With care, the impact may not be as bad as first thought. The Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 brings significant change to the taxation of investments. This will impact returns from offshore shares and managed funds. Also, it raises many questions about just how the tax should be calculated.

Generally, the new rules apply to offshore resident managed funds and offshore listed equities - other than some Australian resident listed companies. All these investments will be subject to the new tax rules, unless a Foreign Investment Fund (FIF) exemption applies.

When I went to the IRDs website this morning I swear  this is what I saw. If I knew how to spell "gobble de gook" that's what I'd call it.

IRD home page in Firefox

Problem is probably in my Firefox browser, as the site looks fine in Internet Explorer.

Question

Hi

It was with interest that I read how overseas investments are taxed. I and a number of Expat’s who are all now resident taxpayers in New Zealand were surprised by his comment on having to declare tax on overseas investments.

Speaking for myself, I am already paying tax in England on the interest that I earn, and had no idea that i was meant to declare this money here. I have a term deposit and have been here for 4 and a half years.

What is the next step, and what are the legal implications of my situation? I have proof of paying tax in the UK since arriving in NZ.

Like the person who sent in last weeks query, I am also watching the exchange rates as I would like to bring all the money over to NZ to put down as a deposit on a house, but am waiting for a more favourable rate.

I hope that you can forward this on to somebody who can advise the general public on this issue. It seems as if many people have done the same thing and are not aware of what the NZ requirements are. What with such a large Expat community in Auckland, this advice will be greatly received.

I am happy for you to publish this query.

Kind regards

James S

Answer

James bad news I’m afraid. Income earned in any jurisdiction is assessable in New Zealand if you are a resident tax payer.

Worse, it is at the marginal taxation rate of your grossed up income regardless of the tax component that you may already have had deducted at source.

The only ray of sunshine is that the tax deducted at source can be applied as a credit against the total taxation sum payable if the investment is domiciled in certain ‘grey list’ countries (the countries are Australia (excluding Norfolk Island), Canada, Germany, Japan, Norway, the UK, and the US (excluding its possessions and territories)).

If the investment happens to be outside those listed countries any tax deducted is in effect ‘lost’ to your local obligation.

To reduce tax barriers to the recruitment of highly skilled people to New Zealand, a four-year tax exemption on foreign income will be available to new migrants or returning New Zealanders who have been non-resident for tax purposes for at least 10 years. It will apply to people who arrive from 1 April 2006.

The wider issue of taxation on overseas investments is currently being hotly debated. It is expected some form of capital/ revenue boundary shift will be applied thereby taxing capital gains on investments beyond the Australasian borders.

It is my suggestion that you take advice from somebody local that has a good rapport with the IRD. You will find that they will treat you fairly I’m sure. However taxation avoidance can carry heavy penalties, inadvertent or not.

 

Original Article published May 2006

KiwiSaver LogoThe Government's KiwiSaver Member Tax Credit is "money for jam"

To take maximum advantage of the Government's Member Tax Credit to your KiwiSaver account make sure you have contributed at least $1,042.86 before the end of June.

The oddly named "Member Tax Credit" has nothing to do with your tax return. Put simply the Government puts 50 cents into your KiwiSaver account for every dollar, up to a maximum of $1,042.86, you've put in during the year. So the maximum MTC is $521.43. All you have to do is make sure you've contributed at least $1,042.86 before the end of June.

If you aren't making regular contributions to your KiwiSaver account now is the time to do something about getting your free money from the Government. All the KiwiSaver providers have the ability to make lump sum contributions. Just make sure you've put at least $1,042.86 into your KiwiSaver account and some time in July or August another $521.43 will be added to your account by the Government. That's a 50% return on investment, which is pretty hard to beat.

If you set up regular contributions to your KiwiSaver account you wont have to make lump sum payments, just $20 a week is $1,040 a year or $87 a month will give you $1,044 a year.

If you can't afford $1,042.86 just put in what you can afford. If you only put in $2.00 the MTC will turn that into $3.00. Put in $100 and the MTC will turn it into $150. Sound to good to be true? Check the KiwiSaver website for details http://www.kiwisaver.govt.nz/new/benefits/mtc/.

