KiwiSaver
ON-PAYMENT OF KIWISAVER EMPLOYER CONTRIBUTIONS
(Clauses 4(1), 16, 17, 18, 20, 21, 26 to 32, and 36)
Summary of proposed amendment
The proposed amendments would allow Inland Revenue to pay employer contributions to a member’s KiwiSaver scheme provider based on employment income information, in advance of the employer paying the contribution to Inland Revenue.
Application date
The proposed amendments would apply from 1 April 2020.
Key features
The proposed amendments would allow Inland Revenue to pay KiwiSaver employer contributions (both compulsory and voluntary) to scheme providers, before the contribution amount has been received by Inland Revenue. Employer contributions would be paid to providers as soon as practicable after employment income information was filed with Inland Revenue indicating that an employer contribution had been made for a pay period.
Along with the other KiwiSaver amendments in this Bill, this change would improve the administrative efficiency of KiwiSaver as it would facilitate the earlier transfer of employer contributions to KiwiSaver scheme providers. This would result in a member’s employer contributions being invested by their scheme providers sooner.
The proposal would also align with the existing treatment of KiwiSaver employee contributions.
Background
Under current KiwiSaver settings, Inland Revenue on-pays employee contributions to a member’s scheme provider as soon as practicable after receiving payday employment income information that an employee contribution amount has been deducted from the member’s salary and wages. As employment income information is due with Inland Revenue prior to the due date for payment of these deductions, this means that employee contributions can be on-paid to scheme providers sooner than they otherwise would be.[1]
The law currently provides no comparable arrangement for employer contributions. Instead, when Inland Revenue receives employment income information relating to an employer contribution, the employer contribution is not on-paid to the KiwiSaver scheme provider until the contribution amount has been paid to Inland Revenue by the employer. This makes it difficult for members to reconcile the amounts in their KiwiSaver account with the contribution amounts listed on their payslips. It also means that employer contributions are not invested by scheme providers as soon as employee contributions.
Detailed analysis
All section references are to the KiwiSaver Act 2006.
Amendments to Inland Revenue KiwiSaver Holding Account rules (Part 3, subpart 2)
Under existing section 72 Inland Revenue is required to establish a memorandum account – called the “Inland Revenue KiwiSaver Holding Account” – which all contributions made under the Act must be paid into in the first instance.
The existing Act contains a provision which allows Inland Revenue to pay employee contributions to a KiwiSaver scheme provider based on employment income information, before the contribution is paid to Inland Revenue by the employer. Section 73(3) provides that after being paid into the Inland Revenue KiwiSaver Holding Account, these contributions must be paid out of the Holding Account to a KiwiSaver scheme provider as soon as practicable. The proposed amendments to subsections 73(1) and (2) would allow Inland Revenue to on-pay employer contributions to a KiwiSaver scheme provider under section 73(3), in addition to employee contributions.
Under amended section 73(1), before on-paying the contribution amount to the scheme provider Inland Revenue should be satisfied that the contribution has actually been deducted from salary and wage or for employer contributions that the employer is able to make the contribution at the time it was reported in the employment income information. However, in the absence of evidence to the contrary, Inland Revenue can assume that if an amount has been reported on employment income information this is the case. Under the existing Act the entitlement for Inland Revenue to make this assumption about employee contributions is included in section 73(6), but it is proposed this entitlement be moved to new section 221B and extended to employer contributions.
Proposed new section 73(1) would also clarify that section 73 only applies to employee and employer contributions that are on-paid to a KiwiSaver scheme provider by Inland Revenue before the contribution is paid to Inland Revenue by the employer. Employee and employer contributions that are not on-paid to a scheme provider before the contribution is paid to Inland Revenue, would be captured by existing section 74 and treated as being held on trust under this section. Contributions received by Inland Revenue that are neither employee or employer contributions would also continue to be subject to section 74 (section 95 allows for a person who is not an employer to make contributions to a KiwiSaver account by paying them to Inland Revenue).
The Act contains a provision to prevent the employee being disadvantaged by their employer failing to pay deductions to Inland Revenue. Existing section 78(a) provides that Inland Revenue must pay an amount of the unpaid employee contribution from a Crown Bank Account into the Inland Revenue KiwiSaver Holding Account if the employer has not paid the contribution amount by its due date. Proposed new section 78 would extend this to allow Inland Revenue to also pay the amount of unpaid employer contributions.
It is also proposed to repeal section 76 which allows Inland Revenue to wait to on-pay an employer contribution until a member’s employee contribution is next on-paid to a KiwiSaver scheme provider. As the proposed amendments would allow employee and employer contributions to be on-paid to a KiwiSaver scheme provider at the same time, this provision is no longer necessary.
Cross-referencing and nomenclature amendments are also proposed to sections 71 and 74(3).
