SPS 07/04
Issued
07 Jul 2007

Discretions to be exercised by the Commissioner of Inland Revenue under the KiwiSaver Act 2006 (July 07)

SPS 07/04 describes discretions exercised by the CIR under the KiwiSaver Act 2006 relating to late opt-out requests, financial hardship, serious illness and more.

This statement also appears in Tax Information Bulletin Vol. 19, No. 6 (July 2007).

Introduction

  1. This Standard Practice Statement ("SPS") sets out:

    1. the Commissioner's practice when exercising some of the principal discretions conferred by the KiwiSaver Act 2006, and

    2. the requirements for employees, members or employers who request the exercise of the Commissioner's discretions.

  2. In particular, this SPS discusses the exercise of the Commissioner's discretions to:

    1. accept or decline late opt-out requests, or

    2. refund or not refund pre-opt-out contributions and excess contributions, or

    3. refund or not refund initial contributions on the grounds of significant financial hardship and/or serious illness, or

    4. accept or decline applications for contributions holidays on the ground of financial hardship, or

    5. accept or decline requests for reconsideration of discretionary decisions (late or otherwise).

Contents

  1. The headings of the key issues discussed in this SPS are set out below:
Headings Paragraph numbers
Introduction 1 and 2
Contents 3
Application 4 to 9
Background 10 to 12
Legislation 13
Standard practice and relevant discussion 14 to 142
Making requests to the Commissioner 14 to 16
   
Opt-out requests 17 to 52
Opting out 17
How to opt out 18 to 19
Making opt-out requests 20 to 23
Requisite information for opt-out requests 24 to 30
The opt-out period 31 to 38
Late opt-out requests 39
Essential information not supplied by members' employers or the Commissioner 40 to 42
Events outside the members' control 43 to 48
Declined late opt-out requests treated as contributions holidays requests 49 to 52
   
Refunds 53 to 94
Refunds by the Commissioner 53 to 55
Refunds of pre-opt-out contributions 56 to 62
Excess contribution refunds 63 to 69
Transfers instead of refunds 70 to 71
Refunds when members cannot prove that they are taking a contributions holiday 72
Significant financial hardship and/or serious illness refund requests 73 to 79
Significant financial hardship 80 to 88
Serious illnesses 89 to 92
Refund methods 93 to 94
   
Financial hardship contributions holidays 95 to 118
Financial hardship contributions holidays 95 to 98
Financial hardship 99 to 100
Unchanged financial circumstances 101
Changed financial circumstances 102 to 107
Financial hardship details 108 to 109
Contributions holidays periods 110 to 118
   
Decision review process 119 to 142
Discretions under Parts 2 and 3 of the Act 119 to 123
Persons affected by the Commissioner's decisions 124 to 125
Making reconsideration requests 126 to 127
Late reconsideration requests 128 to 131
Treatment of late reconsideration requests 132 to 137
The discretion under section 212(4) 138 to 142

Application

  1. Unless specified otherwise, all legislative references in this SPS refer to the KiwiSaver Act 2006 ("the Act").

  2. This SPS applies to:

    1. employees who are automatically enrolled as KiwiSaver members under section 15 or other natural persons who opt into membership under section 33 ("members"), and

    2. employers subject to subpart 1, Part 3 of the Act ("employers").

  3. Pursuant to section 4(1), members are natural persons who have been admitted to memberships of KiwiSaver schemes and who are, or may become, entitled to benefits under those schemes.

  4. This SPS does not apply to:

    1. natural persons who are not subject to the Act under section 6, or

    2. exempt employers under section 30.

  5. Please note that when this SPS is published, some remedial amendments to the Act have been introduced in the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill ("the Bill"). The proposed amendments to the Act appear in italics throughout the SPS but may not reflect the final wording of the Act. In particular, the standard practice relating to PAYE intermediaries or compulsory employer contributions will apply only if the Bill is enacted. It is expected that this SPS will be updated from time to time.

  6. This SPS uses certain terms that are not defined in the Act. Set out below are some of these terms:

    1. "Opt-out requests" are opt-out notices that members provide under section 17(1) within the period specified in section 16.

    2. "Opt-out period" is the period specified in section 16 for making opt-out requests that starts on the 13th day and ends on the 55th day after the date on which the members commenced their employment (members are entitled to opt out of the KiwiSaver scheme during this period).

    3. "Late opt-out requests" are opt-out requests that the Commissioner receives outside the opt-out period and within three months, that is, pursuant to section 4(3), within 92 days from the date that the Commissioner receives the first contributions in respect of the members and to which any of section 18(1)(b)(i) to (iv) applies.

    4. "Pre-opt-out contributions" are contributions paid in respect of members that are in the Commissioner's possession after the member has opted out.

    5. "Excess contributions" are amounts of contributions that exceed the amounts that must be deducted under the Act and are in the Commissioner's possession.

    6. "Significant financial hardship and/or serious illness refund requests" are members' applications for refunds of initial contributions made under section 113(1) on the grounds of significant financial hardship and/or serious illness.

    7. "Contributions holidays requests" are applications for contributions holidays made under section 102 (which are effectively applications for temporary breaks from making contributions).

    8. "Financial hardship contributions holidays requests" are contributions holidays' requests made under section 102(a) on the ground of financial hardship.

    9. "Reconsideration requests" are applications made by affected persons under section 212(2) for the reconsideration of any of the Commissioner's discretionary decisions made under Parts 2 and 3 of the Act, which are made within twenty working days from the date that the Commissioner gave the affected persons notice of the discretionary decision.

    10. "Late reconsideration requests" are reconsideration requests made after twenty working days from the date that the Commissioner gave the affected persons notice of the discretionary decisions that the Commissioner may accept under section 212(2).

Background

  1. The Act permits voluntary work-based savings schemes to be established to facilitate individual's savings habits, principally through the workplace.

  2. The purpose of the Act is to:

    1. encourage long-term savings habits and asset accumulation by individuals who may not otherwise enjoy standards of living in retirement similar to those enjoyed before retirement, and

    2. increase individuals' well-being and financial independence particularly in retirement and provide retirement benefits.

