Growing your super fund

Your super is often the money you rely upon during your retirement. Therefore, if you feel that you have enough funds for day to day life, you may want to grow your super. There are many ways to do this: 

• Employee contributions: Contribute to your super through your pay, or discuss with a scheme provider
• Employer contributions: If you contribute to KiwiSaver then your employer must also do so. 
• Getting the KiwiSaver government contributions: The maximum amount the government will contribute is $521.43. However, to receive this you must contribute at least $1042.86 between 1 July and 30 June each year.
• Make payments directly to the KiwiSaver account: You can always make voluntary contributions directly to the KiwiSaver at any time. 
• The contributions made to the KiwiSaver are used to invest in investments of differing risk. These investments depend on what type of fund you choose and thus the growth of your fund. 

What are tax codes?

Tax codes assist your employer in calculating how much tax should be deducted from your pay, benefit or pension. 

It is important to calculate your code and inform your employer as failing to inform them will result in getting tax at the non-declaration rate of 45%. You should also be updating your employer if your tax code changes at any point. 

Your tax code is influenced by the following factors:

• Your main income
• Your secondary income
• Whether you have a student loan
• Whether you are receiving schedular payments
• Whether you are a casual agricultural worker
• Whether you are a recognised seasonal worker
• Whether you are helping with election day work

The government might change your code if they believe you are using the wrong one. This is to avoid excessive taxation or to prevent you from receiving a bill to pay remaining taxes at the end of the year. You are able to inquire about why changes were made if you disagree. 

Withdrawing from your KiwiSaver

The KiwiSaver scheme allows you to voluntarily save up so that when you retire, you are financially secure. However, situations can arise during which you find yourself needing the support of your KiwiSaver before retirement. 

If you find yourself in one of the following situations, you are permitted to withdraw money from the KiwiSaver:

• Permanent emigration: If you have lived in another country for more than 12 months, then you can complete a permanent emigration withdrawal form which allows you to either withdraw your savings or transfer them to an approved superannuation scheme. There are some further considerations if you have emigrated to Australia.
• Serious illness withdrawal: If you experience a serious injury, illness or disability, and you are unable to part-take in work which is relevant to your experience and education, then you may withdraw money from your KiwiSaver
• Significant financial hardship withdrawal: If you are experiencing financial hardship, then you may be able to withdraw from your KiwiSaver once you finish a hardship withdrawal form. But, there are some eligibility requirements that you need to meet which are listed on the KiwiSaver website.
• First home withdrawal: As long as you meet certain eligibility requirements, you are permitted to withdraw funds from your KiwiSaver when buying your first home. 

These provisions allow you to access your KiwiSaver prior to retirement when you might need them the most. 

Paying taxes when self-employed

Self-employed individuals have to carry out all aspects of their business on their own. This includes anyone who owns a small business, works as a sole trader, or provides contracting services. In most cases, individuals are able to start a business without setting up any legal provisions. 

If you are self-employed, you can use your individual IRD number to pay tax. The amount of tax you pay will depend on the net profit of your business and you can pay by filling out an individual income return. Once you start making $60,000 you need to register for GST. 

Due to COVID-19, there have been a lot of financial difficulties and uncertainties that individuals and businesses have experienced. Therefore, the government has created subsidies which may assist individuals through this period. It may be worth looking into these provisions as the tax requirements might have changed some of the usual processes.

Changing your KiwiSaver contribution rate

Employees need to discuss changing their contribution rate with their employer, or alternatively, fill out the required forms if they are self-employed. 

The default contribution rate is 3% of an individual’s pay, but employees can change to either of the following rates:  3%, 4%, 6%, 8%, or 10%. Although the contribution rate may only be changed every 3 months, if employees wish to change the rate prior to the end of the 3 months, then they should alert their employer of this in writing. Further, although the maximum rate is 10%, if employees want to exceed this rate, then they should make a direct payment to their scheme provider. 

If the individual is not an employee, then the details of their contributions will be set out in the contract with their KiwiSaver provider. For example, if they are: self-employed, a contractor, not working, receiving a benefit then, there may be a minimum annual sum or specific payment periods that apply (e.g. monthly, quarterly). Therefore reducing or increasing contributions may need to be discussed with KiwiSaver providers. 

Types of individual expenses

There are several sorts of expenses that can be claimed during the end of year tax return. These include: 

• The cost of an accountant or tax agent to file and complete tax returns.
• Cost of income protection insurance if the insurance payout would be taxable. Talk to your insurance provider about whether your income protection insurance is deductible. If you are planning to get income protection, then you should consider opting for a deductible one.
• Any commission you were charged on your income from interest and dividends (other than bank fees) can be claimed.
• If you have borrowed money to buy shares or to invest, any interest on it can be claimed as long as the investment will produce taxable income. 
• If you paid interest due to late payment of tax to Inland Revenue, you will also be able to claim this, as long as it’s in the income year you paid it. 