While you're there why not register for My KiwiSaver and IRD online services

If you need help call Andrew or Jonathan on 07 578 3863. Please have available your KiwiSaver account provider and account number.

Tax MicroscopeDid you know that if you have sold a bond, or other fixed interest security at below the price you payed for it the losses you have made may be deductible for income tax purposes?

Likewise if you sell, or it matures, at a higher price you may be liable for tax on the gain.

Talk to your accountant or tax professional to see whether this applies in your situation.

If you think about it, it does make sense. The Yield to Maturity (YTM) is used to help work out the price of a bond. The YTM includes the total income the investor will receive over the life of the bond, including the difference between purchase price and the face value. And of course in New Zealand tax is assessed on income.

Make sure you contribute at least $1,042 to your KiwiSaver account by June Year.

In July of each year the IRD makes a Member Tax Credit (MTC) payment into the KiwiSaver accounts of contributing members living in New Zealand aged between 18 and the age at which the member is entitled to receive their benefit (i.e. the later of age 65 or after five years' KiwiSaver membership).

In plain English: the government puts money into a KiwiSaver members personal KiwiSaver account, which is added to your retirement savings.

It works like this:

To claim the maximum MTC of $521.43 a member will need to have made contributions of at least $1,042 into their account. Employer contributions and government contributions do not count towards MTCs.

So the government will match half of your contributions with a tax credit to your KiwiSaver account, up to a maximum of $521.43 each year (under current rules).

If a member joins KiwiSaver part way through a year or turns 18 during the course of the year, their MTC entitlement is pro-rated accordingly. Similarly, anyone turning 65 during the course of a year is only entitled to MTC credits for the period they were aged under 65 (unless they have been in KiwiSaver for less than five years in which case they are entitled to receive MTC's for the full five year period).

Those contributing less than the required $1,042.86 have the option of making voluntary contributions before the end of the scheme year to ensure they maximise their MTC entitlement. For these voluntary contributions to have the desired effect they must be processed by mid-June (to ensure they are in the member's account by the end of the month).

KiwiSaver Logo
KiwiSaver Logo"This website is operated by Bay Financial Partners Limited  and is not endorsed by, or affiliated with, the government or Inland Revenue. Bay Financial Partners Limited is using the KiwiSaver trade mark and logo under licence from Inland Revenue. To view the official New Zealand government KiwiSaver website, please click here."

pour_beerThe following has been attributed to two university professors, David R. Kamerschen, Ph.D.  Professor of Economics and T. Davies of the University of South Dakota. Both deny having written it!

It is a hilarious explanation of one of the many vagaries of our current progressive tax system.

For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.


Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this;

The first four men (the poorest) would pay nothing
The fifth would pay $1
The sixth would pay $3
The seventh would pay $7
The eighth would pay $12
The ninth would pay $18
The tenth man (the richest) would pay $59

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80. The group still wanted to pay their bill the way we pay our taxes.

Question

 

I’m reading about proposed tax changes on international investments and already my adviser is keen to have me change my portfolio. I do not know exactly what and why we are having these changes imposed but it seems a bit early to be making changes when the ink is not even dry on the legislation.

It’s tax time again. Income tax returns for the year ending 31 March 2016 are due by 7 July. If a tax agent or accountant files on your behalf, in most cases you’ll automatically receive an extension.

If you don't have a tax agent and haven't filed your tax return yet, you'd better get it in the mail pretty soon!

Filing tax returns can be a daunting task, especially if it’s the first you’ve filed for yourself or your company. Aimed primarily at small business but useful for all click here for the top tips from the Business.govt.nz:

Online filing of tax returns has become far easier than it was in the past. But like everything you need to get setup first but it's not hard once you get the hang of it and can save you lots of time. Click here for information how to get started filing your tax returns online

signpost_taxTax changes

Personal income tax rates

The tax rates on personal income (eg salary, wages, ACC payments, or self-employed income) are changing from 1 October 2010.

The new tax rates effective from 1 October 2010 are:

Income Band Tax Rate
$0 - $14,000 10.5%
$14,001 - $48,000 17.5%
$48,001 - $70,000 30%
$70,000 and over 33%

A Tax System for New Zealand’s Future is the title of the Tax Working Group (TWG) report on reforming the tax system in New Zealand.Tax under the microscope Released in January 2010 it is well worth a read, even if by selective browsing, as it contains a lot of interesting information and proposals, a number of which are of direct relevance to the investment industry, particularly as they relate to rental properties, land ownership, and equity investments. The full report can be viewed by clicking here http://www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.pdf, (opens in a pdf file).

