Calculating and claiming employer tax credit
From 1 April 2008, you can claim a tax credit of up to $20 per employee per week if you contribute to their KiwiSaver schemes or complying funds. All contributing employers are entitled to claim a tax credit, including charities and other non-profit organisations.
The purpose of the employer tax credit is to help reimburse you for the cost of making contributions to your employees' KiwiSaver scheme or complying fund. You cannot claim for contributions to other superannuation schemes such as defined benefit schemes.
On this page you can:
- find out if you qualify for the employer tax credit
- find out how employer tax credits are used
- learn how to calculate employer tax credit entitlements
- learn how to claim the employer tax credit.
Qualifying for the employer tax credit
To qualify for the employer tax credit:
- You must be carrying on business from a fixed establishment within New Zealand or be a non-resident employer who chooses to make KiwiSaver deductions and contributions for PAYE resident employees. The employer must be:
- resident, or
- if non-resident, carrying on a business from a fixed establishment, or
- if non-resident and not carrying on a business from a fixed establishment, an employer who chooses to make KiwiSaver deductions and contributions for employees.
- The employer contribution must be made to a KiwiSaver scheme or a complying fund.
- The employee receiving the contribution must be 18 or over, and be less than the age of eligibility to withdraw from their KiwiSaver scheme.
- Your contributions must be employers' superannuation contributions.
- Private domestic workers who choose to make employer contributions may claim employer tax credits.
- You will need to determine eligibility and claim as appropriate.
Using the employer tax credit
Employer tax credits are used in the following order:
- to offset your compulsory employer contributions
- to pay for voluntary employer contributions (subject to existing pro rata rules)
- to pay any other tax obligations, and
- any excess will be refunded.
Calculating employer tax credit entitlements
Provided you make an employer contribution in the payment period, you can claim the lesser of:
- the actual employer contributions for the employee in the PAYE period, or
- the maximum ETC claim of $20.00 x the number of weeks paid in a PAYE period.
The maximum monthly ETC claim is calculated as:
$20.00 x number of days in a month / 7
which means:
- $80.00 for a 28 day month ($20 x 28 divided by 7), and
- $82.86 for a 29 day month ($20 x 29 divided by 7), and
- $85.71 for a 30 day month ($20 x 30 divided by 7), and
- $88.57 for a 31 day month ($20 x 31 divided by 7).
Examples for employer contributions of $20 a week
| If there are ... | then the actual employer contribution amount is ... | and the maximum claimable monthly employer contribution amount is ... | then the monthly ETC claimed is the lesser amount, which is ... |
|---|---|---|---|
| 4 weekly pays in a 30 day month | $80.00 ($20.00 x 4 weeks) |
$85.71 | $80.00 |
| 5 weekly pays in a 31 day month | $100.00 ($20.00 x 5 weeks) |
$88.57 | $88.57 |
| 2 fortnightly pays in a 30 day month | $80.00 ($40.00 x 2 fortnights) |
$85.71 | $80.00 |
| 3 fortnightly pays in a 31 day month | $120.00 ($40.00 x 3 fortnights) | $88.57 | $88.57 |
In the financial year ending 31 March 2009, the employer tax credit will generally offset the cost of making employer contributions at 1% for employees earning up to $104,000 gross per year.
Calculation examples:
Example 1.
An employee who goes on leave and is paid 3 weeks in advance
The ETC claim for the weeks paid in advance is included in the calculations of the month in which it's paid. To calculate the ETC claim for the:
- month when the leave is paid (prior to leave being taken). That month includes the number of weeks actually paid for in the month (ie weeks actually worked in the month plus the number of weeks' leave taken in advance).
- month in which leave has been taken. That month includes only the number of weeks actually paid for (ie the number of weeks worked).
Example
An employee is paid for the first 4 weeks' work in December and then goes on leave for 3 weeks in January. The 3 weeks' leave are paid in advance, in December. Employer contributions are $20.00 a week.
| If your actual employer contributions are ... | and the maximum claimable is ... | then ETC claimable is the lesser amount ... |
|---|---|---|
| $140.00 7 weeks x $20.00 (December pay) |
$88.57 $20.00 x 31 days, divided by 7 |
$88.57 |
| $40.00 2 weeks x $20.00 (January pay) |
$88.57 $20.00 x 31 days, divided by 7 |
$40.00 |
Example 2.
Employees who start and finish employment part way through a month
The maximum amount of ETC that can be claimed is not reduced if an employee starts work part way through a month - part months are treated as whole months for the purposes of calculating the maximum employer contribution.
