Change to KiwiSaver employer tax credit calculation
27 March 2008
Ministers today announced a change to the KiwiSaver employer tax credit process in order to bring it into line with policy intent.
"The employer tax credit was always intended to help offset the cost of making compulsory employer contributions up to $20 a week for each KiwiSaver or complying fund member," Finance Minister Michael Cullen said.
After legislation was enacted, however, it was identified that the current formula would disadvantage a small number of eligible employers and mean that they didn't get their full entitlement. This affected about 5,000 to 6,000 employers who pay their staff approximately $93,000 per annum or more on a weekly or fortnightly basis, and also some employers making voluntary contributions or extra salary payments.
To ensure all employers receive their full $20 a week entitlement, a square-up process is to be introduced. Affected employers will be able to make an additional claim at the end of the tax year (from 1 April 2009).
The issue has arisen because the formula for working out the employer tax credit is based on the number of days in an Inland Revenue PAYE period.
However, employer pay periods are not evenly distributed between PAYE periods.
For example, in a PAYE period with five weekly pay periods instead of four, the formula calculates the ETC entitlement to be a maximum of $88.47 when the maximum entitlement should be $100 (5 weeks X $20 per week).
"These teething problems aside, we are delighted that more than half a million New Zealanders have chosen to join KiwiSaver," Revenue Minister Peter Dunne said.
Date published: 02 Apr 2008
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