Taxable nature of employer contributions and CEC to KiwiSaver schemes Employer tax credits

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1 KiwiSaver in the State Sector Advice and instructions to State sector employers on reimbursement of compulsory employer contributions from Vote State Services Introduction and background 1 In December 2007 legislative amendments to the KiwiSaver rules introduced the requirement for all New Zealand employers to pay employer contributions to Inland Revenue for eligible employees who choose to make employee contributions to a KiwiSaver scheme. 2 Employer contributions to KiwiSaver must be paid from the first full pay after 1 April KiwiSaver employee deductions and employer contributions must be forwarded to Inland Revenue through the PAYE system, accompanied by the IR345 form. Documentation in the form of the EMS (IR348) or the ir-file must contain detailed employee deductions and related employer contributions data. 3 Most State sector organisations (refer Appendix 3), may qualify for and claim reimbursement from the State Services Commission (SSC) for the actual net cost of the employer contributions, subject to eligibility and no double dipping rules, via a quarterly invoice. State-owned enterprises and their subsidiaries, subsidiaries of Crown entities, and entities funded but not owned by the Crown such as NGOs, are not eligible for the central funding. Employee s eligibility to receive a compulsory employer contribution (CEC) 4 Under the KiwiSaver rules, most employees who join KiwiSaver will be entitled to receive a legislated amount of employer contribution (compulsory employer contribution or CEC) if they are making employee contributions to a KiwiSaver scheme from their salary or wages. The following paragraphs list those employees who are not eligible to receive CEC. 4.1 Those employees not eligible for CEC are KiwiSaver members who are: on a contributions holiday; or also a member of a defined benefit scheme (such as the Government Superannuation Fund (GSF) or the National Provident Fund s DBP Contributors Scheme); or under 18 years of age; or at or over the age of eligibility for New Zealand Superannuation (currently 65), or [have been] a member of a KiwiSaver scheme or complying fund for five years, whichever date is later (a member joining at age 64 is entitled to compulsory employer contributions until age 69). 4.2 In addition, employees who are contributing members of other registered superannuation schemes including complying superannuation funds, to the extent _3

2 that they are receiving employer contributions to that other scheme, will not be eligible to receive CEC if: The other scheme was registered before 17 May 2007 The employee was offered membership of the other scheme before 1 April 2008 (or is employed after 1 April 2008 under a collective agreement in force before 17 May 2007 that requires employer contributions to the other scheme) The employer contributions to the other scheme are vested in the member within five years of joining the scheme. 4.3 Finally, if the employee s employment is as a Member of Parliament, a judicial officer, or a sworn member of the police they will not be eligible for CEC to the extent they are receiving employer contributions to other superannuation schemes 5 Any employee who is a KiwiSaver member may receive voluntary employer contributions, even if they are not eligible for CEC as described in paragraphs The CEC for KiwiSaver is to be paid on top of gross salary and wages. However, from 13 December 2007, employees and employers can agree on different terms as to how the CEC is positioned in employment packages. Ministers have stated a preference for CEC to be paid on top of existing remuneration (not tradable for cash) and have provided central funding accordingly. Taxable nature of employer contributions and CEC to KiwiSaver schemes 7 A portion of employer contributions to KiwiSaver schemes is exempt from employer superannuation contribution tax (ESCT). 1 The exemption applies to the lesser of: an amount equal to the employee's contribution, or 4% of the employee's gross salary or wages. 8 Any employer contributions over the exemption threshold are subject to ESCT. Employer tax credits 9 A significant proportion of the cost of CEC will be met for many employers as a result of the Government s decision to pay Employer Tax Credits (ETC), where the employee is contributing to a KiwiSaver scheme and the employer is required to pay CEC. ETC will be paid at the rate of the lesser of: The amount of CEC contributed; or up to $20 a week. 10 All contributing employers, including State sector agencies, NGO s and other non-profit organisations are entitled to claim the ETC. 11 ETC claims are made in conjunction with PAYE returns, using the IR345. The employer offsets the amount of the ETC against the payment due, and pays the net amount to Inland Revenue. 1 From 1 April 2008, specified superannuation contribution withholding tax (SSCWT) is called employer superannuation contribution tax (ESCT), as a result of changes introduced in the Income Tax Act

