ESCT

What is ESCT?

ESCT stands for Employer Superannuation Contribution Tax. It is not a new tax and was known as ‘specified superannuation contribution withholding tax’ before. Some employers will already be deducting ESCT either because they have their own superannuation fund which didn’t qualify for the exemption or they have been making KiwiSaver employer contributions in excess of the 2% minimum contribution. Since 1 April 2012, 2% employer superannuation contribution has not been tax free any more.

What is ESCT rate and how does it work?

ESCT rate is a marginal rate based on employees’ income. The “ESCT rate threshold amount” is the gross salary or wages plus last year’s superannuation contribution (before deduction of any ESCT) paid by the employer. If there is no such a number, using predicting number.

ESCT is deducted from the employer contribution and so reduces the value of the amount that ends up in the KiwiSaver scheme and is therefore not likely to be an additional cost for employers 

Example:

In 2011-2012 income year, an employee’s income is $40,000. His employer’s Kiwisaver contribution is $800. So his ESCT threshold amount is $40,800. The ESCT rate for him is 17.5%. In 2012-2013 income year, the employer will deduct 17.5% tax out of this employee’s Kiwisaver contribution.

Method 2: If the employer and employee agree, the amount of employer contribution can be treated as the employee's salary or wages and PAYE must be withheld.