Amendments to other Acts

Schedule 3 makes amendments to other Acts. Some of the more significant amendments are:

• the Superannuation Schemes Act clarifies that a KiwiSaver scheme may be a member of a registered superannuation scheme for investment purposes;
• interest paid by Inland Revenue on KiwiSaver contributions held in the holding account will be exempt income for tax purposes;
• details of KiwiSaver contributions from employers that are paid via Inland Revenue must be shown on the employer monthly schedules, together with remittance certificates required under the PAYE rules;
• funds in a KiwiSaver scheme will not be taken into account in asset testing for the accommodation supplement, but funds already withdrawn from a KiwiSaver scheme will be;
• funds in a KiwiSaver scheme that are locked in will not be taken into account in asset testing for longterm residential care in hospitals or rest homes;
• after approval from the Government Actuary, transfers between schemes can be made without the need for member consent provided that the terms and conditions of membership of the new scheme are no less favourable than those in the old scheme.

Exemption from SSCWT

Amendments to section NE of the Income Tax Act exempt specified superannuation contributions (employer contributions) from specified superannuation contribution withholding tax (SSCWT), if the contribution is paid to an employee's KiwiSaver scheme and it does not exceed the cap provided. The cap is the lesser of the employee's contribution or 4 percent of the employee's gross salary or wages. The cap is adjusted according to previously exempted amounts and how long the employer has been deducting KiwiSaver contributions from the employee's salary or wages.

The exemption applies to employer contributions that are made on a pay-by-pay basis as well as to lump sum payments to a member's KiwiSaver scheme. To calculate whether an employer contribution is eligible for the exemption, employee contributions from the previous 12 months are taken into account. The cap applies on a rolling basis and is not tied to a particular year.

The Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 extended the SSCWT exemption so that it also applies to employer contributions to complying superannuation funds. A complying superannuation fund is a registered superannuation scheme that has incorporated certain KiwiSaver rules - in particular, lock-in and portability. Approval from the Government Actuary that the requisite criteria have been met is a condition of the exemption.

Exemption for employer contributions to a KiwiSaver scheme

SSCWT does not apply if a specified superannuation contribution is for an employee's KiwiSaver scheme and is up to the lesser of:

• an amount equal to 0.04 x total salary or wages
  • previous exempt contributions;
• an amount equal to total KiwiSaver contributions
  
  • previous exempt KiwiSaver contributions;

where -

"total salary or wages"

means the total salary or wages paid to the employee in the KiwiSaver calculation period, but excluding salary or wages for which there are no KiwiSaver contributions (the contributions deducted under Part 3, subpart 1 of the Act).

"previous exempt contributions"

means the total specified superannuation contributions for the employee, to the extent that:

• the contributions are made in the KiwiSaver calculation period, but excluding the current specified superannuation contribution; and
• either the KiwiSaver SSCWT exemption or the complying superannuation fund SSCWT exemption applied to those contributions (excluding the current one).

"total KiwiSaver contributions"

means the total KiwiSaver contributions deducted from the salary or wages paid to the employee in the KiwiSaver calculation period.

"KiwiSaver calculation period"

means, for the current specified superannuation contribution, a period:

• beginning with the later of:
• one year before when the employer makes the current specified superannuation contributions;
• when the employer is first required to deduct KiwiSaver contributions from the employee's salary or wages; and
• ending when the employer makes the current specified superannuation contribution.

"previous exempt KiwiSaver contributions"

means the total specified superannuation contributions for the employee's KiwiSaver scheme, to the extent that:

• those contributions are made in the KiwiSaver calculation period, but excluding the current specified superannuation contribution; and
• the KiwiSaver SSCWT exemption applied to those contributions (excluding the current one).

Exemption for employer contributions to a complying superannuation fund

The Superannuation Schemes Act 1989 was amended to allow the Government Actuary to approve a registered superannuation scheme as a complying superannuation fund for the purposes of the Income Tax Act 2004. The $1,000 Crown contribution and the fee subsidy will not be paid to members of a complying superannuation fund.

An application for approval of a scheme must be accompanied by all information relevant to the Government Actuary dealing with the application. The Government Actuary must complete consideration of whether or not the scheme is approved as a complying superannuation fund within 28 days after receiving an application. The Government Actuary must approve a scheme if:

• the scheme and any relevant participation agreement have rules that subject the relevant contributions to complying fund rules;
• the scheme is a defined contribution scheme (a scheme in which contributions are allocated to members on an individual basis);
• the scheme has at least 20 members (associated persons are treated as being one person);²⁰
• the scheme is registered on or before 1 July 2007; and
• any relevant participation agreement is entered into on or before 1 July 2007.

The Government Actuary must notify the applicant whether or not the registered scheme is approved as a complying superannuation fund as soon as practicable after completing consideration. If the relevant scheme is approved, the Government Actuary must notify the Commissioner at the same time as notice is given to the applicant of that approval. Approval is effective on and after the date the Government Actuary must complete consideration, or earlier if consideration is completed earlier. The notices must give the date on which approval is effective.

If the Government Actuary has reasonable cause to believe that a registered scheme no longer meets the requirement, or has failed to specify certain information in an annual report, the Government Actuary may revoke approval immediately. As soon as practicable after revoking approval, the Government Actuary must notify:

• the registered scheme;
• the person who originally applied for the approval; and
• the Commissioner.