  3. The Commissioner will administer the KiwiSaver schemes, including allocating members' and their employers' contributions to the members' respective scheme providers for investment, through the pay-as-you-earn ("PAYE") system in accordance with the PAYE rules set out in subpart NC of the Income Tax Act 2004 ("ITA 2004").

Legislation

  1. The relevant legislative provisions are:

    1. paragraph (a)(iii) of the definition of "tax" and the definition of "disputable decision" in section 3(1), Part IVA and sections 6, 6A, 14, 14B, 138E and 173L of the Tax Administration Act 1994 ("TAA"), and

    2. the definition of "PAYE intermediary" in section OB 1 and subparts NBA and NC of the ITA 2004, and

    3. sections 29 and 35(6) of the Interpretation Act 1999, and

    4. sections 4(3), 6, 16 to 18, 21, 22, 60, 69, 75, 80, 81, 100, 102 to 114, 212, 217, 218, 221, 222, 224, 226 and clauses 11 to 13 in Schedule 1 ("KiwiSaver scheme rules").

Standard Practice and Relevant Discussion

Making requests to the Commissioner

  1. Section 217(2) provides that persons must give notices in writing ("make written requests") under section 14B(2) of the TAA if the Act requires them to give notices to the Commissioner (for example, opt-out notices under section 17(1)(a) and (2)(a)). However, the Commissioner's discretions to allow requests under sections 17(2)(b), 103(1) and 113(3) are not limited by section 14B of the TAA. That is, section 217(2) does not apply if the Commissioner allows other forms of requests.

  2. For the purposes of this SPS, persons who do not need to make written requests to the Commissioner by the operation of section 217(2) may give notices ("make requests") to the Commissioner:

    1. in person at an Inland Revenue office during working hours, or

    2. by telephone, or

    3. in writing.

  3. For the purposes of paragraphs 14 and 15(c), persons may make written requests to the Commissioner by:

    1. personally delivering the requests to any Inland Revenue office during working hours, or

    2. sending the requests:

      1. by facsimile to Inland Revenue, or

      2. by e-mail on Inland Revenue's secure Online Correspondence Service, or

      3. to an Inland Revenue office by post.

Opt-out requests

Opting out

  1. Members can make opt-out requests during the opt-out period (please see the discussion in paragraph 31). However, if that period has expired and:

    1. the Commissioner, or

    2. the members' employer, or

    3. the employers' PAYE intermediary,

receives the opt-out requests within three months of the Commissioner receiving the members' first contributions, the Commissioner may accept the late opt-out requests. In this circumstance, the Commissioner will usually accept the late opt-out requests if any of the following factors applies:

    1. any of the omissions specified in section 18(1)(b)(i) to (iii) has occurred (as summarised at paragraph 39), or

    2. an event outside the member's control caused the opt-out request to be late under section 18(1)(b)(iv) and the Commissioner considers it reasonable to accept the late opt-out request.

How to opt out

  1. Section 17(2) allows members to opt out of their KiwiSaver scheme memberships by making opt-out requests to:

    1. the Commissioner, or

    2. their employers, or

    3. PAYE intermediaries,

if the opt-out requests are in:

  • the forms contained in the information packs, or

  • any other form and manner that the Commissioner allows (for example, by letter, telephone or in person).

  1. For the purposes of this SPS and sections 17 to 20, a PAYE intermediary is:

    1. defined in section OB 1, and acts under subpart NBA of the ITA 2004 (that is, a person accredited as a PAYE intermediary under section NBA 2 with employer arrangements approved by the Commissioner under section NBA 3), and

    2. treated as an employer.

Making opt-out requests

  1. Members must make written opt-out requests by using the forms included in the information packs unless the Commissioner allows them to make requests in another form and manner under section 17(2)(b).

  2. Pursuant to section 17(1)(a), members must make written opt-out requests to the Commissioner by one of the methods set out in paragraph 16.

  3. Pursuant to section 17(1)(b), members can also make written opt-out requests to:

    1. employers, or

    2. PAYE intermediaries,

by one of the methods set out in section 218. That is, by:

  1. personal delivery to:

    1. non-corporate employers or PAYE intermediaries at any time, or

    2. corporate employers' or PAYE intermediaries' offices during working hours, or

  2. electronic means of communications if the members comply with the Electronic Transactions Act 2002, or

  3. sending the requests by post to the employers or PAYE intermediaries at:

    1. the street addresses of their usual, or last known places of:

      1. residence, or

      2. business, or

    2. any other acceptable addresses that the employers or PAYE intermediaries have advised to the members.

  1. Members may make opt-out requests under section 17(2)(b), that is, in a form and manner allowed by the Commissioner, by giving the requests to:

    1. the Commissioner by one of the methods set out in paragraphs 15 and 16, or

    2. their employers or PAYE intermediaries by:

      1. personal attendance, or

      2. telephone, or

      3. any one of the methods set out in paragraph 22.

Requisite information for opt-out requests

  1. Members making opt-out requests must provide all requisite or essential information to enable the Commissioner to positively identify the members and their employers.

  2. The information the Commissioner requires under section 17(3) for positive identification may vary from case to case. However, members should generally provide their:

    1. full name, and

    2. home address, and

    3. telephone number, and

    4. Inland Revenue Department number ("IRD number"), and

    5. bank account number (if available), and

    6. employment commencement date, and

    7. employers':

      1. business names (including the location if the employer has multiple business locations), and

      2. IRD number (if known).

  3. Furthermore, members must sign and date any written opt-out requests.

  4. Section 17(3) gives the Commissioner the discretion not to accept opt-out requests that do not contain essential or correct information. In practice, the Commissioner will accept opt-out requests containing minor omissions or errors if the members and their employers can still be positively identified. However, in some cases (for example, if the requests are unsigned), the Commissioner will confirm the opt-out decisions with the members and may request further information after positively identifying the employees and their employers.

  5. The following examples clarify the information requirements for effective opt-out requests.

  6. Insufficient information: the Commissioner receives a written opt-out request made under section 17(2)(b). The opt-out request names ABC Limited (a fast-food chain's trade name) as the member's employer but does not specify the location of the particular restaurant franchise where the member is employed (that is, the street name and the city). In this circumstance, the Commissioner does not initially accept the opt-out request because there is insufficient information to positively identify the employer. However, the Commissioner will request further information from the member to positively identify their actual employer.

