From 1 April 2009 eligible tax payers earning between $24,000 and $44,000 will be entitled to an extra $10 each week. For eligible tax payers earning over $44,000 the independent earner tax credit decreases by 13 cents for every additional dollar earned.

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      McLEAN AND CO MARCH 2009  NEWSLETTER  PAGE 3     

Receiving the Tax Credit

If you're eligible you can choose to receive the IETC through your pay or as a lump sum at the end of the year. If you work for a sal ary or wage, you will receive the IETC through your pay. If you are self employed, or work as a contractor, you can claim the IETC as a lump sum after the end of the year.   

If you will receive the tax credit through your pay after 1 April 2009 you'll need to choose a new tax code: either ME or MESL (if you have a student loan).You'll need to let your employer know by completing a new Tax code declaration (IR330) form. You can only use this new tax code for your main job or source of income. Updated IR330 forms will be available from the start of March 2009.    If you will receive the tax credit at the end of the year you don't need to do anything yet.

If you're a sal ary or wage earner you'll need to request a Personal Tax Sum mary (if you don't usually receive one). IRD will calculate your tax credit for the first time and include it in your Personal Tax Sum mary calculation. You would receive your personal tax sum mary from July 2010.      If you are self employed or a contractor you can claim the tax credit for the first time on your IR3 return for the year ending 31 March 2010 .

Eligible for part of the Year?

If you receive the above forms of government assistance for part of the year and would otherwise qualify for the tax credit, you will be eligible for the months of the year you don't receive the above forms of government assistance.       For Example-    Jonah received the unemployment benefit from 1 April 2009 to 10 September 2009 . He then got a job working at Shelley's fish market. His total income for the year (including his unemployment benefit) was $24,000. Jonah will be eligible for the IETC from October onwards.

If you become a New Zealand resident during the year and you meet the other eligibility criteria you will be eligible for the tax credit for the full months of the year that they are resident.

Working for Families Tax Credit

If you, or your partner or spouse receives Working for Families Tax Credits (or a similar foreign entitlement) you won't be eligible for the IETC.

Student allowance, ACC, paid Parental Leave, Accommodation Supplement

If you receive a student allowance, ACC payments, paid parental leave or the accommodation supplement you will still be eligible for the independent earner tax credit if you meet the other eligibility criteria.  

EMPLOYERS

The changes to personal income tax rates and thresholds, and the introduction of the independent earner tax credit (IETC) will affect all employers. In the near future IRD will be issuing new PAYE tables as follows:

·          Weekly and fortnightly (IR340)

·          Monthly and four-weekly (IR341)

These new tables will apply for pay periods ending on or after 1 April 2009 .

IRD are also updating the IR330 so employees who want to receive the IETC through their pay can do this via a new tax code. The new tax codes are ME and MESL for employees with a student loan.     New employees starting work during March, who will be eligible for the IETC and are planning to use one of the new tax codes, will initially need to use one of the existing main income source tax codes. They will then need to complete another IR330 to start using ME or MESL from their first pay on or after 1 April.    If your employees’ circumstances change during the year this may mean their eligibility for IETC also changes. As a result, your employees may need to change their tax code several times during the year.

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      McLEAN AND CO MARCH 2009  NEWSLETTER  PAGE 4     

KIWISAVER CHANGES

For Members

From 1 April 2009 some changes are being made to KiwiSaver.

·          The minimum employee contribution will reduce to 2% of your gross pay.

·          The compulsory employer contribution (CEC) will increase to 2% and won't increase further in future years

·          The employer superannuation contribution tax (ESCT) exemption will be capped at the Compulsory Employer Contribution of 2%.

·          The employer tax credit (ETC) will be removed - this change affects employers, not KiwiSaver members.

·          The  fee subsidy will be removed.

·          The KiwiSaver Act has been amended and the Employer Relations Act amendment relating to KiwiSaver has been repealed so that your gross pay can't be reduced if you join KiwiSaver. This change is effective from 15 December 2008 .

If you're already a member of KiwiSaver you'll be able to reduce the amount you contribute from your pay to 2% from 1 April 2009 .

If you want to reduce your contribution, you'll need to let your employer know in writing. Either complete a new KiwiSaver deduction form (KS2) or write to your employer.

If you're a new member and you don't tell your employer how much you want deducted from your pay, the employer will assume you want to contribute 2%.

Your employer will increase their contribution to 2% (and won't increase it any further) from 1 April 2009 .

