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Commentaries
KiwiSaver - understanding member tax credits
- 22/12/2011
Under KiwiSaver, most savers will receive an annual government-paid subsidy in respect of their savings. The government refers to this as a MTC or “member tax credit” but it is a “subsidy” and not a tax credit in the normal sense. This MTC (i.e. subsidy) is in addition to the contributions made by the employer.
Who gets it?
With a few exceptions, the MTC applies to everyone in KiwiSaver aged 18 or older, living in New Zealand, who have not become eligible for a KiwiSaver retirement benefit. It does not apply to those under 18, or those who have become entitled to receive a benefit at their “KiwiSaver Retirement Age”.
Who pays it? When is it paid?
The MTC is paid each year by the IRD on behalf of the government. It is paid after the end of the financial year, i.e. after 1 July for the 12 months ending 30 June. You do not have to apply for it - your KiwiSaver provider asks for it on your behalf.
How much is the member tax credit?
The MTC is equal to half the amount you have saved to your KiwiSaver Account that year, with a maximum of $521.431 (about $10 a week). The government will subsidise the employee’s savings at $1 for $2 up to the maximum. It is tax-free.
For employees saving the current standard 2%2 savings level, the maximum will apply if they earn $52,150 or more each year. When the 2% increases to 3% on 1 April 2013, the cut-off point is $34,762 a year.
Employees on incomes below $52,150 ($34,762 from 1 April 2013) will not get the $521 maximum, unless they save more than the minimum. That’s because 2% (increasing to 3%) of their income is below $1,043. Lower paid employees, may choose to make voluntary savings on top of the minimum to maximise the MTC they receive or to save at the higher 4% or 8% levels. For employees saving 4% of their income, the maximum applies if they earn $26,072 or more.
[1] A proportionate amount is paid in the first year.
[2] The 2% goes to 3% from 1 April 2013.
Where does the tax credit go?
The MTC is paid into your KiwiSaver Account and invested along with your other savings
Can I withdraw the member tax credits to help buy my first home?
No. The MTCs are like the $1,000 kick-start contribution. You will be able to withdraw the investment earnings on them to help buy your first house, but not the MTCs themselves. The MTCs are paid only at KiwiSaver Retirement Age, on death or in the event of serious illness.
What happens to my MTCs if I permanently emigrate?
If you permanently emigrate, you can apply for a benefit before your KiwiSaver Retirement Age. In this case, your KiwiSaver Account is paid out minus the tax credits. The tax credits are refunded to the government. The investment earnings on the tax credits are, however, paid out as part of your benefit. If you defer payment until your Retirement Age, the tax-credits are paid out to you as part of your benefit. If you transfer your KiwiSaver balance to an Australian scheme, it is proposed that the MTCs will also be transferred. This facility is expected to be available in late 2011.
What is my KiwiSaver Retirement Age?
For most KiwiSavers, the KiwiSaver Retirement Age is the age they are eligible for NZ Superannuation. This is currently age 65. However, if you first joined KiwiSaver after age 60, it is the date 5 years after you join.
Principal place of residence
When a KiwiSaver benefit is paid, you must declare that your “principal place of residence” has been in New Zealand for the whole of your membership. If not, the part of the member tax credits that relate to when you were overseas are repaid to the government.
Do MTCs apply on any savings diverted to my mortgage?
No. If you had applied for mortgage diversion prior to 1 June 2009, you can continue with your mortgage diversion. However, no new mortgage diversions are allowed to be started. If mortgage diversion applies to you, if you choose that part of your KiwiSaver savings diverted to help pay off your mortgage, as they do not stay in your KiwiSaver Account, the MTC does not apply on the part diverted. It is still paid on the savings that stay in KiwiSaver. Eligible members should consider diverting savings only above the $1,043 level so that the maximum tax credit is preserved.
