Kiwisaver change in April 2012

The impact of changes to the ESCT

One of the changes coming into effect on 1 April 2012 is the elimination of the 2% exemption to the ESCT (employer superannuation contribution tax), KS is a superannuation contribution, so what this means is that from the 1 April 2012 the entire employer contribution (default being the 2%) will be liable for ESCT (taxed at the top employee marginal tax rate based on the estimated employee gross annual earnings, so up to $16,800 will be 10.5 %, $16,601 - $57,600 will be 17.5%, $57,601 - $84,000 will be 30% and $84,001 upwards will be 33%).  So what all this means…

• The default employer and employee contributuion rates remain unchanged at 2%
• The entire employer contribution is now taxable
• The employer still contributes the same amount of money but the amount the employee receives in their KS account is reduced by the ESCT
• This will be clearly defined on the payslip and a wee example is below:

(previously the amount of the KS Employer contribution would have been $12.00, so no additional cost to the employer but the employee receives less in their fund) 

While we always recommend you seek professional tax advice for your specific business we hope this illustration has been helpful. You can also see other upcoming changes here at http://www.ird.govt.nz/changes