This bulletin includes details on changes to:
- Kiwisaver Scheme
- Working For Families
- Student Loan Scheme
Government changes to Kiwisaver as a result of the recent budget are as follows:
Member Tax Credit
The member tax credit rate will be halved from the present $20 per week to a maximum of $10 per week. This change applies from 1 July 2011.
From 1 April 2013 both member and employer minimum contributions will increase from the current 2% to 3%. The 3% will also be the default rate, but members will still be able to select a higher contribution rate of 4% or 8%.
Employee Superannuation Contribution Tax (ESCT)
From 1 April 2012 the tax free status of employer contributions to Kiwisaver will end. All employer contributions will be subject to Employer Superannuation Contribution Tax (ESCT) paid at the employee's marginal tax rate. ESCT is deducted from the employer's cash contributions; it is not an additional cost for employers.
From 1 April 2012, ESCT can no longer be calculated at a flat rate of 33%. Instead from 1 April 2012 the rate is based on either:
The annual salary or wages plus the gross employer's superannuation cash contributions paid for the employee in the previous tax year (where the employee was employed for all of that year) or where the employee was not employed for all of the previous tax year, an estimate of the total annual salary plus gross employers contributions for the year ahead.
Alternatively, if your employee agrees, you will still be able to elect to treat your employer's superannuation cash contribution as salary or wages under the PAYE rules. ESCT deductions must be paid to Inland Revenue along with your PAYE deductions on the Employer Deductions (IR345) form.
Working for Families Tax Credits
Working for Families (WFF) tax credits are a group of four tax credits targeted at low to middle income families. The amount any particular family receives depends on household income and the number and age of children.
The Government is trying to address the WFF cost blowout. Previously they broadened the definition of family income, to counter the ability of some people to structure their affairs and thereby inflate their entitlement to WFF. Now they are adjusting the abatement levels.
The 2011 Budget proposes changes that will be implemented starting from 1 April 2012.
The Government will reduce over time the income level at which the WFF tax credits start to abate (down to $35,000 from $36,827).
An increase overtime in the abatement rate from 20 cents to 25 cents in the dollar.
Alignment over time of the amount paid in respect of children aged 16 years and over with the amount for children aged 13 to 15.
The Government Budget changes are trying to reduce the cost of the student loan scheme by tightening the eligibility criteria and by making amendments to the rules as follows:
Students with an overdue payment of $500 or more and who are in default for more than one year will have their eligibility for further loans restricted.
*Students aged 55 and over will be eligible for loans for tuition fees only.
*The entitlement for part time students to borrow for course-related costs will be removed.
*The repayment holiday for overseas-based borrowers will be reduced from three years to one, and borrowers will be required to apply for the holiday and provide a New Zealand based contact person before they go overseas.
The inflation adjustment to the $19,084 student loan repayment threshold will be suspended until 1 April 2015.