Employers won’t be compelled to make KiwiSaver contributions for over-65s under a proposed tax omnibus bill, the final select committee report on the legislation confirmed last week.
The wide-sweeping Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill makes a number of minor changes to the KiwiSaver regime including allowing those aged over 65 to join – albeit without the matching compulsory employer contributions available to younger folk.
“It was suggested that this may constitute age discrimination,” the Finance and Expenditure Committee (FEC) report on the legislation says. “We note, however, that more than 80 percent of people aged over 65 who are members of a KiwiSaver scheme currently receive employer contributions, even though it is non-compulsory.
“On this basis, we do not see a need to amend this clause.”
Elsewhere, the FEC (chaired by Labour MP Michael Wood) also recommends pushing out the deadline allowing those who join KiwiSaver past age 60 to opt out of the current five-year “lock-in period”. The change, which would free up all KiwiSaver members to access their savings at age 65, should take effect in April next year rather than July 1, 2019, as stated in the bill, the FEC says.
“We recommend that the ability to exit the transitional lock-in period rule should instead apply from 1 April 2020 to align with the rollout of Inland Revenue’s [IRD] business transformation programme for KiwiSaver,” the committee report says.
The IRD is gearing up for the KiwiSaver administration change as part of its broader ‘business transformation programme’ that is designed to automate and align tax reporting obligations for most New Zealanders.
In a Cabinet briefing paper published last November, the IRD says the changes due to go live this April (some of which will be enabled by the new tax legislation) “result in a fundamental shift in how New Zealanders interact with the revenue system”.
The systemic shift will “remain high-risk until it is complete in 2021, the IRD says, particularly during the second quarter of this year.
“Almost all New Zealanders, regardless of their role in the revenue system, will experience some degree of change,” the Cabinet paper says. “The period from April to June 2019 represents the peak period of change.”
As of 2020 financial institutions will also be required to report taxpayer investment income direct to the IRD more frequently while KiwiSaver and student loans join the auto-reporting system under the so-called ‘Release 4’ updates.
Among other changes, the IRD should be able to more easily identify taxpayers’ correct prescribed investor rates (PIR) – that set the tax level for portfolio investment entity (PIE) holdings including KiwiSaver. Currently, taxpayers must manually inform any relevant financial institution of changes to their PIR, which has likely resulted in many PIE investors either paying too much or not enough tax.
However, the IRD warns that student loans and KiwiSaver “are complex products and their payment calculations rely on income information”.
“Therefore the risks of co-existence with Inland Revenue’s old and new systems operating in parallel remain high until 2021 when transformation is complete,” the Cabinet briefing says.
The IRD also notes that post April 1 this year it “will be better positioned for future changes arising from other Government initiatives, including the Tax Working Group [TWG]”.
“… but any requirement to implement these changes prior to completion of Release 5 would substantially increase risk and cost.
The ‘Transformation Reference Group’, which provides industry feedback to the IRD, shares some members with the TWG including PwC managing partner, Geof Nightingale, and head of BusinessNZ, Kirk Hope.