Recently, the good folks over at Simplicity KiwiSaver sent met a “Tax Pack” for the year ended 31 March 2017. Basically, this was a KiwiSaver summary for the last year. It included what I’d paid in tax what I’d contributed myself, and what my employee had contributed.
Imagine my surprise when I saw that my employer contributions were less than half that of my own.
Huh? Shouldn’t it be the same?
I thought it was likely that tax was an issue. It could also be a timing issue, as I switched my KiwiSaver to Simplicity in the middle of the last financial year.
What’s causing the difference?
I emailed Simplicity support and asked whether they knew what causes this. They said I’d be better off contacting the IRD. To my surprise, IRD support turned out to be great, they were happy to arrange a time to call me when it suited me the most and very helpful.
I explained the situation to the nice man from the Inland Revenue call centre (hopefully he’s still got his job). He informed me that your employer’s contribution to KiwiSaver counts as income and is therefore taxed. Of course, trust taxes to be the issue.
Check you are contributing what you think you are
He also said that I had actually been contributing 4% of my income to KiwiSaver. I must have set it at 4% originally, without giving it much thought (bad Ryan!). I switched to contributing the minimum 3%, as I’d rather have that extra money to invest myself.
Tip for you today; make sure you are contributing the amount to KiwiSaver that you think you are. It’s worth checking, especially if you are like me and signed up years ago before you really cared about this kind of stuff.
What you are actually receiving from your employer
The tax paid on your employers KiwiSaver contribution to you is ECST, (Employer Superannuation Contribution Tax). If you’ve been working your current role for over a year, it’s worked out using the table below. I’ve added a column which shows how much your KiwiSaver employment contribution is worth to you after taxes are deducted.
The above table shows what your employer KiwiSaver contribution is actually worth. For example, if you earned $40,000 dollars a year, your Employers KiwiSaver contribution would effectively be worth 2.48% of your income, as you pay 17.5% tax on your employer contribution.
If you earned $84,000 or more your employer’s KiwiSaver contribution would only be worth 2.01%. It’s not ideal, to be honest, but it’s still good to receive an extra 2% or more from your employer towards your KiwiSaver. If you’ve ever wondered why your employer contributions aren’t matching your own, it’s likely to do with tax.
As always, write to me in the comments or flick me an email if you want to chat money!