Tax changes set to hit KiwiSaver on 1 April 2012

Posted on 26 March 2012

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 ThresholdESCT rate
up to $16,80010.5%
$16,801 - $57,60017.5%
$57,601 - $84,00030%
$84,001 and over33%


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:

Removing the tax-free status of employer contributions will make the scheme fairer - currently 50 per cent of this benefit goes to the top 15 per cent of income earners, due to their higher marginal tax rate.
The changes will help the Government return to surplus sooner. The Savings Working Group said achieving this and reducing Government borrowing was the one of the most important things the Government could do to lift national savings.

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.


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