Kiwi Saver, Mary Holm financial writer and columnist

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Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.

NZ Herald 19 August 2017

Q&As: Warning to people on OE who are claiming KiwiSaver tax credit
- People overseas can still contribute to KiwiSaver
- Emergency money and paying off mortgage top priorities for reader
- Sign up disabled son for KiwiSaver?
- My KiwiSaver tax comment not strictly correct

Question: I am currently living overseas as I do my 'OE' and was wondering how this affects my eligibility for the KiwiSaver member tax credit. If I am eligible I will contribute $1,043 to get the maximum credit, otherwise I won't bother.

The KiwiSaver website states that you are eligible for the member tax credit if "you mainly reside in New Zealand". There are a couple of exceptions - none of which applies to me.

I am not sure how to interpret "mainly reside in New Zealand" as no time frame is referenced. I consider my stint living overseas to be temporary (I am on a two-year working visa) so could I still be considered to "mainly reside in New Zealand"?

Also as the member tax credit claim is made on my behalf by my KiwiSaver provider without my input, I don't see how they could accurately determine who does and doesn't "mainly reside" in New Zealand.

Answer: Let's be clear - I'm not accusing you of anything. But I'm sure some OEers are receiving KiwiSaver tax credits who shouldn't be. So what's the situation?

"To be eligible for the MTC (member tax credit) a member must be permanently living in NZ," says an Inland Revenue spokesman. "In the case of someone overseas for two years, living and working in other countries, they are not entitled to any MTC for the time they're away. However, if someone is on holiday for six months, travelling in other countries, they are still considered to be living in NZ so would be entitled to MTC."

I then asked how your provider knows where you live.

"The KiwiSaver scheme provider makes the MTC claim each year based on information the member provides to them, so there is a degree of input from the member. The member has a responsibility to ensure their scheme provider has correct and up to date details and is advised of any changes of circumstances that may affect their eligibility to MTC."

The spokesman adds, though, "If a member is overseas but has left a New Zealand address with their scheme provider, it is possible a claim could be made."

This led me to ask, "If Inland Revenue found out that someone had been receiving the MTC while living overseas, would they take back the money paid? Plus any interest? Plus any penalties?"

The reply: "In this circumstance, IR would communicate with the member's KiwiSaver provider about doing a revised MTC claim, bearing in mind there are legal parameters around the types of taxpayer information we can share with third parties. Penalties and use of money interest are not charged on any overpaid MTC."

Sounds as if ripping off us taxpayers - whether knowingly or inadvertently - would be fairly low-risk.

However, the spokesman adds, "It's also worth noting that when a member withdraws their funds from KiwiSaver, they are required to sign a statutory declaration to confirm that they have been mainly resident in New Zealand. If they indicate that they weren't mainly resident here for a period of time, an MTC adjustment may be made even if the period spent overseas was some years ago."

You might want to tell your friends, and anyone else living overseas who might be continuing to claim the MTC, about this declaration. It wouldn't be wise to lie in a document like that - at a time in your life when you're probably about to start receiving NZ Super from the government.

Who knows what data exchanges might be happening by then between Immigration and Inland Revenue? Nor could you be sure the rules about penalties and interest on the ill-gotten money won't have changed.

Question: My wife, children and I are KiwiSaver members. While I am a New Zealand permanent resident the others are all NZ citizens.

We are all presently living in the USA. Are we permitted to contribute to KiwiSaver while living abroad? Are we eligible for tax credits?

Answer: You're probably not eligible for tax credits - unless you're one of the exceptions: New Zealand government employees or New Zealanders volunteering or working overseas for token payment for a "specified charitable organisation". But you can contribute to KiwiSaver if you wish.

Question: I write with reference to last week's column of the 47-year old with $900,000 of savings but no house and not sure where to turn.

I'm also 47, but with the opposite circumstances. I own my own home (living alone) in the eastern suburbs. My house would probably sell for about $1.1million if I were to decide to sell. My car is worth about $25,000 and I only have $2000 of savings, but have no credit card debt. I travel overseas annually to enjoy winter holidays in the sun.

The key difference between myself and last week's writer is that I earn only $55,000 annually compared to $130,000, which makes saving more difficult. My life would be paradise if I earned $100,000-plus.

In three years I'll receive $15,000 for a life insurance policy due to expire. I regret starting KiwiSaver late and only have $20,000 at present.

While my house is a good investment I often struggle to pay bills due to my low salary. Am not sure how to invest my insurance monies or whether I should get a flatmate to help assist paying off the remaining eight years of my mortgage faster.