  7. Unsigned opt-out request: the Commissioner receives an unsigned opt-out request from a member. The Commissioner cannot accept the opt-out request or refund the pre-opt-out contributions into the bank account stated in the opt-out request at this stage because the opt-out request is unsigned and therefore the Commissioner cannot verify the bank account number. However, the Commissioner will accept opt-out requests which contain minor omissions or errors in the information provided, but do not affect the Commissioner's positive identification of the members and their employers. The Commissioner will usually contact the member to verify their decision to opt out.

The opt-out period

  1. Pursuant to section 16, members must make opt-out requests (that is, during the opt-out period) by one of the methods set out under the heading "How to opt out".

  2. Pursuant to section 16, opt-out requests made in person or by telephone are treated as made within the opt-out period if made to:

    1. non-corporate employers or PAYE intermediaries by the end of the last day of the opt-out period ("last day"), or

    2. corporate employers or PAYE intermediaries during working hours on the last day, or

    3. the Commissioner by the end of Inland Revenue's usual business hours on the last day.

However, if the last day is not a working day, as defined in section 29 of the Interpretation Act 1999, and the member does not work on that day then, pursuant to section 35(6) of the Interpretation Act 1999, the last day will be the next working day. Under sections 217(2) (opt-out requests given to the Commissioner) and 218(8) (opt-out requests given to employers or PAYE intermediaries ) opt-out requests sent by post are treated as having been made on the last day if they would have been delivered in the ordinary course of post.

  1. Pursuant to section 17(4), opt-out requests given to employers including PAYE intermediaries that the Commissioner accepts take effect on the later of:

    1. the 13th day after the date that the member commenced employment, and

    2. the day that the employers received them.

  2. Pursuant to section 17(4), opt-out requests given to, and accepted by the Commissioner take effect on the later of:

    1. the 13th day after the date that the member commenced employment, and

    2. the day that they are accepted (this applies in most cases).

  3. If a member opts out, their contributions will usually be refunded. Please see paragraphs 56 to 62 regarding the Commissioner's practice to refund pre-opt-out contributions under section 80(1)(a) or (b).

  4. The following examples clarify when the Commissioner would consider that the members have made opt-out requests.

  5. On 1 October 2007, Tui commences work for a twenty-four hour service station called Gamma Limited and becomes a KiwiSaver member. Tui is rostered to work the night shift on 24 November 2007 (the 55th day after the date she commenced employment with Gamma Limited). Tui arrives at work at 11pm and gives a completed opt-out request to her employer. In this circumstance, the opt-out request is made in time because Tui has given it to her employer during working hours on the last day of the opt-out period.

  6. Jake commences work for Beta Limited on 28 January 2008, a business that operates seven days a week. Jake becomes a KiwiSaver member. On 22 March 2008, (that is, the 54th day after he commenced his employment), Jake completes an opt-out request. However, 23 March 2008, (that is, the 55th day) is a Sunday. All Inland Revenue offices and the office of his employer's PAYE intermediary will be closed. In this circumstance, Jake must give the opt-out request to his employer during its normal Sunday working hours to ensure it is received within the opt-out period. Otherwise, Jake's opt-out request will be treated as a late opt-out request and can only be accepted if the Commissioner exercises the discretion under section 18(2).

Late opt-out requests

  1. Pursuant to section 18(2), the Commissioner may accept opt-out requests that:

    1. the Commissioner, or

    2. the employer, or

    3. a PAYE intermediary,

receives, or is deemed to receive in the ordinary course of post:

  1. after the opt-out period has expired, and

  2. before the expiry of three months, that is, 92 days, after the date the Commissioner receives the member's first contribution if:

    1. section 18(1)(b)(i) applies because the employer did not supply an information pack to the member within seven days of their commencement of employment with that employer, or

    2. section 18(1)(b)(ii) applies because the Commissioner did not send an investment statement to the member for their provisionally allocated default KiwiSaver scheme under section 50(3)(c), or

    3. section 18(1)(b)(iii) applies because the employer did not supply an investment statement for their chosen KiwiSaver scheme to the member under section 43 if that choice is effective, or

    4. section 18(1)(b)(iv) applies because events outside the member's control meant that they could not make an opt-out request and the Commissioner considers it to be reasonable to accept the request.

Essential information not supplied by the members' employers or the Commissioner

  1. When members' opt-out requests are late, they can rely on any one of the omissions set out in section 18(1)(b)(i) to (iii). Members must specify the relevant omission(s) relied on. The Commissioner will consider, on a case-by-case basis, all the information provided and undertake any necessary investigations when determining whether to accept late opt-out requests made on these grounds.

  2. The Commissioner considers that the following guidelines apply in determining whether omissions have occurred for the purposes of section 18(1)(b)(i) to (iii):

    1. If the members did not receive information packs from their employers and the employers contend that these were sent to the home addresses provided by the members under section 22(1)(a), the Commissioner will accept that the information packs may be lost in the post and section 18(1)(b)(i) applies, if the employers held the members' correct contact addresses when the information packs were allegedly sent to them.

    2. If the members did not receive investment statements from their employers and the employers contend that these were sent to the home addresses provided by the members under section 22(1)(a), the Commissioner will accept that the investment statements may be lost in the post and section 18(1)(b)(iii) applies if the employers held the members' correct contact addresses, when the investment statements were allegedly sent to them.

    3. However, if the employers or the Commissioner:

      1. did not send, or

      2. held incorrect contact addresses for the members when they allegedly sent,

the information packs or investment statements to the members, and the Commissioner is satisfied that the members provided their correct addresses to their employers under section 22(1)(a), the Commissioner will accept that omissions have occurred for the purposes of section 18(1)(b)(i) to (iii).

  1. For example, Andrew makes a late opt-out request on the grounds that the Commissioner did not send him an investment statement under section 50(3)(c). The Commissioner considers the matter further and discovers that an investment statement was sent to the postal address provided by Andrew. However, further investigation reveals that this postal address was incorrectly recorded in Inland Revenue's systems and therefore did not match the correct address provided by Andrew to his employer. In this circumstance, the Commissioner accepts the late opt-out request because he is satisfied that Andrew provided the correct address to his employer and that section 18(1)(b)(ii) applies.