3 Maximum funded CEC rate 12 The maximum CEC rate that may be funded by Vote State Services in each twelve months from 1 April is the legislated percentages of gross salary and wages (as defined in the Income Tax Act 2007) less any ETC claimed; see the table below: From the first whole pay period after Maximum Funded CEC Rate (% of gross salary) 1 April % less ETC 1 April % less ETC 1 April % less ETC 1 April % less ETC 13 See Reimbursement of CEC below for the amounts that will be reimbursed taking into account existing and new scheme offers to staff. Reimbursement of CEC 14 Agencies will be reimbursed from Vote State Services for the increase in their actual costs to meet the CEC obligation in relation to KiwiSaver. The reimbursement only covers additional actual costs up to the Maximum Funded CEC Rate. The reimbursement does not cover fees or other indirect costs such as payroll amendments or staff training, and it does not cover the amount of any pre-existing employer contribution offers to registered superannuation schemes or KiwiSaver schemes or where the KiwiSaver offer is replacing a prior scheme offer (except see paragraph 17 in relation to currently funded SSRSS employer contributions). 15 Actual cost refers to the qualifying contributions paid to the IRD less any ETC, therefore claims should not have accruals included. The data supporting the claim should only contain data relating to what is allowed to be claimed; please do not include any information relating to schemes not eligible for reimbursement as set out in paragraph 14 above. 16 Agencies that pay an employer contribution to another scheme, that existed before 1 April 2008, and fund this cost out of baseline are not entitled to central funding of those contributions or of any KiwiSaver contributions that replace that offer. For example, funding is not available if the employee with an existing superannuation subsidy: transfers from the old scheme to KiwiSaver, or adds KiwiSaver to their super portfolio, or leaves the Agency and is replaced by another person, or the employee s position is disestablished and/or they cease contributing to an existing scheme, and the budget is moved to cover another position. 17. It is important for the agency to know what its base starting position is, as to (1 April 2008) eligibility for KiwiSaver funding. Only positions that were not eligible for a subsidised scheme will be eligible for KiwiSaver CEC reimbursement. The documented starting position can be used to help prove validity of the agency s submitted claim. 18. An employer that is currently reimbursed from Vote State Services for employer contributions to SSRSS can claim reimbursement for the Maximum Funded CEC Rate for all employees who have no other subsidised scheme. For example, if an SSRSS member 3

4 elects to receive CEC to KiwiSaver, they can not also receive funded SSRSS employer contributions (or salary sacrifice contributions to SSRSS). Therefore the employer would be able to seek central funding for the Maximum Funded CEC Rate for that employee, as no other crown funding is being spent on that employee for superannuation. 19. SSC will not reimburse voluntary employer contributions where no CEC is payable for an employee or group of employees. 20. In circumstances where a new employee opts out of KiwiSaver (on or after day 14 and on or before day 56 of starting employment, or as advised by IRD), the employer will receive a refund of CEC plus interest less applicable ETC (i.e. ETC reversal). The amount received from Inland Revenue should be offset against the funding claimed for that quarter. Show this offset through the adjustment section of the claim supporting data form. Making a reimbursement claim to the State Services Commission 21. At the end of each quarter, agencies that are eligible and wish to make a claim, can invoice the SSC for their CEC (up to the Maximum Funded CEC Rate) for pay runs that occurred in that quarter, up to and including the last whole pay period in the quarter. 22. Each invoice must include details of the bank account to which payments are to be made, employer s PAYE IRD number(s), and an address for queries and advising remittances. 23. Quarterly invoices should include details as per the attached Worksheet (Appendix 1), certified by the CFO or his/her designate, and reach the Commission no later than the 7 th working day after the end of each quarter. 24. Each June quarter invoice should note any accrual amount relating to unclaimed KiwiSaver CEC amounts for the year just ended to ensure funding is available for when the actual cost is invoiced. 25. Invoices should be addressed to: State Services Commission KiwiSaver in the State Sector Attention Finance PO Box 329 Wellington Supporting data for reimbursement claims 26. The supporting data worksheet (Appendix 1) sets out the information required to support a reimbursement claim. Adjustments must be made for any items that may otherwise distort the amount able to be claimed. This may include refunds of contributions when an employee opts out, or where a correction needs to be made for a mistake made in a previous return. Note, the claim should only show information relating to staff that are eligible to be funded under the funding rules. 27. Details of how the adjustments are calculated should be attached to the invoice. GST 28. In terms of the GST legislation, these invoices for recovering expenditure are deemed to be for supply of services and should therefore have GST added. 4