Answer: I've got three suggestions for you:

- Set aside some of the insurance money - maybe $8000 to $10,000 - for emergencies.

With only $2000 in savings you could run up a high-interest credit card bill if you needed money in a hurry, although maybe you could add to your mortgage. Either way, though, you'd still be paying interest.

Where should you park the emergency money? A glance at interest.co.nz shows that you get much higher rates for four-month than one-month term deposits. But ideally you want the money to be accessible within a month, so you can put emergency spending on a credit card and then pay it off by the due date.

The solution is laddering. Set it up by putting a quarter of the money in a one-month deposit, a quarter for two months (or one month and then reinvest for another month if you can't get two months), a quarter for three months, and a quarter for four months.

As each deposit matures, reinvest it for four months. You will then always have a quarter of your funds becoming accessible every month, but you'll earn the higher four-month interest.

- Put the rest towards reducing your mortgage, rather than in KiwiSaver.

It's good to put enough into KiwiSaver to get the maximum from the government and your employer. But beyond that people with a mortgage are usually better off putting further savings into the mortgage.

- Try having a flatmate or boarder, perhaps for a fixed period such as one year. Then if you don't like it, you can easily stop.

It could be a great way to pile money into your mortgage. And the sooner that's paid off, the sooner you can get into serious saving for retirement.

Note that the tax situation differs for boarders and flatmates. See www.tinyurl.com/BoarderFlatmate.

Question: Wow! Your article two weeks ago "Doing right by disabled KiwiSaver" was great timing! I have an appointment with my bank very soon to discuss getting my intellectually disabled son into KiwiSaver.

He is 30 years old and lives at home - ie minimal living expenses. I have in the past been unable to set up a KiwiSaver account for him as he has no understanding of money and therefore has been unable to sign the forms.

So, instead of KiwiSaver, he has been investing monthly into a managed balanced fund for years, which was set up in his name. However - for other reasons - I now have enduring power of attorney for his health and welfare and property, which enables me to sign on his behalf for KiwiSaver.

But - should I switch him to KiwiSaver? Does the tax credit advantage outweigh any disadvantages in terms of access to his funds? I would welcome your opinion.

Answer: I've asked around, but it seems nobody can give you a definitive answer.

The son in the Q&A two weeks ago was already in KiwiSaver, so the issue was whether he would be likely to get his money out before age 65 under the serious illness provisions. I asked the Public Trust which, as supervisor to several KiwiSaver schemes, would make that kind of decision. And it sounded fairly likely that they would okay a withdrawal.

But your son isn't in the scheme yet. So the question is: should he - or you on his behalf - take a risk that the other family had already taken?

I tend to think so. The supervisor of your son's provider would have to be pretty tough to turn down an early withdrawal request. And if they did, you could easily move to another KiwiSaver scheme with a different supervisor and try again.

Failing that, come back to me - if I'm not busily spending my own KiwiSaver tax credits by then! If I'm retired, I'm sure other media would kick up a stink about it. It just doesn't seem fair that people like your son can't get their fair share of KiwiSaver.

One more point: I suggest you contribute only the $1043 needed for your son to receive the maximum tax credit of $521 a year. Perhaps set up an automatic payment of $87 a month. Leave his other savings where they are, for accessibility.

Question: I am a chartered accountant and tax agent. In a reply last week you said, "You don't have to do anything about tax. Your KiwiSaver provider pays it for you." This is not entirely correct.

I believe all KiwiSaver providers are PIE entities. KiwiSavers must choose their tax rate i.e. in accordance with their marginal income tax rate. If they chose a lower rate, they will have to report their KiwiSaver income in their tax return to account for the difference in tax payable.

Those people in, say, the 33 per cent tax rate who chose a, say, 10.50 per cent tax rate in their KiwiSaver account, will be misled by your advice. I would suggest you rephrase your sentence as "You don't have to do anything about tax if you have chosen your tax rate correctly with your KiwiSaver provider based on your marginal income."

Having said that, in most cases, the amount of tax difference is too small to be bothered by IR.

Answer: Oh dear. I was assuming my lovely readers would be honest when choosing their KiwiSaver tax rate. But perhaps that's inconsistent with my suspicions about people doing their OE in today's first reply! And no doubt accountants know more than I do about what goes on in the Wonderful World of Tax.

As another accountant, who sent a similar letter, puts it, "A few of my clients have got a bit upset when I have included their KiwiSaver earnings in the IR3 for the year, resulting in increased tax bills they weren't expecting."

* Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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