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ESCT liability for KiwiSaver deductions and contributions from 1 April 2009 to 31 March 2012

Note

This page should only be used for employer contributions paid from 1 April 2009 to 31 March 2012. Find out about making employer contributions from 1 April 2012

When ESCT (employer superannuation contribution tax) applies to payments

  • employee KiwiSaver deductions
  • compulsory employer contributions to KiwiSaver and
  • ESCT liability (assuming no prior employer contributions)

apply to all payments of gross salary or wages calculated by the employer when a new employee starts or they’re given a KiwiSaver deduction notice.

Payments of compulsory KiwiSaver employer contributions are based on the same gross salary or wages the employer deducts the employee’s KiwiSaver contribution from.

Salary or wages are defined within the KiwiSaver Act and include:

  • bonuses
  • commissions
  • extra salary - overtime
  • gratuities and other remuneration of any kind

but exclude redundancy pay and expenditure or allowances paid for accommodation or cost of living overseas.

Once an employer is required to make employee KiwiSaver deductions, any future payments to that employee relating to a period before the employee was a KiwiSaver member are subject to full KiwiSaver deductions and employer contributions.

Example - new employee starts or the employer receives a deduction notice (for an existing employee) on Monday 9 November
1. Pay for the period 11 November has already been calculated and closed off. All KiwiSaver deductions and contributions start on the next pay period - November 18
Existing employee gross salary = $1,000
Employee deductions of 4% = $40
Employer contributions of 4% = $40 (extra 2% voluntary payment)
2% amount exempt from ESCT = $20
ESCT is payable on $20
If an extra payment is made for 9-10 November, it will be accepted by Inland Revenue provided the maximum employee rate of 8% is not exceeded. An ESCT liability occurs if employer contributions exceed 2%.
New employee gross salary = $1,400 (9-18 November)
Employee deductions of 4% = $56
Employer contributions of 4% = $56 (extra 2% voluntary payment)
2% amount exempt from ESCT = $28
ESCT is payable on $28
2. Next pay period 25 November
Gross salary = $1,000 plus backpay to September of $275
Total gross = $1,275
Employee deductions of 4% = $51
 Employer contributions of 4% = $51 (extra 2% voluntary payment) 
2% amount exempt from ESCT = $25.50
ESCT is payable on $25.00

 

Note

Contributions to a KiwiSaver scheme are based on gross salary or wages as outlined above. Contributions to a complying fund based on gross base salary or wages exclude non-regular payments. Payments such as overtime, bonuses, commissions and other amounts are excluded for both employee and employer contributions.

When employer contributions are exempt from ESCT

Compulsory employer contributions to KiwiSaver schemes and complying funds were exempt from ESCT. From 1 April 2009 the compulsory employer contribution rate is 2% of the employee’s gross salary or wages.

Any voluntary employer contributions to KiwiSaver schemes are subject to ESCT. Voluntary employer contributions include contributions you make:

  • over and above the compulsory employer contribution rate
  • to employees aged under 18 or over 65 years (and who have been a member for more than five years)
  • to employees on a contribution holiday
  • to employees who are on leave without pay
  • paid after 1 April 2012.

Complying funds

The ESCT exemption also applies to compulsory contributions made to complying funds. A complying fund is a section within a registered superannuation scheme that has incorporated certain KiwiSaver rules - in particular portability and lock-in. Further information can be found in the Tax Information Bulletin: Vol 19, No 1 (February 2007).

Calculating ESCT

Compulsory employer contributions to an employee KiwiSaver scheme or complying fund are now capped at 2%. Employer contributions are exempt from ESCT up to the lesser of the employee’s contributions or the 2% maximum. The 2% exemption applies only to KiwiSaver and complying funds.

ESCT is calculated based on the amount of the employer's total contributions to all superannuation funds. The employer contribution amount is the sum of the net (after) ESCT, plus the amount of ESCT. Subject to each employment agreement ESCT is calculated in one of two ways.

Example - employee has gross salary of $1,000, the employer contributes 5%,($50). Using the 2% exemption, $30 is liable for ESCT, $20 is exempt
1. Employer’s contribution is the maximum $50
$30 liable for ESCT at 33c is $9.90 leaving a net of $40.10 ($50 minus $9.90)
Net contributions of $40.10 are returned on the EMS and IR345 as employer contributions, $9.90 on IR345 as ESCT
Total employer contribution $50
2. Employer’s contribution is the minimum $50 after payment of ESCT $30 is grossed up to include the ESCT amount 
0.33 divided by (1 minus 0.33) x $30  = $14.77 plus $30 = $44.77
Net contributions is $44.77 plus $20 is $64.77 minus $14.77 = $50
Net contributions of $50.00 are returned on the EMS and IR345 as employer contributions, $14.77 IR345 as ESCT 
Total employer contribution $64.77

Accounting for ESCT

ESCT is not limited to KiwiSaver, it applies to employer contributions to all super funds.

Employer contributions to KiwiSaver

Employers are not permitted to pay KiwiSaver employer contributions direct to a provider. Payment must be made to Inland Revenue. Only the net amount of employer contributions, after ESCT, should be shown on the employer monthly schedule. Inland Revenue will forward the net amount to the provider.

Employer contributes to both a KiwiSaver and other schemes for their employees

The net KiwiSaver amount only must be paid to Inland Revenue, all other employer contributions to non KiwiSaver schemes must be paid direct to the provider.

Paid for both KiwiSaver and other schemes?

ESCT is not included on the Employer monthly schedule (IR348). The amount of ESCT is only entered on the Employers deduction form (IR345). Details as to how ESCT is calculated are not given to us. These details should be retained the same as other tax records.

Refunding ESCT

If an employee opts out by completing an Employee opt-out request (KS10), the employer is refunded all compulsory, non-compulsory cash contributions and any tax calculated on employer cash contributions for that employee.

Any tax, calculated on employer cash contributions, paid to us for your employee that has opted out will be refunded to you on request. You can do this by either:

  • completing an IR344 or
  • calling us on 0800 377 772

 


Date published: 05 Apr 2012

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