5 Payment by SSC 29. SSC expects to pay the quarterly invoices received from agencies according to SSC s normal payment cycle (currently twice monthly) subject to resolution of all outstanding enquiries in relation to that invoice. We will pay invoices by electronic transfer, and send a remittance advice by . Audit 30. Agencies can expect their records pertaining to claims on the KiwiSaver central funding to be examined during the course of their annual audits. The SSC may request additional information and explanations relating to claims, or request or undertake an audit of the claims and the associated records. Forecasts 31. As part of the process of obtaining funds, each agency will need to complete the Forecasting data worksheets (in Appendix 2). This information will help SSC with its forecasting and funding administration. SSC expects to request this information to support Crown budgeting processes, and will give adequate advance notice of this requirement. Currently these forecasts are expected to be requested in September and February, for the current year funding adjustments, for the next financial year budget and outyear forecasts. This will assist in ensuring adequate appropriations will be allocated to Vote State Services. Enquiries 32. Enquiries about invoicing and reimbursements should be made to: super@ssc.govt.nz 5

6 Appendix 1: KiwiSaver claim supporting data State Sector Employers KiwiSaver Quarterly Contributions - Summary EXAMPLE Quarter ended: dd/mm/yy Funded Contributions Total KiwiSaver No of Employer Employer tax employer No of pays Members Gross KiwiSaver Month subsidy credit contribution* in the month salary members Month 1 $ 208, $ 179, $ 28, $ 20,845, Month 2 $ 210, $ 181, $ 29, $ 21,045, Month 3 $ 210, $ 180, $ 29, $ 21,025, Sub-total $ 628, $ 541, $ 87, Plus/less: Adjustments Month 1 -$ 34, $ 29, $ 4, $ 3,474, Month 2 -$ 34, $ 29, $ 4, $ 3,474, Month 3 -$ 34, $ 29, $ 4, $ 3,474, (Attach explanations for material adjustments) -$ 104, $ 89, $ 14, Total funded employer contributions $ 524, $ 451, $ 72, Plus: GST $ 9, Invoice Total $ 81, * Total employer contribution is limited to the legislated minimum contribution rate. Do not include the amount, if any, exceeding the legislated minimum. Prepared by: <Signature> (Name) Checked by: <Signature> (Name) Certified by Chief Financial Officer: <Signature> (Name) Date: Date: Date: Please contact (Name) (Position) (DDI), if you have any questions about the details of this invoice Note: Employer KiwiSaver contribution in this return should be the amount that represents the current minimum legislated amount of CEC, not the full amount payable. 6