You should remember that for these claims, you will be required to provide proof. This could include invoices from accountants or receipts for income protection insurance. Remember that if you receive an automatic income tax assessment, you should contact Inland Revenue to add these expenses. 

Withdrawing from KiwiSaver funds for significant financial hardship

Individuals may choose to apply to withdraw money from their fund if they are suffering significant financial hardship. 

To qualify as suffering significant financial hardship, one or more of the following criteria needs to be met as per the official government website:

• Cannot meet minimum living expenses
• Cannot pay the mortgage on the home you live in, and your mortgage provider is seeking to enforce the mortgage
• Need to modify your home to meet your special needs or those of a dependent family member
• Need to pay for medical treatment for yourself or a dependent family member
• Have a serious illness
• Need to pay funeral costs of a dependent family member

Before you withdraw money from the account, it might be worth considering if stopping kiwisaver deductions is a better alternative. This might provide some temporary relief by reducing expenses. The criteria for suspending contributions is different depending on the length of time you have been making contributions. 

• A year or more: Suspend contributions for 3 months to 1 year without needed to provide a reason
• Less than a year: Apply for suspension and provide reasons (one of which may be financial hardship)

Health and safety FBT exemption

Non-cash fringe benefits provided by employers are subject to FBT, however, if the benefit contributes to the health and safety of the employee, this may exempt it from FBT.

The benefit needs to qualify the following requirements:

• Must be related to the employees health or safety
• Must be aimed at managing risks to health and safety in the workplace as provided under the Health and Safety at Work Act 2015 (HSWA)
• If it was provided on the employer’s premises, it would be excluded under section CX 23.

A benefit that addresses a specific harm or hazard to the health and safety of an employee would meet this criteria. This is because every employer has an obligation under the HSWA to minimise, and where possible, eliminate, risks to employees.

The healthy and safety exemption for benefits is based on the employer’s subjective assessment of potential or actual risks in the workplace. An example of a specific health and safety benefit could be physio appointments that target pain in the area likely to occur due to the employees roles and obligations in the workplace.

Employers should consult a tax professional if there is confusion regarding section CX 24 of the ITA which will exclude benefits from the exemption if benefits are used or consumed on employer premises.

How will the NZ government tackle its COVID debt?

The New Zealand government is attempting to make changes to reduce the debt that it has incurred in its efforts to stabilize the economy during COVID. The Labour party announced a new top tax rate (39%) which would apply to those earning over $180,000 – this would bring in 550 million dollars each year.

However, critics are unhappy with the government choosing to utilise 2% of the workforce that falls into that bracket. Calculations have shown that this strategy would mean it takes 26 years to pay off the debt that has resulted from wage subsidies provided during COVID.

An alternative provided by critics of this change has been to progressively increase the age at which individuals become eligible to claim superannuation and index super payments to both average wage, and consumer price index growth.

Contrasting the perspective offered by critics, the PM has shown disagreement with raising the retirement age. Unfaltering against the opposing opinions, the government will continue to support the New Zealand Superannuation Fund, with plans to borrow an additional 10.4 billion dollars for it over the next 5 years.

Understanding the bright-line property rule

New Zealand tax residents selling residential property (including overseas property) that they have owned for less than 5 years may be subject to income tax. To determine whether you will have to pay income tax, you will need to use the bright-line rule.

The bright-line rule only applies to property bought on or after 1 October 2015.

The rule considers whether the property was either:

• purchased between 1 October 2015 to 28 March 2018 and sold within 2 years, or
• purchased on or after 29 March 2018 and sold within 5 years.

This means that if the residential property was bought between 1 October 2015 and 28 March 2018 and then sold within 2 years of purchase, income tax was applied to the capital gains made on the resale. Residential property purchased on or after 29 March 2018 will be subject to the five year bright-line rule. In this case, properties that are resold within 5 years of their purchase will be subject to income tax.

Residential property that is sold outside the bright-line period is not subject to the bright-line rule. This means it will not apply if you purchased a property any time on or after 29 March 2018 and sell it after 5 years has already passed.

There are situations where the bright-line rule does not apply even if you sell the property within the bright-line period:

Main home exclusion
The main home exclusion can be used under the bright-line property rule if the following apply:

• The property was used as your main home for over 50% of the time you have owned it.
• More than 50% of the property’s area was used by you. This could include your backyard, garden, and garage.

Individuals can only have one main residence. The main home exclusion can only be used twice over any two-year period.

A main home held in a trust
Residential properties that are held in a trust can also use the main home exclusion if the property sold was the main home of a beneficiary of the trust or the principal settlor of the trust, unless the principal settlor did not have a main home.

Inherited property
Property that is inherited is not subject to the bright-line test when it is sold by the person who inherited the property. If the property, or any part of the property is acquired by someone other than the inheritor, it may be subject to the bright-line rule.