ESCT on employer KiwiSaver contributions from 1 April 2012

From 1 April 2012, all employers will be required to calculate employer superannuation contribution tax (ESCT) on all employer contributions to KiwiSaver. Find out how ESCT is calculated on employer KiwiSaver contributions. 

What is ESCT?

ESCT is the employer superannuation contribution tax deducted from the employer’s contribution to KiwiSaver and registered superannuation schemes for an employee.

The ESCT rate is set when an employee first starts employment with the employer and reset each 1 April after that or when the tax laws change.

What’s changing?

From 1 April 2012 all employer contributions to KiwiSaver become subject to the ESCT regime (previously the first 2% was exempt). This brings KiwiSaver under the same tax regime as registered superannuation schemes.

Deduction and payment to IRD

ESCT is paid to the Inland Revenue along with the PAYE deductions and net KiwiSaver contributions on the employer deductions form (IR345).

ESCT rates

The ESCT rate that applies depends on the employee’s “relevant remuneration”. Relevant remuneration equals the taxable income of the employee plus the employer contributions to KiwiSaver and other superannuation schemes. Only income and the contributions paid by the employer and related employers are included. That paid by unrelated employers and income earned elsewhere doesn’t count.

The current tax rates (since 1 October 2010) are shown in the table.

Relevant remuneration level1 ESCT rate
$0 to $16,800 10.5%
$16,801 to $57,600 17.5%
$57,601 to $84,000 30.0%
$84,001 plus 33.0%

To calculate an employee's ESCT rate

Employers that currently pay more than 2% to KiwiSaver and those that currently contribute to a separate superannuation scheme will be familiar with the calculation of ESCT. However, for employers who have paid the minimum 2%, it will be new and its calculation is not straight forward..
This note sets out the details of the calculation of ESCT regime. Remember the changes come into force on 1 April 2To calculate an employee’s ESCT rate

An employee’s ESCT rate is set when the employee first starts employment with the employer and is updated each subsequent 1 April unless the legislation changes. The ESCT rate applies for the year and ignores pay reviews during the year.

When the employee first starts work

The ESCT rate is calculated by making a “reasonable estimate” of what the employee’s relevant remuneration will be from the day they started to the next 31 March. For example, if he started on 1 February:

 


     $
Annual income level  40,000
Employer contributions to KiwiSaver (2%)          800
Total annual “relevant remuneration” 40,800

Expected remuneration (February to March) = 2/12ths x $40,800

   6800
ESCT rate (as per table) 10.5%


  
Note, “KiwiSaver” above should be KiwiSaver and any other employer superannuation scheme payments.

At 1 April:

  • If the employee has not worked for the employer for the full tax year

The ESCT rate is calculated by making a ‘reasonable estimate’ of what the employee’s relevant remuneration will be for the coming year.


     $
Annual income level  40,000
Employer contributions to KiwiSaver (2%)          800
Total annual “relevant remuneration” 40,800
ESCT rate (as per table) 17.5%

 

  • If the employee has worked for a full tax year

The ESCT rate is calculated based on the actual relevant remuneration for the previous year to 31 March.


     $
Actual total income paid 58,000
Actual employer contributions to KiwiSaver (2%)       1,160
Total annual “relevant remuneration” 59,160
ESCT rate (as per table)    30%