Edwin Dando Subject Attachments FW Kiwi Saver for Shareholder by xzibit

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									Edwin Dando
Subject: Attachments: FW: Kiwi Saver for Shareholder Employee DOC290208.pdf; KiwiSaver Briefing Feb 08.pps

From: Alan Jarvis [mailto:alan@jarvisaccountants.co.nz] Sent: Monday, 3 March 2008 2:35 p.m. To: James Smith Subject: Kiwi Saver for Shareholder Employee

Hello James Thank you for your enquiry about whether a Shareholder Employee should join Kiwi Saver as Self Employed person and continue to receive Shareholder Salary from Company or whether they should change to be an employee of the Company. James, there are a number of factors that each Shareholder Employee needs to consider; Is the motive of joining Kiwi Saver to take advantage of the Governments contribution of $1,040, or are they wanting to put in place a savings plan and Kiwi Saver is the best option for them? 2. If they were to become employees of the Company then the salary paid to them would have to be a fair market based salary and the drawings will be replaced with the net salary being paid to them. 3. If become employee, generally the balance of the Company profits will remain in Company and will be paid out as a dividend, which can be paid out in cash at anytime or added to the Shareholders Current Account. They can then take this amount out as drawings tax paid. Now lets consider Kiwi Saver options. 1. Client has saving plan in place and wants to take advantage of Governments contribution of $1,040 each year. They can do this as a self employed person. Out of their drawings they contribute $1,040 to Kiwi Saver Fund and the Government matches this with $1,040. 2. Client has saving plan in place and wants to take advantage of Governments contribution of $1,040 each year and employer subside does this by becoming an employee of Company paying themselves a fair market Salary of $60,000. Balance of Company profit remains in Company and paid out as Dividend. a. From their salary they have to contribute 4% of $60,000 being $2,400. b. Governments contributes to employee $1,040. c. Employer has to contribute 1% during 2009 year, rising to 4% during 2012 year. Starts at $600 rising to $2,400. d. Government will contribute to employer for each employee up to maximum $20 per week or $1,040 per year. e. First year cost to Shareholders Company over and above self employed option, $Nil. Get extra $600 contribution free. f. Second year cost to Shareholders Company over and above self employed option, $160.00 more paid out. 2% contribution is $1,200 with the Government giving Employer Tax Credit of $1,040. g. Third year cost to Shareholders Company over and above self employed option, $760 more paid out. h. Fourth and each year after, the cost to the Shareholders Company over and above payments made as self employed option, $1,360 more paid out. Fact that this will lower tax would result in overall amount paid out $911. 1.

Summary, entering Kiwi Saver to • • Take advantage of Companies $1,040 contribution and $1,000 kick start, self employed the way to go. Put in place a savings plan, then should consider being paid employee with PAYE deducted.

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Advantage; • Reducing the owners Company profit as incurs an additional tax deductible expense lowering with the benefit of the employer contribution adding to the owners retirement fund tax free.

Disadvantage: • The Company has to fix and pay a fair market salary with PAYE deducted to the shareholder employee which means less flexibility in amount of Company profits distributed to Shareholder. Minimum Employee and Employer contributions 4% each, cannot reduce only increase. Contributions locked in.

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Disclaimer: This is a general summary of Self Employed versus Employee Kiwi Saver contributions for Shareholder Employees and does not constitute tax advice. For tax advice you need to discuss your individual circumstances with your Accountant or Tax Consultant.
Kind Regards Alan Jarvis Jarvis Advanced Accounting Solutions Ltd Chartered Accountant P O Box 35 033 Christchurch Phone: (03) 366 4600 Facsimile: (03) 366 4611 Website: www.jarvisaccountants.co.nz

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