Consistency between PAYE and KiwiSaver rules

Background

Previously there was inconsistency between the KiwiSaver rules and the PAYE rules for school children.

If a child has the tax credit for children under section LC 3 of the Income Tax Act 2007, Inland Revenue can reduce the amount of tax for a PAYE income payment. This can be done if the tax credit fully covers the child's PAYE liability, for example if their annual earnings are less than $2,340 (using 2010-11 rates).

Children who have validly opted into KiwiSaver and who are employed must have KiwiSaver deductions made from their wages. It is the policy intent that, if no tax deduction is required to be made from the payment of salary or wages at the time the payment is made, in accordance with the PAYE rules, then there is no requirement for KiwiSaver contributions to be made. However, section 67 of the KiwiSaver Act 2006 prevented this from happening.

Key features

Section 67 has been amended, confirming that children do not need to make regular contributions to KiwiSaver from their salary or wages if PAYE is not required to be deducted. A child may still choose to contribute to KiwiSaver by giving their employer a deduction notice.

Application date

The new rules apply from the date of Royal assent, being 7 September 2010.