Events outside the members' control

  1. All late opt-out requests made under section 18(1)(b)(iv) must clearly state why they are late (that is, the events outside the members' control). Furthermore, the late opt-out requests should include the information set out in paragraphs 24 to 26. This will enable the Commissioner to positively identify the members and their employers. The Commissioner will consider these requests on a case-by-case basis.

  2. For the purposes of section 18(1)(b)(iv), events outside the members' control may include, but are not limited to:

    1. accidents or disasters affecting the members or their immediate family, or

    2. illnesses, emotional or mental distress affecting the members or their immediate family, or

    3. the members' involuntary absences from their employment because of:

      1. unplanned events or occurrences reasonably requiring them to leave New Zealand (for example, an immediate family member's illness or death), or

      2. obligations arising from their employment, occupation or volunteer services (for example, an unplanned overseas business trip).

  1. In deciding whether it is reasonable to accept late opt-out requests made under section 18(1)(b)(iv), the Commissioner may consider the following:

    1. Why were the opt-out requests late? What was the principal reason?

    2. Whether the lateness was minimal (that is, were the opt-out requests made as soon as practicable after the expiry of the opt-out period?)

  2. The following examples clarify what is meant by events outside the members' control.

  3. On 1 August 2007, Sam commences new employment. On 10 September 2007, he travels to India for one week on a business trip. Two days before Sam is due to return to New Zealand, he becomes ill and is forced to stay in a hospital for another ten days. Sam is too ill to contact anyone in New Zealand during that time. Sam does not return to New Zealand until 27 September and makes a late opt-out request stating the reasons for his lateness to the Commissioner the next week under section 18(1)(b)(iv). In this circumstance, the Commissioner accepts the late opt-out request because Sam's extended absence from New Zealand was unplanned and he was unable to opt out in India. Furthermore, Sam has made the opt-out request as soon as practicable after returning to New Zealand.

  4. On 3 September 2007, Jill commences new employment and becomes a member. On 25 October 2007, Jill is admitted to a private hospital for knee surgery which she had scheduled six months earlier. Jill does not submit an opt-out request before undergoing surgery and makes a late opt-out request under section 18(1)(b)(iv) on 9 November, two weeks after she has been discharged from the hospital. In this circumstance, the Commissioner considers that the knee surgery is not an event outside Jill's control, because it has been scheduled for six months and the lateness was not minimal.

Declined late opt-out requests treated as contributions holiday requests

  1. Pursuant to section 18(3), declined late opt-out requests will be treated as if they were contributions holiday requests, if section 102 applies to the members.

  2. In these instances, the Commissioner will treat the declined late opt-out requests as financial hardship contributions holiday requests under section 102(a). However, the Commissioner cannot consider these requests unless the members provide the information specified in section 103(2) with their late opt-out requests or within a period allowed by the Commissioner. Therefore, members making late opt-out requests should consider including details of their financial hardship if applicable (please see paragraphs 108 to 109).

  3. Generally, members who make late opt-out requests will not qualify for contributions holidays under section 102(b) because twelve months will not have elapsed since the Commissioner received their first contribution.

  4. For example, the Commissioner declines a late opt-out request three months after receiving Brian's first contribution as a member. Brian does not yet qualify for a contributions holiday under section 102(b) and has not provided the information required under section 103(2) (including details of their financial hardship) with his late opt-out request. In this circumstance, the Commissioner will treat the declined late opt-out request as a contributions holiday request under section 102(a) but cannot further consider the request because no financial hardship details have been provided. The Commissioner's practice will be to request the necessary information when giving notification of the declined opt-out. If Brian then provides the requested information including details of his financial hardship, the Commissioner will consider the request under section 102(a).

Refunds

Refunds by the Commissioner

  1. The Commissioner has the discretion to make refunds in certain circumstances. This section of the SPS sets out the Commissioner's standard practice when considering whether to make refunds. Generally, the Commissioner will not exercise the discretion to refund under sections 80, 81 and 100 only in unusual circumstances.

  2. For the purposes of section 80(1)(a) and (b), contributions that may be refunded are amounts deducted from the members' salaries or wages that are in, or are deemed under section 69 to be in, the Commissioner's possession.

  3. For the purposes of sections 81 and 113, "contributions" are contributions made by members and employers in respect of those members.

Refunds of pre-opt-out contributions

  1. Pursuant to section 80(1)(a), the Commissioner will usually refund pre-opt-out contributions to the employees if they have opted out.

  2. Pursuant to section 80(1)(c), the Commissioner will usually refund contributions to the employees, if:

    1. they have opted out, and

    2. the contributions were deducted from their salary or wages by the employers but not:

      1. refunded to the employees by them, or

      2. paid to the Commissioner.

  1. Furthermore, under section 100, if the employees have opted out, the Commissioner will usually refund pre-opt-out employer contributions that are still in the Commissioner's possession to the employers.

  2. In most cases, if an opt-out is effective, the Commissioner will refund contributions to the employees to ensure their memberships can cease. However, in certain circumstances, the Commissioner may not exercise the discretions to refund contributions under sections 80(1) and 100.

  3. The following example clarifies how the discretions under sections 80(1) and 100 will be exercised.

  4. The Commissioner accepts an opt-out request after receiving two pre-opt-out contributions from the employee and considers refunding these under section 80(1)(a). However, the Commissioner discovers that the contributions were mistakenly paid under the member's name and actually belong to someone else. In this circumstance, the Commissioner decides not to refund the contributions to the employee because they belong to another person.

  5. If, under section 80(1)(c), the Commissioner refunds to employees amounts for contributions that were not:

    1. paid to the Commissioner, or

    2. refunded to them by their employers,

the Commissioner will then recover the amount from the employers or members if the refund was incorrectly made to them.

Excess contribution refunds

  1. The Commissioner may refund excess contributions to members under section 80(1)(b).

  2. The following examples clarify how the discretion to refund excess contributions will be exercised.

  3. An employer deducts and remits to the Commissioner an amount comprising 10% of a member's gross salary when their chosen contribution rate is only 4% and the employer's contribution is also 4%. The member requests a refund. In this circumstance, the Commissioner determines that 2% of the member's salary received is an excess contribution and refunds the full excess amount to the member.