7 Appendix 2: Forecasting data worksheet Last Financial Main period (current year for OBU, MBU, supplementary) For forecast/budget Year next financial year for the main Budget exercise exercise: Year: Outyears Outyears Outyears Outyears The Financial Year YY/XX Total Up to $52,000 $52,001 - $104,000 $104,001 plus Total Organisation: Total Total Total Total Total Headcount Staff turnover % 32% 32% 22% 10% 21% 20% 30% 22% 20% Gross Salary $ 800,000 $ 800,000 $ 2,550,000 $ 4,800,000 $ 8,150,000 $ 8,581,044 $ 7,685,631 $ 8,114,105 $ 8,357,528 Headcount of non KiwiSaver Superannuation schemes with Employer contribution Gross Salary non KiwiSaver super with Employer cont. $ 92,000 $ 92,000 $ 240,000 $ 460,000 $ 792,000 $ 815,760 $ 560,155 $ 576,960 $ 594,269 KiwiSaver Headcount KiwiSaver members Gross Salary $ 600,000 $ 600,000 $ 850,000 $ 3,000,000 $ 4,450,000 $ 4,675,170 $ 5,665,206 $ 5,835,162 $ 6,110,387 Employee KiwiSaver deduction $ 24,000 $ 24,000 $ 42,500 $ 150,000 $ 216,500 $ 233,759 $ 283,260 $ 291,758 $ 305,519 Employer KiwiSaver contribution before ETC $ 6,000 $ 6,000 $ 8,500 $ 30,000 $ 44,500 $ 93,503 $ 169,956 $ 233,406 $ 244,415 Employer Tax Credit (ETC) $ (6,000) $ (6,000) $ (8,500) $ (26,000) $ (40,500) $ (53,040) $ (62,400) $ (62,400) $ (63,440) sub total Net Employer KiwiSaver contributions for reimbursement $ - $ - $ - $ 4,000 $ 4,000 $ 40,463 $ 107,556 $ 171,006 $ 180,975 Plus/less: Adjustments (List and explain material adjustments) KiwiSaver Headcount - adjustment (1) (1) (2) (1) (4) - (8) - - KiwiSaver members Gross Salary - adjustment $ (40,000) $ (40,000) $ (150,000) $ (120,000) $ (310,000) $ - $ (480,000) $ - $ - Employer Subsidy $ (400) $ (400) $ (1,500) $ (1,200) $ (3,100) $ - $ (14,400) $ - $ - Employer Tax Credit $ 400 $ 400 $ 1,500 $ 1,040 $ 2,940 $ - $ 8,320 $ - $ - (Employees who have opted out after being included ) (in a prior reimbursement claim) Total Adjustments: $ - $ - $ - $ (160) $ (160) $ - $ (6,080) $ - $ - Total Employer contributions for reimbursement $ - $ - $ - $ 3,840 $ 3,840 $ 40,463 $ 101,476 $ 171,006 $ 180,975 Expected material effect on future numbers: Please indicate events and their numerical effect on KiwiSaver numbers e.g. increas/decrease in the total number of staff, salary increase etc. Expect a 3% pay increase from 1 July XX. and for each outyear Or another 100 staff to be employed over the course of the year. With salary cost of $Y 7

8 Appendix 3: State Sector Agencies Public Service Agencies Archives New Zealand Crown Law Office Department of Building and Housing Department of Conservation Department of Corrections Department of Internal Affairs Department of Labour Department of the Prime Minister and Cabinet Education Review Office Government Communications Security Bureau Inland Revenue Department Land Information New Zealand Ministry of Agriculture and Forestry Ministry for Culture and Heritage Ministry of Defence Ministry of Economic Development Ministry of Education Ministry for the Environment Ministry of Fisheries Ministry of Foreign Affairs and Trade Ministry of Health Ministry of Justice Ministry of Māori Development 8

9 Ministry of Pacific Island Affairs Ministry of Research, Science and Technology Ministry of Social Development Ministry of Transport Ministry of Women's Affairs National Library of New Zealand New Zealand Customs Service New Zealand Food Safety Authority Serious Fraud Office State Services Commission Statistics New Zealand The Treasury Non-Public Service Agencies New Zealand Defence Force New Zealand Security Intelligence Service Parliamentary Counsel Office Police, The Office of the Clerk Parliamentary Service Crown entities CROWN AGENTS Accident Compensation Corporation Career Services Civil Aviation Authority Crown Health Financing Agency District Health Boards - Auckland 9

10 - Bay of Plenty - Canterbury - Capital & Coast - Counties-Manukau - Hawke's Bay - Hutt Valley - Lakes - MidCentral - Nelson-Marlborough - Northland - Otago - South Canterbury - Southland - Tairawhiti - Taranaki - Waikato - Wairarapa - Waitemata - West Coast - Whanganui Earthquake Commission Electricity Commission Energy Efficiency and Conservation Authority Foundation for Research, Science, and Technology Health Research Council of New Zealand Health Sponsorship Council Housing New Zealand Corporation Land Transport New Zealand Legal Services Agency Maritime New Zealand New Zealand Antarctic Institute New Zealand Blood Service New Zealand Fire Service Commission New Zealand Qualifications Authority New Zealand Tourism Board New Zealand Trade and Enterprise Pharmaceutical Management Agency 10

