Further help for saving as KiwiSaver tax exemption extended
The tax exemption for employer contributions to KiwiSaver will be extended to other registered superannuation schemes, Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced today.
Tuesday, December 12th 2006, 10:39AM
"This is a further significant step to help New Zealanders save for their future," said the Ministers.Employers currently pay SSCWT - specified superannuation contribution withholding tax - on their contributions to registered superannuation schemes, although contributions to KiwiSaver schemes were exempted under legislation enacted in September.
"It is essential that New Zealanders develop long term savings habits so they can have more financial security in their retirement years.
"By making employer contributions tax free, we are making it even more attractive for workers to save as their balances will grow much quicker with an employer subsidy whether they opt for KiwiSaver or stay in an existing scheme.
"Extending the exemption will also ensure tax neutrality between KiwiSaver and other registered superannuation schemes.
"Under the changes announced today, employer contributions to other registered schemes will be exempt from tax for amounts of up to 4% of an employee's gross salary.
"A tax-free employer contribution will mean, for example, an extra $660 a year in savings for people earning $50,000 a year who contribute 4% of their salary and whose employers contribute another 4%.
"This is a win-win. Employers who take advantage of the opportunity to contribute to the long-term financial well being of their staff are likely to see greater employee job satisfaction, as well as greater loyalty and retention.
"The tax exemption will be available only for contributions to schemes that have lock-in rules similar to those of KiwiSaver, for which schemes will have to amend their trust deeds.
"The extended exemption will apply from 1 July 2007, when KiwiSaver begins, and will be added to the taxation bill currently before Parliament by means of a Supplementary Order Paper.
"That bill also encourages people to save through KiwiSaver by removing the current over taxation of low income earners who invest in managed funds. In future KiwiSavers who earn less than $38,000 will be taxed at 19.5% on their savings, not 33%," said the Ministers.
Today's announcement builds on the significant progress this government has made in helping this country save and prepare for the future through:
- Reversing National's cuts to New Zealand Superannuation, restoring the married rate to not less than 65% of the average net ordinary time weekly wage
- Establishing the New Zealand Superannuation Fund to help fund the future cost of New Zealand Superannuation
- Introducing the State Sector Retirement Savings Scheme for civil servants
- Introducing workplace-based saving through KiwiSaver with a tax exemption for employer contributions.
"This government has made saving a priority. We have put in place a firm foundation to allow today's generation and generations to follow to have greater confidence that they will be able to meet their retirement aspirations," said Cullen.
The official KiwiSaver website provides full information on the scheme.
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