  4. In August 2007, an employer inadvertently deducts and remits to the Commissioner an excess contribution for a member. In September, the employer discovers the excess contribution. They make a negative adjustment to the assessment of contribution in the September 2007 EMS and also remit a reduced amount of contribution to "cancel out" the excess contribution. In this circumstance, the Commissioner accepts the one-off adjustment to the September EMS and the reduced contribution. Although the excess contribution is in his possession, the Commissioner does not refund the excess amount because he has effectively received the correct contributions for August and September 2007 leaving no excess contribution to refund.

  5. Pursuant to section 81(2), if providers refund excess contributions to the Commissioner, the Commissioner must refund or give credit for these amounts in the manner that the Commissioner thinks fit. Generally, the Commissioner would direct credit the refund into the members' nominated bank accounts unless they request that credits be transferred to other tax types under section 173L of the TAA (please see paragraphs 70 and 71 for further details).

  6. However, under section 101(2), the Commissioner may not refund excess employer contributions if the contributions received would be less, after the refunds are deducted, than what is required under the Act according to the members' and the employers' agreed or compulsory contribution rates.

  7. For example, a provider receives an excess employer contribution from the Commissioner (that is, an amount exceeding the compulsory employer contribution rate) and purchases some units in the member's superannuation fund. The Commissioner learns of the excess contribution and requests a refund from the provider on the member's behalf. However, after the refund has been requested, the value of the units purchased with the excess contribution decreased. Thus, the amount remaining in the superannuation fund is now less than that required under the member's and the employer's compulsory contribution rates. Accordingly, the provider cannot refund any of the excess contribution to the Commissioner because this would reduce the amount of contribution below the required amount.

Transfers instead of refunds

  1. Section 81(3) allows members to request that the Commissioner transfers all or part of any excess or pre-opt-out contributions to their other tax types or periods under section 173L of the TAA instead of refunding these amounts.

  2. The Commissioner may consider such transfer requests when exercising the discretion under sections 80(1) or 81(2). Generally, the Commissioner would give effect to any transfer requests received. 

Refunds when members cannot prove to an employer that they are taking a contributions holiday 

  1. Pursuant to section 114(3), if members on contributions holidays:

    1. start new employment, and

    2. cannot comply with section 22(1)(c)(ii) by showing the employers written confirmation of their contributions holidays,

the Commissioner may refund any contributions that have been received from the employers and are still held by the Commissioner (including contributions refunded to the Commissioner by the providers under section 81(1)).

Significant financial hardship and/or serious illness refund requests

  1. Section 113(1) allows members may make requests for refunds of initial contributions if they are:

    1. suffering, or likely to suffer, significant financial hardship, or

    2. suffering serious illness.
  1. For the purposes of section 113, "initial contributions" are contributions that are received and held by the Commissioner in the holding account under section 75(2). That is, contributions that have not been paid to the members' providers under section 75(3). Therefore, significant financial hardship and/or serious illness refund requests should be made within three months of the date the Commissioner receives, or is deemed to receive, the member's first contribution. Otherwise, the initial contributions may no longer be held by the Commissioner. (Please note that "initial contributions" do not include the Crown contribution paid under section 226).

  2. Pursuant to section 113(5), the Commissioner must refund contributions on receiving the members' significant financial hardship and/or serious illness refund requests if satisfied that they suffer, or are likely to suffer:

    1. significant financial hardship, or

    2. serious illness.

  3. Pursuant to section 113(3), the Commissioner may allow members to make significant financial hardship and/or serious illness refund requests by any means including those set out in paragraphs 15 and 16.

  4. All significant financial hardship and serious illness refund requests must include:

    1. the members':

      1. name and address, and

      2. IRD number, and

      3. significant financial hardship or serious illness details (including medical certificates), and/or

    2. any other information that the Commissioner requires. This may include:

      1. evidence of the members' assets and liabilities for significant financial hardship refund requests, or

      2. verification of other documents or evidence provided in support of the refund request by oath, statutory declaration, or otherwise (for example, medical opinions).

  5. The following example clarifies when the Commissioner may request further information from the members.

  6. A member has suffered a stroke and is unable to work. The member makes a significant financial hardship refund request under section 113(1) and provides details of his medical condition including a letter from his neurologist documenting his condition. In this circumstance, the Commissioner also asks the member to provide details of any loss of income insurance policy held and insurance receipts to verify the member's financial position.

Significant financial hardship

  1. Pursuant to clause 11(1) in Schedule 1, "significant financial hardship" includes significant financial difficulties that arise because of:

    1. members' inabilities to meet:

      1. minimum living expenses, or

      2. minimum mortgage repayments on their principal family residence, that result in the mortgagee seeking to enforce the mortgage on the residence, or

    2. the costs in respect of:

      1. modifying residences to meet special needs arising from members' or their dependants' disability, or

      2. medical treatment for members' or their dependants' illnesses or injuries, or

      3. palliative care for members or their dependants, or

      4. funerals for members' dependants, or

    3. the members suffering from serious illnesses (please see paragraphs 89 and 90).

  2. Generally, the Commissioner would not consider significant financial hardship to include financial difficulties that arise because the members are:

    1. obliged to pay other taxes, or

    2. engaging in excessive social or entertainment activities, or

    3. making mortgage repayments in respect of investment properties, or

    4. unable to make mortgage repayments on their principal family residence if those repayments, and the residence exceed the members' and their families' basic requirements or where refinancing the mortgage to reduce repayments is a reasonable alternative.

  3. For the purposes of clause 11(1), "minimum living expenses" would usually include the actual and reasonable costs of:

    1. basic food and grocery items, and

    2. accommodation (including mortgage repayments, interest, rates and necessary maintenance for their principal family residence), and

    3. basic clothing, and

    4. utility services such as power, gas and telecommunications, and

    5. transportation, and

    6. fire and general insurances, and

    7. medical and dental costs necessary for the maintenance of good health, and

    8. school fees (excluding private school fees) and tertiary education costs, and

    9. other normal (non-luxury) household items.

