages processes, as the changes come into effect, to ensure that KiwiSaver obligations are accounted for correctly.

All information in this newsletter is to the best of the authors' knowledge true and accurate. No liability is assumed by the authors, publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information

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