PAYE and KiwiSaver treatment of income replacement payments

2015 amendments ensure veteran income replacement payments are subject to PAYE, and KiwiSaver deductions can be made but are not subject to certain rules.

Section RD 5(6) of the Income Tax Act 2007 and sections 4 and 14 of the KiwiSaver Act 2006

Amendments have been made to section RD 5 of the Income Tax Act 2007 to ensure veteran income replacement payments are subject to PAYE, and KiwiSaver deductions can be made from the payments.

Amendments have been made to sections 4 and 14 of the KiwiSaver Act 2006 to ensure the KiwiSaver auto-enrolment and compulsory employer contributions rules do not apply to veteran income replacement payments.

Background

The policy intention is that veteran income replacement payments will be subject to PAYE, and KiwiSaver deductions can be made from the payments, but they are not subject to the KiwiSaver auto-enrolment and compulsory employer contributions rules. This is the same treatment that applies to ACC weekly compensation payments.

Key features

Amendments have been made to section RD 5(6) of the Income Tax Act 2007 to add veteran weekly compensation, weekly income compensation, and retirement lump sums for veterans, and weekly compensation to deceased veterans' spouses, partners, children and dependants to the list of benefits or grants treated as salary and wages. This ensures that veteran income replacement payments will be subject to PAYE, and KiwiSaver deductions can be made from these payments when the veteran joins KiwiSaver on their own behalf.

Amendments have been made to section 4 of the KiwiSaver Act 2006 to add weekly compensation, weekly income compensation, and retirement lump sums for veterans, and weekly compensation to deceased veterans' spouses, partners, children and dependants to the list of payments treated as salary or wages that (for the purposes of subpart 3A of the KiwiSaver Act 2006) are excluded from the compulsory employer contribution rules. This ensures that there is no requirement for compulsory employer contributions to be paid on KiwiSaver deductions made from these payments.

Amendments have been made to section 14 of the KiwiSaver Act 2006 to add weekly compensation and weekly income compensation for veterans, and weekly compensation to deceased veterans' spouses, partners, children and dependants to the list of salary or wage income types that are not subject to the KiwiSaver automatic enrolment rules. This means there is no legal requirement to automatically enrol people receiving veteran income replacement payments in the KiwiSaver scheme.

Application dates

The amendments that relate to weekly compensation and weekly income compensation for veterans, and weekly compensation to deceased veterans' spouses, partners, children and dependants came into force on the date of enactment, being 31 March 2015.

The amendments that relate to retirement lump sum payments for veterans came into force on 7 December 2014, the commencement date of Scheme One in the Veterans' Support Act 2014.