Amendments to employer contribution rules (Part 3, subpart 3)
It is proposed to repeal sections 98 and 99 which set out rules for how part payments of employer contributions to Inland Revenue are treated. Part payment rules are no longer required as the proposed amendments above would allow employer contributions to always be on-paid in full to a scheme provider. In their place new section 95B is proposed. Proposed section 95B would specify when an employer contribution shown on employment income information would be treated as received by Inland Revenue for the purpose of the KiwiSaver Act 2006, where the contribution was not paid to Inland Revenue by or before its payment due date. This provision would be consistent with the existing rule for employee contributions in section 69.
The amendments to section 73 requiring the on-payment of employer contributions to a KiwiSaver scheme provider as soon as practicable after they are paid into the Inland Revenue Holding Account would be subject to proposed new sections 95C and 95D. Where an employer has failed to provide particulars required by Inland Revenue about an employer contribution reported in employment income information, proposed new section 95C would allow Inland Revenue to wait to on-pay the contribution until it can be established which member it should be attributed to. Proposed new section 95D would provide that such a contribution would not be treated as being received by Inland Revenue until the date it was established who it was attributable to. These provisions would be consistent with the existing rules for employee contributions in sections 70 and 71.
Proposed new section 101(1B) would provide that where an employee opts-out after an employer contribution has already been on-paid to their scheme provider the amount must be refunded to Inland Revenue. Proposed new section 101AA would provide that where this amount has been paid out of a Crown Bank Account and the amount has not subsequently been received from the employer, the employer contribution amount must be refunded to a Crown Bank Account. This would ensure that an employer was not refunded an amount they had not paid.
Employee and employer contributions are required to be held by Inland Revenue for the duration of the standard opt-out period (an amendment also proposed in this Bill would reduce this holding period for initial contributions from 92 days to 62 days, while the opt-out period ends 55 days after a person has been automatically enrolled in KiwiSaver). Therefore, the proposed amendments to the opt-out refund rules would only have limited application in circumstances when the late opt-out rules have been applied.
A similar amendment to the one proposed to the opt-out refund rules is not proposed for refunds resulting from a person being invalidly enrolled in KiwiSaver, as existing section 59D(4) already allows refunds of contribution amounts (without reference to the specific contribution type) to the Crown where appropriate, in invalid enrolment situations.
Cross-referencing and nomenclature amendments are also proposed to sections 93(5), 96 and 98A.
OTHER KIWISAVER ADMINISTRATIVE REFINEMENTS
(Clauses 4(2) and (4), 5, 6, 7(2) and (3), 8 to 15, 19, 22 to 25, 33 to 38, and 132)
Summary of proposed amendment
A number of additional technical amendments are proposed to the KiwiSaver Act 2006 aimed at enhancing Inland Revenue’s administration of KiwiSaver. In particular, the amendments aim to ensure that KiwiSaver members receive the correct contribution amounts and to facilitate the faster transfer of contributions to KiwiSaver scheme providers.
Application date
The proposed amendments would apply from 1 April 2020.
Key features
- Reducing the KiwiSaver provisional period (during which individuals who are automatically enrolled in KiwiSaver are provisionally allocated to a default KiwiSaver scheme) and initial holding period from three months to two months.
- Aligning the date KiwiSaver contributions are treated as received by Inland Revenue with a member’s payday.
- Reducing the maximum period within which a scheme provider has to send information and funds to a new scheme provider when a member transfers schemes, from 35 days to 10 working days.
- Allowing members to change their contribution rate through their scheme provider or Inland Revenue, in addition to their employer.
- Requiring employers to provide Inland Revenue with information about an employee’s KiwiSaver income and ESCT rate.
- Removing the three-month grace period for members who have been incorrectly enrolled in KiwiSaver, to gain New Zealand residence.
Detailed analysis
All section references are to the KiwiSaver Act 2006 unless otherwise stated.
Reducing the KiwiSaver provisional period and initial holding period (sections 4, 18, 48, 51, 57, 59B, 64, 75, 81, 88, 104, 108, 112B and 226 amended)
Where an individual has been automatically enrolled, opted-in via their employer or is no longer eligible to be a member of their existing KiwiSaver scheme, under section 50 the individual will be provisionally allocated to a default KiwiSaver scheme. Section 51(4) provides that this provisional allocation will be made final three months after being allocated to the scheme. The effect of this is that if the individual does not make an active choice to join another KiwiSaver scheme before the end of the three-month period, they will be treated as having accepted the offer of membership to the scheme they were provisionally allocated to. The provisional period is distinct from the KiwiSaver opt-out period (which applies from day 13 until the end of day 55 after a person has been automatically enrolled in KiwiSaver).
As a consequence of the provisional period being set at three months section 75 requires that a member’s initial contributions are also held by Inland Revenue for three months before being on-paid to the member’s KiwiSaver scheme provider.