  4. The Commissioner will normally consider minimum living expenses in the context of normal community standards across the whole of New Zealand taking into account regional differences (such as variations in rent or power usage). Whether members can meet minimum living expenses will be determined on a case-by-case basis and after taking into account all relevant factors.

  5. The following examples clarify the meaning of minimum living expenses.

  6. Jessica, as a member, makes a significant financial hardship refund request and provides evidence of her assets and liabilities. Jessica has recently financed some luxury goods including a large plasma television and state-of-the-art home theatre system which she cannot sell without breaching the hire purchase agreement. In this circumstance, the Commissioner considers that Jessica can meet minimum living expenses and therefore declines the significant financial hardship refund request.

  7. Roger, a member, makes a significant financial hardship refund request and provides financial information that discloses he is paying a relatively high life insurance premium. The Commissioner requests further information and discovers that Roger is required to hold a life insurance policy as a condition of his mortgage on the principal family residence. Roger would be unable to obtain a lower interest rate from another lender without this same condition. In this circumstance, the Commissioner is satisfied that the life insurance premium is integral to Roger's minimum living expenses and accepts the significant financial hardship refund request.

  8. Whether persons are dependants for the purposes of clause 11(1) of Schedule 1 will be determined on a case-by-case basis. In determining whether persons are dependants, the Commissioner will consider:

    1. whether they are dependent on the member for financial support, and

    2. the degree of relationship to the member, and

    3. what degree of financial support the member habitually provides to them.

  9. Please note that significant financial hardship requests are not:

    1. financial hardship contributions holiday requests under section 102(a), or

    2. serious hardship write-off requests under section 177(1)(a) of the TAA.

Such requests must be made separately under those respective legislative provisions.

Serious illnesses

  1. For the purposes of clauses 11(1)(g) and 12(3) in Schedule 1, serious illnesses are:

    1. injuries, and/or

    2. illnesses, and/or

    3. disabilities that:

      1. result in the members being totally and permanently unable to engage in work for which they are suited by reason of experience, education, or training (or any combination of these), or

      2. pose a serious and imminent risk of death.

  2. The Commissioner will generally require the members to provide medical evidence of their serious illnesses to substantiate that the criteria have been satisfied.

  3. The following example clarifies when the Commissioner would consider members to suffer a serious illness.

  4. Jack is an aerobics instructor who has been a KiwiSaver member for three months. Jack is paralysed in a car accident and is now confined to a wheelchair. Jack makes a serious illness refund request. In this circumstance, the Commissioner is satisfied that Jack is totally and permanently unable to work as an aerobics instructor for which he is suited because of his experience and training. The Commissioner refunds the initial contributions to Jack under section 113(5). This is notwithstanding that Jack may be able to perform other roles with his employer.

Refund methods

  1. Pursuant to section 221(1), the Commissioner must refund contributions by direct crediting them into the employee's nominated bank account. However, if the Commissioner is satisfied that direct crediting:

    1. would result in undue hardship to persons, or

    2. is not practicable,

the Commissioner may refund contributions by any other acceptable means under section 221(3).

  1. For example, the Commissioner decides to refund pre-opt-out contributions to the employee. The employee has nominated a bank account in their written opt-out request. The bank account is now closed. In this circumstance, the Commissioner cannot direct credit the contributions into the bank account. Therefore, the Commissioner considers it impracticable to direct credit the refund to the employee and, instead exercises the discretion under section 221(3) and sends a refund cheque by post to their residential address.

Financial hardship contributions holidays

Financial hardship contributions holidays

  1. Members cannot apply for a contributions holiday within twelve months of the Commissioner receiving their first contribution unless they can show that they are suffering, or are likely to suffer financial hardship.

  2. Section 102(a) allows members to make financial hardship contributions holidays requests if:

    1. the Commissioner has received their first contribution (including contributions deemed to be received under section 69), and

    2. they are suffering, or likely to suffer financial hardship.

  3. Pursuant to section 103(1), the Commissioner may allow members to make contributions holiday requests by any means that is acceptable to the Commissioner. This will include by one of the means set out in paragraphs 15 to 16.

  4. Pursuant to section 104(1), the Commissioner must:

    1. accept financial hardship contributions holidays requests, and

    2. grant contributions holidays if:

      1. the Commissioner is satisfied that the members are suffering, or are likely to suffer, financial hardship, and

      2. the requests include the following information under section 103(2):

        1. the members':

          • name and address, and

          • IRD number, and

        2. the name and address of each of the members' employers nominated to be subject to the contributions holidays, and

        3. the length of the contributions holidays required, and

        4. details of the members' financial hardship, and

        5. any other information that the Commissioner requires.

Financial hardship

  1. The Commissioner will consider financial hardship contributions holidays requests on a case-by-case basis. However, the Commissioner considers that the following guidelines are relevant to determining whether members are suffering, or are likely to suffer financial hardship for the purposes of sections 102(a) and 103(2)(e).

  2. The question of whether members are suffering, or are likely to suffer financial hardship is not a matter of moral or cultural judgment. However, members engaging in extravagant or lavish lifestyles, when viewed objectively, are unlikely to be regarded as suffering financial hardship. In this circumstance, they cannot make their KiwiSaver contributions simply because of their high living expenses.

Unchanged financial circumstances

  1. If members' financial circumstances are unchanged, the Commissioner may accept that they are suffering, or are likely to suffer financial hardship if they show that they underestimated the financial effect that making contributions would have on their disposable income and cannot afford to pay their reasonable living expenses as a result.

Changed financial circumstances

  1. The Commissioner is more likely to accept that members are suffering, or are likely to suffer financial hardship if their financial circumstances have changed since they have commenced their membership, than if their financial circumstances are unchanged.

  2. For the purposes of this SPS, the members' financial circumstances will have changed if their personal disposable incomes have reduced because their:

    1. personal income has reduced, and/or

    2. living expenses have increased,

to the extent that it is no longer financially feasible for them to continue making contributions as a result.

  1. If members' financial circumstances have changed, the Commissioner may accept that they are suffering, or are likely to suffer financial hardship and grant contributions holidays if the Commissioner considers that the changes are because of unexpected events or events beyond the members' control.

