The new KiwiSaver legislation introduction

Sections CS 10B, DC 6(1B), KJ 2(a), KJ 3, KJ 4(1), KJ 4(2) and (3), KJ 5(3), KJ 5(6)(a)(i), KJ 6 to KJ12, NE 3(6) and OB 1 of the Income Tax Act 2004; sections 3(1), 4A(3)(bc), 22(2)(1), 68C(3)(a), 68C(4), 120B(b), 138L(2)(ab), 143A(5)(h), 157(10), 183A(1)(h), 183ABA(3A), 183D(1)(bc) of the Tax Administration Act 1994; sections 4(1), 4(2), 5(1), 6(1)(a), 6(2)(b) and (c), 8(6), 10, 11, 12(1)(c) and (2)(b), 17, 18(1)(b)(v), 18(2), 23A, 28(c), 34(5), 36(1) and (1B), 40(1), 40(2), 46(2), 46(3)(b), 48(1), 48(2), 50(1), 50(3), 51(4)(a), 51(5), 56(3)(c)(iv), 57(3), new subpart 4 of Part 2: sections 59A to D, sections 62(c), 63A, 66, 66A, 73(3), 75(1), 75(3), 77(3), 80(1), 81(1), 84(2), 84(3), 85, 85(3), 86(2), 92A, 93, 98(3)(e), 98A, 99(2) and (4), new subpart 3A of Part 3: sections 101A to K, sections102(b)(iii), 113(5) and (6), 117A, 121(3)(a), 123(4), 123(5) and (6), 125A, 128A to D, 129, 153(d), 158(a), 161(1B), 161(2B), 162(2), 163(a), 164(2), 169(3), 186(5), 189B, 189C, 205A, 206, 210(2)(b)(ii), 211(1)(b) and (2), 214, 215, 216, 219, 221, 225(2), 226, 229, 230A and 234 of the KiwiSaver Act 2006; Schedule 1 clauses 2(2), 4(3), 8(8), 12(2), 12(3), 13, 14(2) and Schedule 4 of the KiwiSaver scheme rules; sections 2(1), 9BAA, 9D, 34, 35, 37 to 41 and Schedule 2 clauses 1(o) and 1(o)(iii) of the Superannuation Schemes Act 1989; regulations 6, 7, 20(4), 21, 27(b) and 30 to 32 of the KiwiSaver Regulations 2006; sections 8(1)(c)(v), 9(1)(c) and 14(c)(iii) of the Holidays Act 2003; sections CS 10B, DC 7(1), MK 1 to 4, MK 6, MK 8(2)(a), MK 9 to 16, RD5(1)(d), RD 66, YA 1 and schedules 28 and 49 of the Income Tax Act 2007

The legislation giving effect to compulsory employer contributions and the employer tax credit is contained in the Taxation (KiwiSaver) Act 2007, which received Royal assent on 19 December 2007, and applies from 1April 2008. The new Act also includes a number of other amendments. The most significant are changes to the member tax credit rules, the establishment of a process to deal with invalid KiwiSaver enrolments, changes to the definition of "salary and wages", changes to the complying fund rules, and regulatory regime changes.

Background

The government announced in Budget 2007 a number of changes to KiwiSaver that significantly increase the incentives to join the work-based savings scheme and to continue making regular contributions. The key changes included:

• A tax credit to members that matches their contributions to a KiwiSaver scheme or a complying superannuation fund (CSF)¹, up to a maximum of $20 per week. The legislation giving effect to the member tax credit was enacted in May2007, in the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007, and applies to contributions made from 1 July 2007.
• A compulsory employer contribution when an employee contributes to a KiwiSaver scheme or a CSF that will be phased in over four years, starting at 1 percent from 1 April 2008 and reaching 4percent of gross salary or wages from 1 April 2011. This was legislated for in the Taxation(KiwiSaver) Act 2007.
• An employer tax credit to reimburse employers for contributions they will be required to make into their employees' KiwiSaver scheme or CSF up to a maximum of $20 a week for each employee. This was also legislated for in the Taxation (KiwiSaver) Act 2007.

Key features

The new rules for KiwiSaver and complying funds involve changes to the KiwiSaver Act 2006, Income Tax Act 2004, Income Tax Act 2007, Tax Administration Act 1994, Superannuation Schemes Act 1989 and the KiwiSaver Regulations 2006. The main changes are:

• New rules for the member tax credit, the main changes being:
  • the period of membership for the purposes of calculating the member tax credit has been amended to include the period from the date that a contribution is first made or deducted from a person's salary or wages, and a definition of "creditable membership" has been introduced;
  • contributions received by the Commissioner but not transferred to a provider in the member credit year will count towards the calculation of the credit, and a definition for "member credit contributions" has been introduced; and
  • the formula for calculating the amount of credit has been clarified.
• Rules to establish compulsory employer contributions.
• Rules to establish the employer tax credit.
• Rules for dealing with "invalid KiwiSaver enrolments".
• Amendments to the definition of "salary or wages".
• New rules for minimum employee contributions.
• A number of changes have been made to the regulatory regime:
  • the definition of "independent trustee" has been amended to remove the requirement that the trustee be independent from the administration and investment managers of the scheme;
  • an amendment has been made to section 206 of the KiwiSaver Act to provide that persons are not investment brokers if they merely exercise a function, duty or power under the KiwiSaver Act;
  • a new section has been introduced to require all KiwiSaver schemes and CSFs to disclose their approach to responsible investment;
  • section 158 of the KiwiSaver Act has been expanded to enable the KiwiSaver register to include a sub-register of CSFs; and
  • a new section provides transitional relief for KiwiSaver and CSF providers for any non-compliance with any Act until 31 January 2007.
• A number of changes have been made with respect to CSFs:
  • the definition of "complying fund rules" has been amended;
  • compulsory employer contributions to CSFs must be allocated to the investment profile chosen by members and be fully vested;
  • the Superannuation Schemes Act 1989 has been amended to enable schemes that provide insurance benefits that are linked to superannuation accumulation to reduce those insurance benefits by the amount transferred if members elect to transfer their CSF accumulation to a KiwiSaver scheme; and
  • to obtain CSF status, a registered superannuation scheme will have to satisfy the requirements for the scheme to be registered before 1 July 2007.

A number of other changes have also been made and are included in this article.

See The new KiwiSaver legislation detailed analysis.

¹ A complying superannuation fund is a section within a registered superannuation scheme that has been approved by the Financial Markets Authority as having met certain criteria, such as KiwiSaver lock-in rules and portability.