The information required in the annual report must include:

• the market value of assets subject to complying fund rules;
• the number of members to which the assets relate; and
• the value of withdrawals subject to complying fund rules.

Revocation is effective from the date the Government Actuary revokes approval. The notices must contain the revocation date. A scheme that is notified that approval has been revoked must immediately notify each member affected and their employers. At the same time, the registered scheme must notify the Commissioner of each member affected, and their employers.

Complying fund rules

Section OB 1 of the Income Tax Act 2004 sets out the rules that must apply to the relevant contributions for the Government Actuary to approve a scheme as a complying superannuation fund (the complying fund rules).

The complying fund rules must be the same as for KiwiSaver schemes in respect of:

• lock-in until the age of eligibility for New Zealand superannuation or five years of membership is reached;
• complying with the provisions of any enactment that requires a trustee to release funds from the scheme in accordance with that enactment; and
• withdrawal upon death.

The complying fund rules can (but are not required to) allow for the following KiwiSaver withdrawals:

• first home ownership;
• significant financial hardship;
• serious illness; and
• permanent emigration.

The complying fund rules:

• cannot allow for withdrawals under any other circumstances;
• must require a transfer of all or part of an employee's superannuation accumulation to another complying superannuation fund or to a KiwiSaver scheme (provided the requirements of the KiwiSaver Act are met) if the employee requests a transfer;
• must require that an employee's superannuation accumulation is subject to complying fund rules if it is transferred to another complying superannuation fund;
• must require a transfer of an employee's superannuation accumulation to a KiwiSaver scheme, if the employee does not request a transfer and the employee:
  • ceases to be a member of their complying superannuation fund;
  • cannot remain a member for any other reason (other than described above or revocation of a fund as a complying superannuation fund) or a withdrawal of all or part of an employee's superannuation accumulation in accordance with complying fund rules;
• must require transfer of an employee's superannuation accumulation to a KiwiSaver scheme, if the Government Actuary revokes approval of the superannuation fund and the accumulation is not transferred to another complying superannuation fund and is not subject to complying fund rules;
• must require total minimum superannuation contributions to be deducted in relation to an employee of at least the amount required to be contributed to a superannuation scheme for an employer to be approved as an exempt employer (4% of the annual gross base salary or wages):
  • as with contributions to a KiwiSaver scheme, employee and employer contributions can count towards this amount;
  • if employer contributions count, they must vest immediately and completely in the employee;
  • do not count a superannuation contribution unless the contribution is for the payment of future benefits to the employee, or for fees under the superannuation fund (for example, contributions to pay for life insurance do not count);
• must not allow the member's interest in the complying superannuation fund to be assigned or charged or passed to any other person;
• must commit an employee to continue to be a member unless otherwise provided by the rules above; and
• must not derogate from the rules above.

If a transfer is required, but is not requested by the employee, the Commissioner must be notified that the employee's superannuation accumulation must be transferred, including in that notice the name, address and tax file number of the employee, the name and address of their employer, and the name and tax file number of the employee's complying superannuation fund.

An employee's superannuation accumulation means the total superannuation contributions, together with any return on them, that are subject to complying fund rules and are:

• specified superannuation contributions (employer contributions) vested completely in an employee; and
• deducted from the employee's salary or wages.

The transfer provisions in the KiwiSaver Act have been amended to accommodate transfers from a complying superannuation fund to a KiwiSaver scheme.

SSCWT does not apply to the extent that a specified superannuation contribution is for an employee's complying superannuation fund and is up to the lesser of:

• an amount equal to 0.04 x total salary or wages
  • previous exempt contributions;
• an amount equal to total complying fund contributions - previous exempt complying fund contributions;

where -

"total salary or wages"

means the total salary or wages paid to the employee in the complying fund calculation period, but excludes salary or wages for which there are no superannuation contributions for the employee's complying superannuation fund that are subject to complying fund rules.

"previous exempt contributions"

means the total specified superannuation contributions for the employee, to the extent that:

• those contributions are made in the complying fund calculation period, but exclude the current specified superannuation contribution; and
• either the KiwiSaver SSCWT exemption or the complying superannuation fund SSCWT exemption applied to those contributions (excluding the current one).

"total complying fund contributions"

means the total superannuation contributions that are:

• deducted from the employee's salary or wages in the complying fund calculation period; and
• subject to complying fund rules.

"complying fund calculation period"

means, for the current specified superannuation contribution, a period:

• beginning with the later of:
• one year before the employer makes the current specified superannuation contributions;
• when the employer is first required to deduct superannuation contributions that are subject to complying fund rules from the employee's salary or wages; and
• ending when the employer makes the current specified superannuation contribution.

"previous exempt complying fund contributions"

means the total specified superannuation contributions for the employee's complying superannuation fund, to the extent that:

• those contributions are made in the complying fund calculation period, but exclude the current specified superannuation contribution; and
• the complying superannuation fund SSCWT exemption applied to those contributions (excluding the current one).

²⁰ All interests in a registered scheme or account held by persons associated under section OD 8(3) of the Income Tax Act 2004 are treated as being held by one person.