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Inland Revenue

Tax Policy

Consistency between the PAYE rules and KiwiSaver rules for school children

(Clause 77)

Summary of proposed amendment

The KiwiSaver rules are being amended to ensure that, if PAYE is not required to be deducted from a child’s salary or wage if they receive the tax credit for children, no KiwiSaver deductions are required to be made.

Application date

The amendment will apply from 1 July 2010 or the date of enactment of the legislation, whichever is later.

Key features

If a child has the tax credit for children under section LC 3 of the Income Tax Act 2007, Inland Revenue can reduce the amount of tax for a PAYE income payment. This can be done if the tax credit fully covers the child’s PAYE liability (if their annual earnings are less than $2,340).

If a child has validly opted into KiwiSaver and is employed, the child is required to have KiwiSaver deductions made from his or her wages. It is the policy intent that, if no tax deduction is required to be made from the payment of salary or wages at the time the payment is made, in accordance with the PAYE rules, then there is no requirement for KiwiSaver contributions to be made. However, section 67 of the KiwiSaver Act 2006 prevents this from happening.

The proposed amendment will mean that a child does not need to make regular contributions to KiwiSaver from their salary or wages if PAYE is not required to be deducted. A child may still choose to contribute to KiwiSaver by giving his or her employer a deduction notice.