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KiwiSaver Changes in the Budget
Tax Treatment when Cashing up Annual Holidays
Labour Law Changes
The main points of the Government's 2011 Budget:
- For KiwiSavers that means a halving of the member tax credit while their employers will now pay employer superannuation contribution tax. From 2013 employers will have to contribute at least 3 percent (up from 2 percent) while employees will have to pay the same amount more.
- Working for Families changes will revise abatement thresholds so wealthier people are less likely to be eligible.
- Student loans will be restricted for those with overdue payments and people aged over 55 will only be able to get loans for tuition fees. Part-timers will be able to borrow less and the repayment holiday for students who go overseas will be reduced to one year from three.
KIWISAVER CHANGES IN THE BUDGET
The Government's weekly contributions to KiwiSaver will be sliced in half by changes announced in the Budget.
The Budget confirms a series of changes to the scheme with the members and their employers asked to bump up their minimum contributions from 2 to 3 per cent of income, and the Government halving its member tax credit.
The first step, on April 1, 2012, will see tax introduced on the full minimum two per cent employer contributions. Currently, tax only applies to employer contributions over two percent, so the change will reap more revenue for the Government and initially shrink the amount going in to KiwiSaver accounts.
Three months later, on June 30, 2012, the member tax credit will be halved from the current dollar for dollar contribution by the Government down to 50c. That means the maximum member tax credit paid out by the Government will fall from $1040 per annum to $521.
Nine months after the Government's contribution is halved, employers will have their minimum contributions lifted from two to three per cent. At the same time, on April 1, 2013, workers will also be required to lift their minimum contributions from two to three per cent.
The $1,000 Kick-Start is unchanged.
Changes to the Holidays Act 2003 now allow employees to "cash in" up to one week of their annual leave entitlement. The following clarifies the tax treatment of this payment to employees.
If an employee and employer agree to cash up a weeks annual leave it should be treated as an extra pay or unexpected bonus. As it's taxable income, PAYE should be calculated using the rates for extra pays. Your employees may need to check the correct amount of PAYE has been withheld over the tax year.
Your employee's Child Support liabilities and Working for Families Tax Credits entitlements may also need to be adjusted if their family income has changed.
LABOUR LAW CHANGES
On 1 April, 2011, new changes to Employment Legislation came into law. The Department of Labour Website has been completely updated with this information.
Information about the following, and other relevant, subjects, is available on the above website:
Changes to Employment Agreements
From 1 July 2011, all employers will be required to:
Labour Inspectors will be able to seek a penalty in the Employment Relations Authority where employers do not comply. Employers will be given written notice and have seven working days to fix the issue before they risk a financial penalty for breaching the law.
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