Employer superannuation contribution tax and past employees

(Clauses 75 to 81, 103, 113, 112 and 130)

Summary of proposed amendment

The bill amends the Income Tax Act 2007 and the Tax Administration Act 1994 to codify the long-established practice of deducting employer superannuation contribution tax (ESCT) from superannuation contributions made on behalf of past employees.

It also provides that a 33% rate of ESCT applies to these contributions.

Application date

The amendments apply from 1 April 2008, unless a return was filed before the introduction of this bill on a different basis.

The Taxation (Budget Measures) Act 2011 contained some other changes to the ESCT rules, which apply from 1 April 2012. This necessitated the amendments being drafted in two stages, but the overall outcome is the same.

Key features

The definition of an “employer’s superannuation cash contribution” is being clarified to include superannuation contributions paid by a person for the benefit of their past employees − that is, even when there is no current “employer” and “employee” relationship.

This means that the person paying the superannuation contribution, although no longer technically “an employer” of these past employees, must still deduct ESCT from these superannuation contributions.

The rate at which ESCT must be deducted from these contributions is set at 33%. The variable rates that employers must apply to contributions on behalf of current employees from 1 April 2012 are not used because the variable rates rely on recent salary or wage information that is not applicable in the case of a past employee.

A provision is being included so that the amendments do not apply to people who filed a return before the date of introduction of the bill on a different basis. Instead Inland Revenue will consider the basis on which they have filed their return in light of the current legislation.