Subpart 2 - Miscellaneous provisions relating to contributions

KiwiSaver Act 2006 – s 72 requires the CIR to establish a holding account for recording the receipt, deduction, payment and refund of contributions and interest.

Inland Revenue KiwiSaver holding account

Section 72 requires the Commissioner to establish a holding account for the purpose of recording the receipt, deduction, payment, and refund of KiwiSaver contributions and interest.

The holding account is not a facility for the purpose of the Financial Transactions Reporting Act 1996, which means that the Commissioner is not required to verify the identity of contributions or report suspicious transactions.

Money entered and paid out of the holding account
As soon as practicable after the Commissioner receives an employer monthly schedule showing deductions of KiwiSaver contributions, under section 73 the Commissioner must enter the amount on the schedule in the holding account for the person from whose salary or wages the deduction was made.

Under section 74 the Commissioner must also enter any other contribution received (for example, if a person makes a voluntary contribution to their scheme via Inland Revenue) into the holding account as soon as practicable after receiving the contribution.

As soon as practicable after entering an amount in the holding account, the Commissioner must pay the amount to the provider of the relevant KiwiSaver scheme.

Money entered into the holding account that has been deducted from an employee's salary or wages is not trust money for the purposes of sections 66 to 68 of the Public Finance Act 1989. This is because the government will on-pay such deductions. Money entered other than contributions deducted from an employee's salary or wages, is trust money for the purposes of sections 66 to 68 of the Public Finance Act 1989.

Initial contributions stay in holding account for three months
When a person first becomes a KiwiSaver member, under section 75 the Commissioner must hold all contributions for that person in the holding account until three months after the first contribution was received. The Commissioner must pay those contributions to the provider of the person's KiwiSaver scheme as soon as practicable after expiry of the three-month period. In addition, the Commissioner must give notice to the person as soon as practicable after paying those contributions to the person's KiwiSaver scheme. The provider must also give notice to the person as soon as practicable after receiving those contributions.

The reason for the three-month holding period is to allow the person to seek financial assistance and to choose a KiwiSaver scheme if they wish.

Employer contributions may stay in holding account until deducted contributions paid
If the Commissioner receives a contribution from an employer for a person and that contribution has not been deducted from the person's salary or wages (that is, an employer contribution), under section 76 the Commissioner may:

  • hold the contribution in the holding account; and
  • pay it to the provider of the person's KiwiSaver scheme at the same time as contributions deducted from that person's salary or wages are paid to the provider.

Small amounts of contributions may be held until large enough to be on-paid
If the Commissioner and the KiwiSaver provider agree on a minimum threshold for the payment of contributions to the provider, under section 77 the Commissioner may keep any contribution that relates to a person in the holding account until the amount reaches the minimum threshold. Once the amount reaches the minimum threshold, the Commissioner must pay the amount to the provider of the person's KiwiSaver scheme.

Treatment of unremitted deductions in holding account
If a deduction is not paid to the Commissioner on or before the date on which the employer is required to pay it to the Commissioner, under section 78 the Commissioner must pay the amount out of a Crown bank account and the amount is treated as having been received by the Commissioner on the 15th of the month in which the deduction is made. This provision ensures that contributions deducted but not paid by the employer are made good. This means that the employee does not suffer a loss due to non-payment by the employer.

Information that the Commissioner must supply to providers when paying contributions
Under section 79 the Commissioner must supply to the provider any information, in any format, that the Commissioner determines to be relevant, after consultation with the provider.

Refund by Commissioner of amounts deducted in excess or if employee opts out
Under section 80 the Commissioner may refund any amount of contribution to the person from whose salary or wages the amount was deducted if:

  • the person opts out and the contribution is in the possession of the Commissioner;
  • the contribution is more than the amount that is required to be deducted and the contribution is in the possession of the Commissioner; or
  • the person has opted out and the contribution was deducted from their salary or wages but was not refunded to the person or paid to the Commissioner. In this case the Commissioner will recover the unpaid contributions from the employer.