If your employer contributes more than 2% to your KiwiSaver account, from 1 April 2009 they'll have to pay tax on the portion of the contributions above 2%. This means there'll be less money going in to your KiwiSaver account.

If your employer contributes 2% there'll be no change to your employer contributions.

Reducing your contribution to 2% may affect the amount of Member Tax Credit you receive.

Depending on your income, if you do reduce your contribution to 2% it may affect how much  member tax credit (MTC) you receive.

If you're eligible, the Government will pay into your KiwiSaver scheme an annual member tax credit matching your contributions up to $1,042.86 per year (this works out to about $20 per week). If you reduce your contribution to 2% of your gross pay, you might not contribute enough to your KiwiSaver scheme to receive the maximum member tax credit. You can make voluntary contributions to your KiwiSaver account so that your contributions total $1,042.86 each year.

If your income is less than $52,000 and you reduce your contributions to 2% of your gross pay, you'll need to make voluntary contributions if you want to receive the maximum member tax credit.     If your income is more than $52,000 you can reduce your contributions to 2% of your gross pay and you'll still receive the maximum member tax credit.

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      McLEAN AND CO MARCH 2009  NEWSLETTER  PAGE 5     

For Employers

From 1 April 2009 some changes are being made to KiwiSaver.

·          The minimum employee contribution rate will reduce to 2% of a member's gross pay.

·          The  compulsory employer contribution (CEC) will increase to 2% and won't increase further in future years.

·          The employer superannuation contribution tax exemption (ESCT) will be capped at the compulsory employer contribution rate of 2% from 1 April 2009 . (That is equivalent to 2% of the employee's gross sal ary or wages and is subject to KiwiSaver contributions being made by your employee.)

·          The   employer tax credit (ETC) will be removed.

·          The fee subsidy will be removed - this change affects KiwiSaver members, not employers.

·          The KiwiSaver Act will be amended and the Employer Relations Act amendment relating to KiwiSaver will be repealed so that gross pay can't be reduced for staff who join KiwiSaver.  

You'll need to increase your employer contribution rate to 2% from 1 April 2009, but won't be required to contribute more than this amount in future years unless you want to.  

You may need to reduce the contribution rates for existing KiwiSaver employees if they notify you that they would like to change their contribution rate to 2%.  You should ask your staff for written confirmation of their intention to reduce their contribution rate - ask them to complete a new KiwiSaver deduction form (KS2) or to write to you. There is no need to contact IRD.     New employees who join and are automatically enrolled after 1 April 2009 and who don't tell you how much they want deducted from their pay will have a default rate of 2% deducted from their gross pay.  

If you choose to contribute more than 2% into the KiwiSaver accounts of your employees (that is more than the amount exempt from employer superannuation contribution tax), you'll have to pay employer superannuation contribution tax (ESCT) on the contributions above 2%.      ESCT can be taxed in one of the following ways:

·          at a flat rate of 33 cents in the dollar;

·          an optional ESCT rate based either on the annual sal ary or wages paid to the employee in the previous standard tax year (where the employee was employed for all of that year), or an estimate of the total amount of sal ary or wages that the employee will earn in the year ahead (where the employee was not employed for all of the previous tax year). This option is offered at the discretion of the employer.   Examples of the calculation on this basis are on the IRd website.

·          treat the employer contribution as sal ary or wages, for which you'll need the agreement of your employee.

Examples:

Eddie is a KiwiSaver member and employed by ABC Limited. He is having 4% of his sal ary and wage deducted as an employee contribution and his employer is contributing 2%.

His weekly sal ary is $900.

From 1 April 2009 ABC Limited will be contributing employer contributions at the rate which is required under the KiwiSaver Act 2006 and therefore won't be liable for ESCT.

Joanne is a KiwiSaver member and employed by Black Limited. Joanne is having 4% of her sal ary and wage deducted as an employee and her employer has agreed, as part of her wage negotiation, to match the employer contributions dollar for dollar. This means that the employer is also contributing 4% as employer contributions.

Joanne's weekly sal ary is $1,200. Currently she is saving:

However, from 1 April 2009 , as Black Limited is paying at a rate over and above that required in the KiwiSaver Act 2006 for employer contributions, they'll be required to pay ESCT on the portion which is deemed to be voluntary.  

ESCT is paid on your IR345 Employers Deductions monthly return to IRD. The cost of this is a tax deductible expense.