Changes to the employer superannuation contribution tax (ESCT) exemption will come into effect on 1 April 2012. The ESCT exemption changes affect all employer superannuation schemes, including KiwiSaver.
From the start of April the 2% exemption from ESCT will be removed which means, if your employer contributes to KiwiSaver or another superannuation scheme, that those contributions will become liable for ESCT.
What does this really mean for Kiwisavers?
Your employer will continue to make the same minimum contributions to KiwiSaver as they used to make, but from 1 April 2012 you'll receive less cash in your KiwiSaver account because your employers' contributions will be subject to tax.
ESCT will be taxed at the following rates:
| ESCT Threshold | ESCT rate |
|---|---|
| up to $16,800 | 10.5% |
| $16,801 - $57,600 | 17.5% |
| $57,601 - $84,000 | 30% |
| $84,001 and over | 33% |
Example
For a salary of $50,000/annum the 17.5% ESCT rate will apply:
$50,000 x 2% = $1,000 gross employer contributions
$1,000 x 17.5% = $175 ESCT tax deducted
$1,000 - $175 = $825 net employer contributions will be paid into the employee's KiwiSaver fund per year (= $68.75 per month)
Why are the changes being made?
It's always frustrating to lose more of your salary to taxes. Here's what the Government says as to why these changes have been made:
It's not all bad
On 1 April 2013, one year after these ESCT exemption changes come into effect, the compulsory minimum employer contribution rate will increase from 2% to 3% of an employee's salary. This will act to offset the reduced net employer contributions that will result from the removal of the ESCT exemption. I.e. one year down the track you'll start to receive higher employer contributions into your KiwiSaver account.
Employers and Employees should feel free to contact IRD for any queries about these changes.