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Inland Revenue

Tax Policy

KiwiSaver and voluntary bonding scheme payments

(Clause 96)

Summary of proposed amendment

Payments from voluntary bonding schemes administered by the Ministries of Health, Education and Primary Industries are to be excluded from the KiwiSaver Act 2006. Therefore, the requirements in the principal Act to make employee deductions and employer contributions will not apply to voluntary bonding scheme payments.

Application date

The amendment will apply from the date of enactment.

Key features

Section 4 of the KiwiSaver Act 2006 will be amended to exclude from the definition of “salary and wages” a payment under a voluntary bonding scheme that is funded by the Ministry for Primary Industries, the Ministry of Health or the Ministry of Education.


Three voluntary bonding schemes were established by the Government in 2009. They are administered by the Ministry for Primary Industries (previously the Ministry of Agriculture), the Ministry of Health and the Ministry of Education. The schemes seek to encourage recent graduates to work in hard-to-staff specialities and geographical locations within the relevant industries.

Payments are available for up to five years for doctors, nurses, midwives, teachers and veterinarians who work in specified areas. The intention is that the payment amounts (after tax) will be used by the applicants to reduce their remaining student loan debt.

Detailed analysis

For applicants who are employees, the voluntary bonding scheme payments are income in connection with employment and fall within the definition of “extra pay” within the Income Tax Act 2007.

The definition of “salary or wage” in the KiwiSaver Act 2006 includes extra pay (as defined in section YA 1 of the Income Tax Act 2007), unless otherwise excluded.

Therefore, for employees, a voluntary bonding scheme payment would fall within the definition of “salary or wages” for KiwiSaver purposes. If other process requirements are met, it would be possible for a percentage of the voluntary bonding scheme payment to be treated as an employee KiwiSaver contribution, and for the employer to be required to pay a compulsory employer contribution. The employer, under the KiwiSaver Act 2006, is the person making the payment, in this case the relevant Ministry administering the scheme.

This is an unintended consequence of the specific treatment of the payment under the Income Tax Act 2007 and is contrary to the policy intention that the voluntary bonding scheme be a payment towards the applicant’s student loan debt.

The KiwiSaver Act 2006 provides exemptions for specific government payments that are caught under the broad definition of salary and wages in the Income Tax Act 2007 but where there is not an employment relationship between the payer and the recipient. For example, payments of the unemployment benefit and student allowance are not subject to KiwiSaver requirements due to an exemption from the definition of salary or wages. The bill proposes a similar exemption for the voluntary bonding scheme payments.