Major drafting error in KiwiSaver law

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A major drafting error in last year's tax legislation means a large number of employers will not be able to access the full KiwiSaver tax credit.

Tuesday, March 4th 2008, 7:32AM

by Rob Hosking

The error means employers who pay employee salaries fortnightly will get less of the tax credit: the way the formula is set out in the law it means employers will only get 31 days worth of the tax credit for 42 days of pay.

KPMG tax expert Murray Sarelius says the error will hit some firms hard.

"You might be talking $200, $300 short per employee but if you've got a lot of employees joining KiwiSaver that is going to add up to quite a lot."

Revenue Minister Peter Dunne's tax adviser Rachel Baxter says the government is aware of the issue and is working on a solution.

At the moment the plan is to include changes in Parliament's annual May tax bill – which, this year, will be in June.

That bill is not usually passed until October or November, and, with an election due around that time, Sarelius says passage could be delayed until early in the New Year.

"In the meantime you have employers have to deal with this starting on 1 April this year.

"I would also spare a thought for people trying to design payroll systems to deal with this. It's pretty clear this will be fixed, eventually, but it creates an administrative nightmare in the interim."

Baxter says the government is still drafting its proposed solution, and will be consulting with business and the industry shortly. Feedback on the timing will be considered, she says.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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