Susan Edmunds answers your questions.
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When I was earning an income, it was taxed at source.
In retirement, my KiwiSaver gains continue to be taxed, so all the money I put into my KiwiSaver and what remains in my KiwiSaver has been taxed.
Are these not capital gains and is this not a tax on capital gains?
When you’re contributing to KiwiSaver, tax is applied in a few ways.
You make contributions from taxed income and the returns your fund makes are taxed. Employers pay tax on your behalf on the contributions they make for you, but you don’t pay tax when you withdraw your money.
That’s a bit different from some other countries, where you might get tax breaks for contributions or lower tax rates on your returns, but then pay some tax on withdrawals.
Capital gains in KiwiSaver are generally not taxed, but your income from your investment is.
You don’t pay tax on the value of New Zealand shares increasing, for example, but you do pay tax on the dividends the company pays you for owning its shares.
When you’re in a PIE KiwiSaver scheme, which most are, the amount you pay in tax on returns is linked to your overall annual income, but is capped at 28 percent.
Some people talk about the foreign investment rules being a type of capital gains tax, because you pay tax based on five percent of the value of your overseas shares at the start of the income year. If they increase in value, you pay a higher rate.
This is actually [https://www.rnz.co.nz/news/business/544593/possible-tax-break-for-migrants-as-government-considers-foreign-investment-fund-rules up for review at the moment.
Pie Funds chief product and operations officer Grant Hodder said KiwiSaver was generally seen as tax efficient.
He said the tax rate limit of 28 percent in PIE schemes worked particularly well for higher earners, who might have normal income tax rates of up to 39 percent.
“Where it gets a bit more complex is that different types of assets held within KiwiSaver – such as bonds, NZ shares, global shares – have different tax treatments and not all assets have tax tied to the investment gains you make.
“Income from assets is generally taxable, for example dividends, and the fees you pay within the scheme are a deductible expense against the relevant taxable gains or income you’ve made during the period.
“These taxable gains and losses, and any tax credits tied to income, for example imputation credits on dividends, are aggregated at the end of the tax year or when you withdraw, and your relevant KiwiSaver tax rate is applied to determine the tax you pay, which is then funded from the value of your KiwiSaver account.
“For most people who earn a salary or wage, and have a KiwiSaver account, tax advice is probably not required. However, for those with more complex financial affairs, we’d recommend seeking professional guidance to understand the tax impact of financial decisions the investor makes.”
First-time homeowner here! Bought on my own, looking to take on some flatmates to help pay down the mortgage sooner.
As I will live in the house too, I understand this is an owner-occupier situation, so not covered by the Residential Tenancies Act.
I’m thinking of drawing up my own flatmate agreement, but in the process, have gotten into a bit of a rabbit hole about the income/tax implications of flatmates v boarders. The confusing bit is for the purpose of drawing down the mortgage any housemate was seen as a ‘boarder’, but now it seems, according to IRD, that there is a difference both in terms of your actual living arrangement and tax implications.
With a boarder, you have to provide at least one meal a day and can only charge up to $237 per week, before having to pay tax on that income, whereas a flatmate is more normal – you split bills, can just charge for rent, but then there seems to be quite a complicated tax process in terms of working out square meterage of the house parts that are shared or exclusive for flatmate use, and splitting expenses, like rates/insurance/chattels based on this off your potential tax bill on the income.
Am I correct in my interpretation of all of this so far or is it more simple? Is there an easier way to do my tax statements for a flatmate specifically?
You’re right that it generally is more straightforward to have boarders, but you generally need to be offering more than a room. Inland Revenue says boarders get additional services, such as meals or laundry.
If you decide to opt for a boarder situation, the tax department calculates an amount each year that you can charge without having to worry about tax – currently the $237 you mention. As long as you charge less than that, you do not need to file an income tax return, keep records of your expenses or pay tax.
If you decide to opt for a flatmate scenario, you do have to think about the tax implications of this.
Deloitte tax partner Robyn Walker said all amounts received from flatmates would be “assessable income”, and you would need to work out to what extent the property was being used for rent and apportion the costs accordingly.
You can only claim costs relating to the bit of your house you’re renting to offset your taxable income, not the bit you use yourself.
“While this is a tax exercise, it probably doesn’t hurt to do this from a general budgeting perspective to make sure you’ve got a good handle on all the cost of ownership,” she said.
“Working out the floorspace allocation between the owner’s exclusive areas, the flatmate’s exclusive areas, and the common or shared areas should be reasonable straightforward, and something that only needs to be done once or each time rooms/spaces are reconfigured.
“In terms of apportioning costs, 100 percent of costs associated with the owner are non-deductible, 100 percent of costs associated with the flatmates’ exclusive areas is deductible, and 50 percent of costs associated with common areas is deductible.
“For example, a house is 100m2, the owner and tenant each have a 20m2 bedroom, and the balance of the floorspace (60m2) is common space. In this case, 50 percent of all costs will be deductible, 50 percent of insurance, rates, utilities, repairs and interest can be claimed as a tax deduction.”
Once you get a system in place, this might not be too onerous – it’s just the setting up that might take you some time.
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