It is proposed that section 51(4)(a) and (b) be amended so that the provisional period be reduced from three months to two months. Section 75 would also be amended so that the initial holding period was also reduced from three months to two months. As they would be receiving a member’s initial contributions earlier, scheme providers would become aware they had been allocated a default member sooner and would be able to engage with the member about their investment options earlier. It would also mean a member’s initial contributions were invested by scheme providers sooner. Moreover, members would still have the opportunity to transfer between schemes after the provisional period ended if they wished to.
As a result of reducing the initial holding period it is proposed that an amendment be made to section 81(1) so that in addition to being required to refund contributions to Inland Revenue that were more than was required to be paid under the Act, a scheme provider would also be required to refund contributions to Inland Revenue when a member opts out. This provision would apply where the KiwiSaver late opt out rules have been used, which can be up to three months after a person has been automatically enrolled in KiwiSaver (previously such a rule was not necessary as the late opt-out period ended at the same time as the initial holding period). A similar amendment has been made to the employer contribution specific refund rules and is discussed in the section about on-payment of KiwiSaver employer contributions.
Currently, section 4(3) of the Act defines “3 months” to mean 92 days. It is proposed that section 4(3) be repealed and where appropriate references in the Act to “3 months” are replaced with “92 days”. Instead of being expressed as “2 months”, section 51(4) would also refer to “62 days”.
Consequential amendments to sections 48(1)(d), 56(4) and 226(1B) and (1C) are also proposed to align with the reduced provisional and holding periods.
Aligning the date KiwiSaver contributions are received with member’s payday (proposed sections 95B and 221B and sections 4, 69, 78, 85 and schedule 1, clause 8 amended)
Under existing section 85(1), employee contributions are treated as received by Inland Revenue on the 15th of the month they were deducted from the member’s salary or wages, for the purpose of determining when interest calculations commence on employee contributions while they are held by Inland Revenue. Sections 69(2), 78(b) and schedule 1, clause 8 also contain a 15th of the month timing rule for employee contributions – these provisions relate to when unpaid employee contributions are treated as received and when employee contributions are treated as received for the purpose of the KiwiSaver first home withdrawal rules.
Section 85(3) provides that employer contributions are treated as received on the first of the month that Inland Revenue received payment for the contribution. The reason employer contributions are treated as received on a different date from employee contributions, was a result of the fact employer contributions could not be on-paid to a scheme provider until the contribution amount had been paid to Inland Revenue. If interest was calculated from the 15th of the month and there was a delay in the employer contribution amount being paid to Inland Revenue, this would create a risk that Inland Revenue would be required to pay interest on these contributions for an extended period of time. The proposed on-payment of employer contributions amendment outlined above means it would no longer be necessary to treat employee and employer contributions differently for timing purposes.
The current timing rules reflect the fact that previously Inland Revenue did not have sufficient information to determine the date of an employee’s payday. This timing approach is unsatisfactory as it results in the under and over payment of interest on employee contributions and underpayment of interest on employer contributions.
New employment income information requirements came into effect from 1 April 2019. Employers are now required to report the date of their employee’s payday to Inland Revenue. Therefore, it is proposed that sections 69, 78 and 85 are amended so that employee contributions would be treated as received by Inland Revenue on the date of the member’s payday as reported by the employer. Similarly, amended section 85 and new section 95B(2) (which relates to the date employer contributions are treated as received for the on-payment of employer contributions amendments above) would specify that employer contributions were also treated as received on the date of the member’s payday.
All of the proposed amendments would include a carve out stating that where an employer has not provided information to Inland Revenue about an employee’s payday, both employee and employer contributions would be treated as received on the 15th of the month that the employee contribution was deducted/employer contribution was made for. This would cover situations where Inland Revenue has granted an employer a variation for employment income information requirements, which results in them not being required to report the date of their employee’s payday.
Under existing sections 69 and 85 Inland Revenue should be satisfied that an employee contribution has actually been deducted from salary and wages for these sections to apply. Similarly, it is proposed that for employer contributions proposed section 85 and new section 95B would require Inland Revenue to be satisfied the employer is able to make the contribution at the time it was reported in the employment income information for these sections to apply. Proposed new section 221B would entitle Inland Revenue to assume that if an amount was included on employment income information these requirements were met for employee and employer contributions unless there was evidence to the contrary.
An amendment is also proposed to section 4 to clarify that “payday” would have the same meaning as it does in the Tax Administration Act 1994.
Transfer of member’s information and funds to a new scheme provider (sections 56 and 57 amended)
Section 56(4) specifies that where an existing KiwiSaver member decides to transfer schemes, the old scheme provider must send the member’s funds and relevant information to the new scheme, within 35 days of receiving notice that the member has opted to transfer schemes. However, KiwiSaver default provider Instruments of Appointment require them to complete these transfer requirements within 10 working days of receiving notice that the member has transferred schemes.