  2. The Commissioner would generally consider events beyond the members' control or unexpected events to include:

    1. the need to repair, maintain, or replace essential items of the members' or their dependants' real or personal property, for example:

      1. vehicles if no other reasonable transportation alternatives are available, or

      2. major household appliances or items of a non-discretionary nature (for example, washing machines or fridges),

because of:

  1. accidents involving themselves or their partners or dependants, or

  2. naturally-occurring events, or

  3. normal wear and tear, or
  1. illnesses, injuries or conditions suffered by members or their partners or dependants that affect their income or cause material expenses including:

    1. medical treatment costs for the members' or their dependants' illnesses, injuries or conditions, or

    2. special medical or rehabilitative equipment costs for the members or their dependants, or

    3. costs for:

      1. modifying residences to meet the special needs of the members or their dependants, or

      2. palliative care for members or their dependants, or

      3. the members' or their spouses' or partners' pregnancies, or

  2. inflationary factors such as price increases in:

    1. basic commodities, or

    2. interest rates on borrowings, or

    3. residential rents, or

  3. changes in shared living arrangements that cause increases in the members' residential rents or reductions in board payments received by them, or

  4. members', or their dependants' education costs excluding private school fees and related costs if alternative funding is unavailable or not feasible, or

  5. involuntary changes in the members' or their partners' employment circumstances or investments that cause reductions in their household income (for example, a vacant investment property, a reduction in overtime work available), or

  6. a reduction in the members' household income because of voluntary changes in the members' or their partners' employment circumstances for work related or family reasons (for example, reducing work hours to contribute to child rearing or taking redundancy rather than moving to a workplace in a different city).

  1. However, the Commissioner may consider that members are not suffering, or are not likely to suffer financial hardship if their financial circumstances have changed because of events or circumstances within their control or discretion, because they could have considered the financial implications of these events or circumstances.

  2. Although the Commissioner will treat each request on a case-by-case basis, generally the Commissioner would consider planned events or events within the members' control or discretion to include, but not be limited to:

    1. the replacement of items of the members' real or personal property if the existing property is still in good working order, or

    2. the purchase of non-essential or luxury goods or services (for example, overseas holidays).

Financial hardship details

  1. Generally, the Commissioner will decide whether to grant contributions holidays and their term on the basis of the financial hardship details provided with the members' financial hardship contributions holidays' requests (or late opt-out requests).

  2. However, at times under section 103(2)(f), the Commissioner may ask the members to provide further relevant information to determine whether they are suffering, or are likely to suffer financial hardship. This information may include, but is not limited to:

    1. the costs of any repairs, maintenance, or the replacement of items of the members or their dependants' real or personal property, and

    2. details of any insurance policies held by the members or their partners and any proceeds received, and

    3. medical records or other evidence that substantiate:

      1. the members' or their dependants' illness, injury, medical condition, and/or

      2. the members' or their spouses or partners' pregnancies.

Contributions holidays periods

  1. The Commissioner will consider the appropriate term of the contributions holidays on a case-by-case basis after taking into account the members' individual circumstances.

  2. Pursuant to section 104(2), if the Commissioner grants financial hardship contributions holidays, they must be for a period of three months although a longer period can be allowed (for example, a longer term specified in the financial hardship contributions holiday request). Contributions holidays will usually start from the date that they are granted by the Commissioner.

  3. Generally, contributions holidays will be granted for sufficient periods to allow the members' financial circumstances to improve to the extent that contributions are sustainable.

  4. The following examples clarify the meaning of financial hardship.

  5. Anna is a member who has made contributions for four months. Anna's fridge develops a fault beyond repair. She has to purchase a replacement fridge on hire purchase. Anna makes a financial hardship contributions holiday request for a ten-month term to allow her to pay for the new fridge. Anna will have completed payments under the current hire purchase agreement in ten months' time and can afford to recommence contributions then. In this instance, the Commissioner accepts her application and grants a contributions holiday for ten months because Anna's living expenditure has increased due to an event beyond her control.

  6. Jane is a member who has made contributions for seven months. Jane lives in a shared accommodation with two other flatmates and does not own the house. One of Jane's flatmates moves out and Jane has to pay an increased share of the rent with the other remaining flatmate until a replacement flatmate is found. In the past, it had taken up to three months for another flatmate to be found. Jane makes a financial hardship contributions holiday request for a three-month contributions holiday. In this circumstance, the Commissioner accepts the financial hardship contributions holiday request and grants a contributions holiday for three months because Jane's increased living expenses is due to an event beyond her control.

  7. Rick is a member who has made contributions for two months. Rick was recently made redundant and has taken a job with a different employer at a reduced salary. Rick's new employer has continued to deduct contributions from his salary at his chosen rate of 4% of his gross salary. Rick does not want to opt out. So, Rick makes a financial hardship contributions holiday request for eight months to allow him to repay existing debts and reduce his living expenses to a sustainable level. Rick also successfully requests a refund of initial contributions under section 113 because he suffers significant financial hardship. In this circumstance, the Commissioner accepts the request because the reduction in employment income is directly related to Rick's previous redundancy, which was an event beyond his control. The Commissioner also grants Rick a contributions holiday for a longer period of twelve months to allow sufficient time for his financial position to improve.

  8. Terry is a member who has made contributions for two months. Terry installs a swimming pool for recreational reasons and secures finance to pay for it. Terry makes a financial hardship contributions holiday request for ten months because he can no longer meet his personal expenses from his disposable income. In this circumstance, the Commissioner declines Terry's application, as Terry's increase in living expenses relates to an unnecessary discretionary event, that is, the swimming pool purchase.

  9. Please note that financial hardship contributions holidays requests are not:

    1. significant financial hardship or serious illness refund requests under section 113(1), or

    2. serious hardship write-off requests under section 177(1)(a) of the TAA.

Such requests must be made separately under those respective legislative provisions.

Decision review process

Decision review process

Discretions under Parts 2 and 3 of the Act

  1. Pursuant to section 212, the Commissioner may reconsider certain earlier decisions. This is known as the decision review process.

  2. These decisions are any matters that under Parts 2 and 3 of the Act are left to the Commissioner's:

    1. discretion, or

    2. judgment, or

    3. opinion, or

    4. approval, or

    5. consent, or

    6. determination.