Example for employee starting on 10 April 2008
| Actual employer contribution amount for 11 - 30 April | $120.00 |
| Maximum monthly employer contribution for April ($20 x 30 days, divided by 7) |
$85.71 |
| Monthly ETC claimable | $85.71 |
Example 3.
Calculation when employer contributions to an existing registered superannuation scheme are based on a percentage of an employee's base salary
From 1 April 2008 to 31 March 2009, where an employee is contributing to an RSS at the rate of 1% of base salary, if that employee joins KiwiSaver and their RSS contributions end up less than 1% of their total gross income (excluding redundancy or other adjustments), you will need to mae additional CECs.
However, as the additional employer contributions are to a KiwiSaver scheme, the entire additional cost is likely to be offset by an increased ETC claim.
Example
| Employee's monthly base salary | $3,000.00 | |
| Gross income for May 2008 (excluding any adjustments) | $3,600.00 | |
| RSS contributions | $3,000 base salary x 1% | $30.00 |
| Actual KiwiSaver compulsory employer contributions | gross income $3,600 x 1% = $36.00, less RSS contributions of $30.00 | $6.00 |
| Maximum monthly employer contribution amount | $20 x 31 days, divided by 7 | $85.71 |
| ETC claimable | lesser of $6.00 and $85.71 | $6.00 |
Example 4
When the compulsory employer contribution is not at least 1% of an employee's gross salary or wages.
We check minimum CECs against our records. When necessary, we will contact you for further information to validate CECs, and update our records as appropriate.
In some cases CECs can be less than 1% of the employee's gross salary. For example, where:
- redundancy payments are excluded from gross earnings
- the employee is under 18 years old
- you are also making registered superannuation scheme (RSS) contributions for that employee.
Example 5.
Claiming the ETC when you're contributing to your employee's KiwiSaver scheme and their complying fund.
A total credit of $20.00 can be claimed, which may be split across the fund types. The ETC isn't pro-rated.
Examples
| If your contribution to your employee's KiwiSaver scheme is ... | and your contribution to your employee's complying fund is ... | then your ETC claim will be ... |
|---|---|---|
| $15 a week | $10 a week |
|
| $20 a week | $10 a week |
|
Note
The government has announced a proposed change to the employer tax credit calculation to bring it into line with the policy intent. This change is subject to legislation being passed.
You can read the press release here.
Claiming the employer tax credit
You can claim the tax credit for both compulsory and voluntary employer contributions from the first pay after:
- an employee starts new employment, or
- you receive notice from us or the employee that they have joined a KiwiSaver scheme or complying fund.
You claim the employer tax credit when you file your PAYE returns using a new version of the Employer deductions (IR345). This new version consolidates the old IR345 and Employer deductions ESCT (IR346) into a single form. You offset the tax credit against the payment due and pay the net amount to us.
Both the PAYE calculator and the holiday pay calculator will be updated to include employer tax credit calculations.
Examples are available for small employers and large employers.
Correcting errors
If you claim an incorrect amount, you need to file an Employer monthly schedule amendments (IR344) form with your next Employer monthly schedule (IR348). If you make an adjustment to a previous schedule, you may be able to claim any remaining employer tax credit that was not fully claimed at the time.
Back pay
From 1 April 2008, you must make compulsory employer contributions on backdated payments of salary or wages from which member contributions are deducted. You claim the associated tax credit in the same payment period in which the back pay is paid.
Tax credit claims for employees who opt out
We will refund employer contributions for an employee who subsequently opts out, net of any employer tax credit you have claimed. You will see this on your next PAYE deductions statement.
Interest effective date on employer contributions and employer tax credit amounts
We'll pay interest on employer contributions from the first day of the month in which we receive payment. Payments or employer tax credits that are in excess of the period's assessments will show as credits. We'll pay interest on credits in your account.
Tax returns
You may only claim a tax deduction for employer contributions for which you have not claimed an employer tax credit. For example, if you claim a $20 tax credit on a $30 employer contribution, you can only claim $10 as a deductible expense for income tax purposes. If you're exempt from paying income tax (eg, charities) you can still claim the employer tax credit.
Associated employers
Each employer who contributes to a member's savings can claim a tax credit, although the following associated people are treated as one employer for the purposes of the tax credit:
- two or more companies, if those companies are in a group of companies
- all partners in a partnership
- all people to whom the control or ownership of property has passed (eg, executors and beneficiaries of an estate, trustees and settlors in a trust, family partnership and sole traders).
Date published: 29 Jul 2008
Back to top
