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Technical tax area
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Questions we've been asked: General issues

Kiwisaver - creditable membership
Issued July 2008

Answers to some questions we've received on "creditable membership" and eligibility for the member tax credit.

Question

What does the word "membership" in paragraph (a) of the definition of "creditable membership" in section YA 1 of the Income Tax Act 2007 mean?

Answer

As this has caused confusion, Inland Revenue has recently clarified its view that "membership" in paragraph (a) of the definition of "creditable membership" commences from the earlier of an account being opened by a provider for a member (in anticipation of securities being allotted) or securities allotting.

This interpretation will not change the position for members who are automatically enrolled into KiwiSaver - their creditable membership will commence in accordance with paragraph (b)(i) of the definition (as deductions will usually commence prior to their account being opened). This will mean however that for members who contract directly via a provider, their MTC eligibility will generally commence from when their provider opens up an account for them as opposed to when funds are first transferred to the provider.

Consider the following example:

  • Joe opts to join KiwiSaver via a provider on 5 January 2008 who opens an account for him. Joe makes no contributions at this time.
  • On 5 April 2008 Joe's $1,000 kick-start contribution is paid to his provider.
  • On 15 June 2008 Joe makes his first contribution of $3,000 to his provider.

Given Inland Revenue's interpretation of "membership" commencing from the date on which an account is opened for a member, Joe's eligibility for the member tax credit will commence from 5 January 2008. However, if Joe's provider had not opened an account for him in January, his eligibility for the member tax credit would have occurred (under paragraph (b)(ii) of the definition of "creditable membership") from 1 April (the first of the month in which his $1,000 kick-start contribution was paid to his provider and thus an account opened).

 

Question

What does Inland Revenue's clarification of the word "membership" mean for members who joined KiwiSaver via a provider during the transitional period (1July 2007 to 30 September 2007) and made a contribution prior to 31 October 2007?

Answer

This interpretation has no impact on members who joined KiwiSaver during the transitional period and made a contribution prior to 31 October 2007. These members fall within the paragraph (b)(iii) of the definition of "creditable membership". Accordingly, their eligibility for the member tax credit will commence from the earlier of:

  • the first of the month in which their KiwiSaver provider received a valid application for KiwiSaver membership from them, or
  • the first of the month in which their first contribution to KiwiSaver was received by their scheme provider or Inland Revenue.

 

Question

What does Inland Revenue's clarification of the word "membership" mean for members who joined KiwiSaver via a provider during the transitional period (1July 2007 to 30 September 2007) but did not make their first contribution until after 31October 2007?

Answer 

The eligibility for the member tax credit for these members will commence from the earlier of:

  • the actual day that their KiwiSaver provider opened up an account for them, or
  • the first of the month in which their first contribution to KiwiSaver was received by their scheme provider or Inland Revenue.

 

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Date published: 13 Aug 2008

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