Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

 

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

1. Taxing Employer Superannuation Contributions (Such as KiwiSaver)

2. Comparison Australian/ NZ Income Tax Rates

 

TAXING EMPLOYER SUPERANNUATION CONTRIBUTIONS (SUCH AS KIWISAVER)

From 1 April 2012 , if you have any employees with KiwiSaver, you must deduct ESCT (Employer Superannuation Contribution Tax) from any employer cash contributions you make to your employees' KiwiSaver schemes, complying funds or other superannuation funds. Depending on your employees' employment agreements you'll either need to deduct ESCT from the gross or the net employer cash contributions. The employment agreement you have with your employees will determine whether you can deduct ESCT from your employer cash contributions or whether you need to deduct ESCT on top of your employer cash contributions.  

In most cases you'll  deduct ESCT from your employer cash contributions.  

I’ve noted that IRD have not provided too much descriptive information direct to clients about calculations for this in your wage records, although there is information on their web site www.ird.govt.nz.  Thus the provision of this information to yourself.  

There are two ways to calculate ESCT using your employee's ESCT rate. You can calculate ESCT from the:

1. gross employer cash contribution if you're deducting ESCT from your employer cash contributions
2. net employer cash contribution if you're deducting ESCT on top of your employer cash contributions.

The method that it is likely that would be mostly selected is described below. The figures obtained can be seen on the PAYE Tables as follows:

·    the columns under the Heading “PAYE” give the PAYE to be deducted for various tax codes.  You will of course have to refer to other Tax Code information if the relevant tax code is not amongst this section

·    the columns under the heading “KiwiSaver” relates to amounts to be deducted as Employee Contributions dependant as to whether the employee advises you to contribute at rates of 2%, 4%, 8%. You as an employer take these out of the employee’s wages and pass these onto IRD for crediting to the employee’s individual KiwiSaver Account

·    the columns under the heading “ CEC and ESCT” relates to the KiwiSaver Employer Contribution.  For example, if the employee is at a ESCT rate of 17.5% the column under the Heading 17.5% represents the ESCT tax that has to be taken out of the Employer Contribution and paid on to IRD, and the column to the left of that with heading "CEC" represents the net amount after allowing for the Employer’s Gross Contribution less the ESCT to be deducted and paid to IRD, which is the net KiwiSaver Employer Contribution which will be passed on to the employee’s individual KiwiSaver Account

As a starting point you have to work out the ESCT rate applicable to the employee.  You need to work out the income range that the employee will be on for the year, based on the Gross annual wage you would be paid to the employee for the year based on the current weeks wage/ monthly salary, plus the amount of KiwiSaver Employer contributions (currently at 2% on Gross) that you would pay him/her for a full year. The following Table gives you the ESCT rate.

Income Range	ESCT rate
$0 - $16,800	10.5%
$16,801 - $57,600	17.5%
$57,601 - $84,000	30%
$84,001 and over	33%

Say you are paying an Employee $500 per week and he is therefore on annual Gross Wages of around $26000. Thus you are also contributing annual $26000 x 2% Employer Contributions = $550. which means the gross of the two is $26550, which means he is at 17.5% ESCT rate.  

Each week it is currently compulsory for you as a employer to pay a 2% KiwiSaver Employer contribution, which is 2% X $500 = $10.00.  However from  1 April 2012 , you must deduct ESCT of 17.5%. which is $10.00 x .175 = $1.75, which you will then pay to IRD when you file your monthly PAYE Return.  The net amount of $10.00 - $1.75 = $8.25 is then deemed the net Employer Contribution he will get for the week after ESCT.  

It is therefore suggested that, if you don’t use a Wages Accounting Software Programme you keep your Wages Records for employees for PAYE/ KiwiSaver amounts as follows ( you will need other columns for Child Support deductions, Student Loan deductions, other deductions etc. if applicable):  

(The calculations are based on $500 per week, and current PAYE Tables, and assuming the employee is on M code)- you will need to adapt this to all other wages/ salaries levels

Week/ or Month Ending	Gross Wages  (A)	PAYE  (B)	KiwiSaverEmployee Contribution@ 2%- this could be a different % if the employee advises you  (C)	Total KiwiSaver Employer Contribution @ 2%	ESCT Tax Rate Applicable to the Employee	ESCT Tax payable by Employee (D)	Net KiwiSaver Employer Contribution after ESCT Tax payable by Employee	Net Payable to Employee for the Period (A–B-C- D)
15/5/2012	500.00	77.15	10.00	10.00	17.5%	1.75	8.25	411.10
Processing at Month End to PAYE Returns	Total for all weeks in Gross Earnings on Employer Monthly Schedule	Total for all weeks in PAYE on Employer Monthly Schedule and Box 3 Employer Deductions	Total for all weeks under KiwiSaver Deductions on Employer Monthly Schedule and Box 6 KiwiSaver Deductions in Employer Deductions	If the Employer files Income Tax Returns, the total of this for all employees for the year is deductible as a Expense to the Employer in his Income Tax Return		Total for all weeks in Box 8 ESCT Deductions in Employer Deductions	Total for all weeks in KiwiSaver Employer Contributions in Employer Monthly Schedule and Box 7 KiwiSaver Employer Contributions in Employer Deductions

 

 COMPARISON AUSTRALIAN/ NEW ZEALAND INCOME TAX RATES

The recent Australian budget set tax rates for the next two years so how do NZ  Income Tax rates compare?  The following table sets out tax payable using the basic scales so Working for Families, Australian Medicare etc are not included.  Note how Australia “whacks” non-Australian tax resident (“NR”) earners who pop over for a few months!  

Income	NZ Tax	Australian Tax	Australian NR tax
$37,000	5,459	3,388	12,025
$48,000	7,420	6,963	15,600
$70,000	14,020	13,138	22,750
$80,000	17,320	17,213	26,000
$100,000	23,920	26,213	33,400
$120,000	30,520	35,213	40,800
$140,000	37,120	44,213	48,200

So, at a basic tax rate level, above $80,000 New Zealand has lower rates and don’t pay Medicare, capital gains tax or stamp duty – food for thought!!!