Cullen announces legislation to remove 'inequitable' tax treatment

9.00am

The Government will introduce legislation soon to sort out inequities in the amount of tax paid on employer-based superannuation schemes, Finance Minister Michael Cullen said today.

Currently, employers' contributions to their employees' retirement savings are taxed at a flat rate of 33 per cent.

Dr Cullen said that meant employees earning less than $38,000 a year were being over-taxed because their marginal income tax rates were much lower than that.

The result was "inequitable" treatment that might discourage low income employees from participating in employment-based superannuation schemes.

Legislation would be introduced soon to deal with that concern, he told the savings and fund management conference in Wellington.

"This legislation will ensure that contributions to workers with annual salary/wages and superannuation contributions below $38,000 are taxed at the appropriate marginal tax rate."

Some had raised concerns about imposing further compliance costs on employers, especially at a time when employers were increasingly concerned about the cost of providing superannuation schemes.

"For this reason, the legislation will make aligning the rate of tax on employer contributions with the employee's marginal tax rate permissive rather than mandatory," he said.

- NZPA