It is proposed the above section be amended so that the legislatively mandated transfer time is reduced from 35 days to 10 working days. This would result in the transfer time being aligned across all KiwiSaver scheme providers. A consequential amendment is also proposed to section 57(5).
Changing employee contribution rates (section 64 amended)
Under section 64(2) an employee can choose what KiwiSaver contribution rate they wish to have contributions deducted from their salary or wages at by giving notice to their employer. It is proposed that this section be amended so that a member would be able to change their contribution rate by contacting Inland Revenue or their KiwiSaver scheme provider, in addition to their employer. This would reduce compliance costs for members who may be more likely to engage with Inland Revenue or their scheme provider in the first instance about contribution rate changes.
Proposed new section 64(2B) to (2D) outline information that would need to be provided by a member or a scheme provider to Inland Revenue where a contribution rate change is made, and what information Inland Revenue would be required to subsequently provide a member’s employer to ensure the contribution rate change is given effect to.
KiwiSaver income and ESCT rate information (proposed section 63B of the KiwiSaver Act 2006, and 93 amended of the KiwiSaver Act 2006 and schedule 4 of the Tax Administration Act 1994)
As part of the KiwiSaver on-boarding process, employers are required to provide Inland Revenue with certain information about new enrolments to the scheme.
To improve Inland Revenue’s ability to ensure that KiwiSaver members are receiving the correct KiwiSaver contribution amounts and that these amounts are taxed at the correct rate, it is proposed that employers should provide the following KiwiSaver information to Inland Revenue:
- Proposed new section 63B: The amount of salary and wages a KiwiSaver deduction is made from for an employee, if there is a difference between amounts that an employer must treat as gross earnings for the purpose of calculating PAYE tax obligations and amounts they must treat as salary and wages for the purpose of calculating KiwiSaver employee and employer contribution amounts. If there is a difference between amounts that an employer must treat as gross earnings (for calculating PAYE deductions) and amounts they must treat as salary and wages (for calculating KiwiSaver employer and employee contributions), then the employer must report the latter. There are some amounts that are treated as income for PAYE that are exempt for KiwiSaver purposes. (Some examples of amounts included in gross income for PAYE that are not included within the definition of salary and wages for KiwiSaver are the value of accommodation, a benefit from an employee share scheme or a redundancy payment).
- Proposed new section 93(7): Where the employer is reporting information to Inland Revenue on employer KiwiSaver contributions (that is all employers making KiwiSaver employer contributions) the employee’s employer superannuation contribution tax (ESCT) rate.
It is not proposed that employers would provide this information every payday. Instead, the employer would report to Inland Revenue about new employees or existing employees where the information has changed since the last KiwiSaver employee contribution was deducted or employer contribution was paid for that member. This would mean employers would not have to provide this information about existing employees who are KiwiSaver members when the proposals came into effect.
Consequential amendments are also proposed to schedule 4 of the Tax Administration Act 1994, to clarify that the proposed new reporting requirements fall within the ambit of what is considered employment income information under that Act.
KiwiSaver invalid enrolment residence grace period (sections 59B, 59C and 59D amended)
Section 59A provides that when an individual does not meet the KiwiSaver residency requirement, the invalid enrolment rules will apply. However, under section 59B the member will be treated as meeting the KiwiSaver residence requirement for the first three months after the invalid enrolment is discovered. Section 59C then provides if the person becomes someone who meets the residence requirement within this three-month period, the enrolment will be retrospectively validated and their KiwiSaver account would remain open.
In practice, the three-month residence grace period has not operated as intended, as non-residents who have been enrolled in KiwiSaver typically do not intend to become a resident in the short-term (for example, individuals on temporary work visas). Therefore, it is proposed that new section 59B(2)(ab) be inserted. Where an individual has been invalidly enrolled on the basis of not meeting the residence requirement, this provision would result in their membership ending as soon as their scheme provider discovers, or is notified about, the invalid enrolment.
Proposed amendments to section 59C(1) would clarify that where a person who did not meet the residence requirement was invalidly enrolled this enrolment could not be retrospectively validated. While amendments to section 59D(1) would confirm that the refund process set out under this section, for contributions that a person had made while invalidly enrolled, would apply if an individual’s account had been closed on the basis of them not meeting the residence criteria when enrolled.
The effect of these amendments would be to remove the three-month residence grace period and mean the member’s account would be closed immediately. The individual would then be able to open a new KiwiSaver account if they later became a resident.
[1] Under the payday filing requirements, employment income information is due within 2 days or 10 days of a payday depending on the size of the employer. Payment is not due until the 20th of the month and the 5th of the following month for large employers. For other employers, payment is not due until the 20th of the following month.