11 Social Workers Registration Board Sport and Recreation New Zealand Tertiary Education Commission Transit New Zealand AUTONOMOUS CROWN ENTITIES Alcohol Advisory Council of New Zealand Arts Council of New Zealand Toi Aotearoa Broadcasting Commission Charities Commission Environmental Risk Management Authority Families Commission Government Superannuation Fund Authority Guardians of New Zealand Superannuation Mental Health Commission Museum of New Zealand Te Papa Tongarewa New Zealand Artificial Limb Board New Zealand Film Commission New Zealand Historic Places Trust (Pouhere Taonga) New Zealand Lotteries Commission New Zealand Symphony Orchestra New Zealand Teachers Council Public Trust Retirement Commissioner Standards Council Te Reo Whakapuaki Irirangi (Maori Broadcasting Funding Agency) Te Taura Whiri I Te Reo Māori (Māori Language Commission) 11

12 Testing Laboratory Registration Council INDEPENDENT CROWN ENTITIES Accounting Standards Review Board Broadcasting Standards Authority Children's Commissioner Commerce Commission Drug Free Sport New Zealand Electoral Commission Health and Disability Commissioner Human Rights Commission Independent Police Conduct Authority Law Commission Office of Film and Literature Classification Privacy Commissioner Securities Commission Takeovers Panel Transport Accident Investigation Commission Crown entity companies Crown Research Institutes (CRIs) - Industrial Research Limited - Institute of Environmental Science and Research Limited - Institute of Geological and Nuclear Sciences Limited - Landcare Research New Zealand Limited - National Institute of Water and Atmospheric Research Limited - New Zealand Forest Research Institute Limited - New Zealand Institute for Crop and Food Research Limited - AgResearch Limited - Horticulture and Food Research Institute of New Zealand Limited, The New Zealand Venture Investment Fund Limited Radio New Zealand Limited Television New Zealand Limited 12

13 School Boards of Trustees 2 Tertiary education institutions UNIVERSITIES - Auckland University of Technology - Lincoln University - Massey University - University of Auckland - University of Canterbury - University of Otago - University of Waikato - Victoria University of Wellington POLYTECHNICS/INSTITUTES OF TECHNOLOGY WANANGA - Aoraki Polytechnic (Timaru) - Bay of Plenty Polytechnic (Tauranga) - Christchurch Polytechnic Institute of Technology (Christchurch) - Eastern Institute of Technology (Taradale) - Manukau Institute of Technology (Manukau City) - Nelson Marlborough Institute of Technology (Nelson) - Northland Polytechnic (Whangarei) - Open Polytechnic of New Zealand (Lower Hutt) - Otago Polytechnic (Dunedin) - Southern Institute of Technology (Invercargill) - Tai Poutini Polytechnic (Greymouth) - Tairawhiti Polytechnic (Gisborne) - Telford Rural Polytechnic (Balclutha) - Universal College of Learning (Palmerston North) - Unitec Institute of Technology (Auckland) - Waiariki Institute of Technology (Rotorua) - Waikato Institute of Technology (Hamilton) - Wellington Institute of Technology (Petone) - Western Institute of Technology (New Plymouth) - Whitireia Community Polytechnic (Porirua) - Te Wananga o Aotearoa (Te Awamutu) - Te Wananga o Raukawa (Otaki) - Te Whare Wananga o Awanuiarangi (Whakatane) Public Finance Act Fourth Schedule Organisations Agricultural and Marketing Research and Development Trust Asia New Zealand Foundation 2 The Ministry of Education will coordinate reimbursement claims for state and state-integrated schools and will provide schools which manage their own payroll with information in the near future. Information will also be available from 13

14 Fish and Game Councils New Zealand Fish and Game Council Leadership Development Centre Trust National Pacific Radio Trust New Zealand Game Bird Habitat Trust Board New Zealand Government Property Corporation New Zealand Lottery Grants Board Ngai Tahu Ancillary Claims Trust Pacific Co-operation Foundation Pacific Island Business Development Trust Research and Education Advanced Network New Zealand Limited Reserves Boards Road Safety Trust Sentencing Council Transferee companies under the New Zealand Railways Corporation Restructuring Act 1990 in which the Crown holds more than 50% or more of the issued ordinary shares Reserve Bank of New Zealand Offices of Parliament Office of the Controller and Auditor-General Office of the Ombudsmen Office of the Parliamentary Commissioner for the Environment 14