A person may request that the Commissioner transfer all or part of the refundable amount to another tax type.10

Example one
Shayne is a member of KiwiSaver. His employer accidentally deducted contributions of 8% of his wages when Shayne was on a contribution rate of 4%. $200 has been deducted from his wages to date, which has not yet been on-paid to the KiwiSaver scheme provider. The Commissioner gives Shayne a refund of $100.

Example two
Ella is automatically enrolled in KiwiSaver but opts out seven weeks after she began her new job. Ella has had $300 of KiwiSaver contributions deducted from her pay. Instead of getting a refund from the Commissioner, Ella requests that the $300 be treated as a voluntary repayment towards her student loan.

Refund by provider of amounts paid in excess of required contribution
Any excess amount that is paid by the Commissioner to the provider must be refunded to the Commissioner under section 81. The Commissioner must refund or give credit for the amount refunded by the provider to the employee in the manner that the Commissioner sees fit. Again, a person may request that the Commissioner transfer all or part of the amount able to be refunded to another tax type.

Example one
Maria is a member of KiwiSaver and her employer accidentally deducted contributions of 10% of her wages when she was on a contribution rate of 8%. The Commissioner has passed $1,000 of contributions to the provider. The provider is required to refund $200 to the Commissioner. The Commissioner refunds or gives credit to Maria for the $200 refunded.

Trustee investment rules do not apply to contributions in the holding account
Section 82 specifies that Part 2 of the Trustee Act 1956 (which relates to investment by trustees) does not apply to the Commissioner in relation to money in the holding account.

Unclaimed money held by the Commissioner
If money has been in the Commissioner's possession for at least six years and the Commissioner has insufficient information to process that money in accordance with the Act then section 83 provides that the Unclaimed Money Act 1971 applies to that money. No interest is payable on that money for the period the Unclaimed Money Act applies.

Interest on contributions

Interest on money in the holding account Under sections 84 to 87 the Commissioner is liable to pay interest on any amount that is received, or treated as received as a contribution for a person.

The interest rate is:

Commissioner's paying rate11 x (1 - lowest tax rate)12

The amount of interest payable by the Commissioner on a contribution for a person is calculated using the following formula:

(interest rate x contribution13) x interest period14
365

If the Commissioner's paying rate changes during an interest period, under section 90 the paying rate is taken to be the weighted average rate based on the number of days on which each rate applied during the period.

For the purpose of the payment of interest, every amount of contribution that is deducted from salary or wages is treated as received by the Commissioner on the 15th day of the month in which the deduction is made.

Section 69 of the Public Finance Act 1989 (which relates to payment of interest on trust money) does not apply to the holding account.

The Income Tax Act 2004 was amended to treat the interest received as exempt income and exempt interest.

How and when interest is paid on on-payments
Under section 88, interest payable on a contribution that is on-paid to a provider must be paid to the provider of the person's KiwiSaver scheme at the same time the contribution is on-paid.

How and when interest is paid on refunds
If a contribution is refunded by the Commissioner, interest must be paid with the refund under section 89. However, no interest is payable if the interest on that refund is less than $5. The $5 threshold may be increased by the Governor-General by Order in Council.

Overpaid interest
Section 91 provides that interest overpaid by the Commissioner may be recovered in the same manner as income tax that is payable under the Income Tax Act (income tax that is payable can be recovered under the Tax Administration Act 1994).

10 In accordance with section 173L of the Tax Administration Act.
11 "Commissioner's paying rate" is the rate of interest established and notified as the Commissioner's paying rate by Order in Council made under section 120H of the Tax Administration Act as the Commissioner's paying rate applying on the day on which the contribution is received or treated as received.
12 "Lowest tax rate" is the basic rate of tax stated in Part B of Schedule 1 of the Income Tax Act 2004 in respect of a taxable income that is not more than $38,000 for a tax year (expressed as a decimal).
13 "Contribution" is the amount of contribution in respect of the person to whom the interest is payable.
14 "Interest period" is the number of days in the period that begins on the day on which the Commissioner receives, or is treated as receiving, the amount of contribution and ends with the day on which the Commissioner on-pays the amount of contribution to the provider of the person's KiwiSaver scheme or refunds the amount.