Examples of these include declining late opt-out requests, declining to grant contributions holidays and declining significant financial hardship refund requests.

  1. The decision review process operates separately and is outside the disputes resolution process set out in Part IVA of the TAA.

  2. Pursuant to section 138E(1)(e)(ivb) of the TAA, taxpayers cannot challenge discretions exercised under Parts 1 to 3 of the Act by commencing proceedings in a hearing authority. Accordingly, such decisions are not "disputable decisions" for the purposes of the dispute rules in the TAA.

  3. The decision review process cannot be used to review non-discretionary decisions or the same discretionary decision twice. However, persons may apply for judicial review of some decisions made under the Act.

Persons affected by the Commissioner's decisions

  1. Applicants (including persons other than members) may make reconsideration requests under section 212(1). The Commissioner must be satisfied that decisions affect the applicants before considering their reconsideration requests.

  2. For example, the Commissioner determines that an employer has not provided information about the member to the Commissioner under section 23(1). The employer is liable for a penalty under section 215 because a notice has previously been given to it for the same omission and section 215(2)(b) applies. The employer makes a reconsideration request in respect of the determination made under section 23 because they contend that they did, in fact, send this information to the Commissioner by post. In this circumstance, the Commissioner is satisfied that the determination affects the employer, who may make the reconsideration request.

Making reconsideration requests

  1. Applicants may make reconsideration requests by one of the methods set out in paragraphs 15 and 16.

  2. The Commissioner may also require applicants to make reconsideration requests or provide supporting information in writing under section 212(3). In such cases, members may make written reconsideration requests by one of the methods set out in paragraph 16.

Late reconsideration requests

  1. Pursuant to section 212(2), applicants must make reconsideration requests and/or provide any supporting information within:

    1. twenty working days after the date that the Commissioner gave them notice of the discretionary decision, or

    2. any longer period allowed by the Commissioner.

  2. Therefore, the Commissioner may accept reconsideration requests or supporting information made after the expiry of the time period as mentioned in paragraph 128(a).

  3. The Commissioner will consider late reconsideration requests on a case-by-case basis. If the explanations for the delays in making the reconsideration requests are reasonable, the Commissioner will accept the reconsideration requests as valid requests.

  4. Then, the Commissioner will consider all relevant matters when exercising the discretion to accept late reconsideration requests and ensure that the discretion is exercised fairly and lawfully.

Treatment of late reconsideration requests

  1. The Commissioner may accept late reconsideration requests if the applicants cannot make the reconsideration requests within twenty working days after the date that the Commissioner gave them notice of the relevant decision because of:

    1. events or circumstances beyond their control including:

      1. accidents or disasters, and/or

      2. illness or emotional or mental distress, or

      3. delays in accessing information to support the reconsideration request, or

    2. unplanned personal absences from New Zealand, or

    3. genuine oversights or errors of a one-off nature.

  2. Such events or circumstances should not include the applicants' tax agents' acts or omissions unless the Commissioner is satisfied that these were caused by events beyond the tax agents' control that could not have been:

    1. anticipated, and

    2. avoided by compliance with accepted standards of business organisation and professional conduct.

  3. Therefore, applicants should state the facts clearly and provide sufficient relevant information when making reconsideration requests.

  4. The following examples clarify the exercise of the Commissioner's practice to accept late reconsideration requests.

  5. On 28 September 2007, the Commissioner advises John in writing that his financial hardship contributions holiday request is declined. John decides to make a reconsideration request and provide further supporting information regarding his financial circumstances, but in early October 2007, his son becomes ill and is hospitalised. The medical condition of John's son improves slowly and John spends a reasonable amount of time at the hospital over the next six weeks. John makes a late reconsideration request on 12 November 2007. The reconsideration request clearly explains the decision to be reconsidered, the reason for the lateness and includes further supporting financial information. In this circumstance, the Commissioner would exercise his discretion to accept the late reconsideration request under section 212(2) because it is related to circumstances beyond John's control.

  6. On 5 November 2007, the Commissioner advises Lucy in writing that her significant financial hardship request was declined because she did not satisfy the significant financial hardship requirements. Unfortunately, Lucy's husband misfiles the Commissioner's notice with his own business papers. Lucy does not discover the notice until mid-December. Lucy makes a late reconsideration request which includes further relevant supporting information about her financial situation and a clear explanation of why the reconsideration request was late. In this circumstance, the Commissioner would accept the late reconsideration request because this is a one-off situation resulting from a genuine oversight. The merits of the reconsideration request and supporting information also justify the exercise of the discretion under section 212(2). However, this does not necessarily mean that the Commissioner will reverse the original decision to not refund the initial contributions.

The discretion under section 212(4) 

  1. Pursuant to section 212(4), the Commissioner on receiving reconsideration requests (whether late or otherwise) may:

    1. fully accept the reconsideration requests, or

    2. seek further information from the applicants, or

    3. fully decline the reconsideration requests, or

    4. accept or decline the reconsideration requests in part and decline or accept the other part.

The Commissioner will generally make decisions regarding any reconsideration requests within twenty working days of receiving them.

  1. If the Commissioner requests further information from the applicants under section 212(4)(b), this must be provided by the agreed date. This will generally be twenty working days after the date the information is requested.

  2. If the Commissioner:

    1. declines:

      1. late reconsideration requests under section 212(2), or

      2. reconsideration requests under section 212(4) (that is, does not exercise the underlying discretion in the applicants' favour), or

    2. accepts or declines reconsideration requests in part and declines or accepts the other part under section 212(4)(d),

the Commissioner will advise the applicants of the decision to decline and the reasons for that decision as soon as practicable.

  1. If the Commissioner accepts reconsideration requests (late or otherwise) and decides to exercise the underlying discretion to which the reconsideration request relates in the applicants' favour, the Commissioner will also advise them in writing if appropriate.

  2. For example, Tracy makes a reconsideration request in respect of a declined financial hardship contributions holiday request within twenty working days of receiving the Commissioner's notice. The Commissioner reconsiders the previous decision and accepts it was wrong. The Commissioner then sends written confirmation of the contributions holiday to Tracy under section 105(1)(a).



This Standard Practice Statement is signed on 18 June 2007.


Graham Tubb
Group Tax Counsel
Legal and Technical Services