This article was published on 4 September 2007. Some information may be out of date.

Ins and Outs of KiwiSaver tax credit

Judging by readers’ questions, confusion reigns about the government’s KiwiSaver tax credits, which match members’ contributions up to $20 a week or $1042.86 a year.

The tax credits are paid to every contributing KiwiSaver member 18 and over until they reach NZ Super age (currently 65) or five years after joining, whichever is later. For example, if you join at age 63, you will continue to get the credits until five years later, when you are 68.

Employees and non-employees all get the tax credit. Despite it’s name, you don’t have to be paying tax to receive it.

The tax credit year runs from July 1 to June 30. After every June 30, providers will tell Inland Revenue how much tax credit each member should receive. Some time after that — it’s a bit vague exactly when at this stage — that money will be put in members’ accounts.

In your first year of membership, the maximum tax credit is proportionate to how much of the July 1-June 30 year you are a member or how much of the year you have been contributing — depending on your situation.

Inland Revenue recently issued some rules about when the tax credit clock starts ticking. They are:

  • If you join via your employer, your tax credit start date is the first day of the month in which the first deductions are taken from your pay.
  • If you join directly through a provider before October 1 of this year — whether you are an employee or non-employee — your start date is the first of the month in which you complete your membership application, as long as you make your first contribution by October 31 2007.

    Providers can’t start accepting contributions until October 1. But in most cases, people who join through a provider before October and sign up to contribute monthly or more frequently will make a contribution during October.

    Otherwise, you can contribute directly to Inland Revenue, via internet banking or through a Westpac branch.

  • If you join directly through a provider on or after October 1 — again whether you are an employee or non-employee — your start date is the first of the month in which the provider receives your first contribution.

In all cases, the sooner you get on board, the more government money you will get.

If you’re a non-employee planning to contribute $1042.86 or thereabouts a year — to get the maximum tax credit with minimal input — it’s best to make at least a small contribution during October, or the first month of your membership if it’s after October.

After that, you can if you wish contribute the rest as late as the following June 30, and you will still get the maximum credit. And in subsequent years you can make your entire contribution at the end of June if you want to. It’s only in the first year that you need to get money in early.

For more on these rules, and several scenarios that Inland Revenue has given as examples, see the KiwiSaver book page on www.maryholm.com. That page also has basic information about KiwiSaver, including the answers to many readers’ questions. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]

One more quick issue. A 61-year-old reader who plans to join KiwiSaver adds: “My husband is semi-retired and will be 65 in four months’ time so we will not be concerned for him.”

Please do be concerned, and sign him up before his birthday. Otherwise he’s turning away $1,000 plus five years of $1,042.86 — assuming he contributes at least $1,042.86 a year — which comes to $6,214, plus any employer contributions. He might as well get his share.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.