Media Commentary

Brian Farrow writes in the NZ Herald Govt wary of plan for big change to tax and Tax group targets building depreciation

Special Interest Group www.landlords.co.nz of course have their own views on the proposals: Investors face double-whammy in tax proposals and Misleading talk will lead to bad tax decisions

One thing that caught a commentators eye was the following "scandalous passage" (p. 17):

During April 2006, the Government introduced tax reforms, which would apply to Collective Investment Vehicles (CIVs), from 1 April 2007.

The thrust of the effort is to remove distortions that currently favour direct investment over CIVs. These new entities will be known as Qualifying Collective Investment Vehicles or QCIVs).

Last week I wrote a short commentary on the taxation of residential investment property and the tax evasion that seems rife. Among the reasons for the piece was what I see as the very clever ‘conning’ of a whole sector of our nation’s savers with promises of investment outcomes and taxation benefits that just cannot be achieved without transgressing the tax laws of our country.

shockedfaceDid you know?

If you are a trustee of a trust you are personally liable for the tax obligations of the trust.

Inland Revenue have just advised that If you resign as a trustee, they must receive this in writing, as soon as possible following the resignation, so they can update their records.

If you resign as trustee of a trust and don't send IRD written confirmation, they'll still recognise you as a trustee, which makes you liable for any tax obligations of that trust.

If you resigns as a trustee of a trust and delay sending Inland Revenue written confirmation, they'll recognise you as a trustee up until they receive your written resignation.

For income tax and GST purposes, you may be liable for any outstanding tax for the periods you were a trustee. This includes the period of time between your resignation as a trustee and Inland Revenue receiving written confirmation of the resignation. This liability continues until any debt is paid.

So you better make sure the trust's tax returns are correct and that if you resign you make 100% sure that the IRD are advised in writing immediately.

This is particularly important if the trust is buying and selling or renting out property. There could be large sums involved.

If you are a trustee of a friend or family member's trust you may want to reconsider.

You are personally liable for the tax obligations of a trust. Is it worth the risk?

There are four different Working for Families Tax Credit payments and you may be entitled to one or more of these if you meet the criteria.

  1. Family Tax Credit

Family Tax Credit is a payment for each dependent child aged 18 years or younger and is assessed against your total annual family income.

You are entitled to a Family Tax Credit if your main income is from:

  • salaries, wages or self-employed earnings; or
  • an income tested government benefit such as Student Allowance or other payments from Work and Income; or
  • NZ Super or Veteran’s Pension.

Family Tax Credit is not payable if you receive a Parent’s Allowance or for any child in your care for whom you receive a Foster Care Allowance, Orphans’ Benefit or Unsupported Child’s Benefit.

You can elect to receive your Working For Families Tax Credits on a weekly or fortnightly basis from Work and Income, or on an annual basis from Inland Revenue.

Maximum Entitlements to Family Tax Credits for the 2012-2013 Financial Year*

Age/Number of Children

Weekly Rate from 1 April 2012 to 31 March 2013

Annual Rate from 1 April 2012 to 31 March 2013

First child if under 16

$92

$4,822

First child if 16 or over

$101

$5,303

Subsequent child if under 14

$64

$3,351

Subsequent child if 13 to 15

$73

$3,822

Subsequent child if 16 or over

$91

$4,745

Abatement Threshold**

 

$36,350

* Maximum Entitlement - all entitlements are subject to many variables including gross family income; maximum income thresholds; the number and ages of the children; and more.

** Abatement Threshold - Working For Families Tax Credits (excluding the Minimum Family Tax Credit) are abated at the rate of 20 cents in the dollar. When a person's annual income exceeds the Abatement Threshold, the Working For Families Tax Credits are abated – Family Tax Credit is abated first, followed by the In-Work Tax Credit and then the Parental Tax Credit.


The information on this site is intended as a guide only. The information is of a general nature and does not and cannot ever constitute personal advice.
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