I would like to comment on the third letter in last week's Herald, about overseas people being ineligible for KiwiSaver tax credits.
The answer to the question about the Government contribution is readily available on the internet. The answer to how would IRD check up on residency is a question that should not need to be asked, because honest folk should not go out to cheat their Government, other taxpayers, and their own children and neighbours. Whenever we do cheat, we don't cheat IRD, we ultimately cheat ourselves and every other New Zealander.
I have lived in countries where they do cheat, and believe me, that attitude permeates every activity in the country - from falsely claiming blood donations have been screened for HIV (when they haven't), to teachers demanding extra payment from students if they want to be taught (in direct contravention of Government policy).
Why? Because they think it okay to cheat as long as no one finds out. And if caught, with more cheating you can bribe the authorities. Thank goodness we live in a mostly honest society.
Apologies for my verbosity, but why would we want to cheat in an already benevolent scheme!
Lastly, the IRD can do data matching of departures and arrivals and match against KiwiSaver tax credits. It is possible, but I am not sure if carried out. Data are matched for Winz. So maybe IRD can implement this as it might be necessary to catch "thieves".
Strong language, but it's time we called a spade a spade.
That sounds like a first step down a slippery slope - spade in hand.
Over the years, in different workplaces, I've noticed that if the bosses treat employees as untrustworthy, they tend to behave that way. Perhaps it's a challenge to beat the system. Or perhaps it's just, "You think we can't be trusted, so we can't".
But if there's respect for workers, and an expectation that they won't rip the place off, they tend to fulfil that expectation. Sure, there may be one or two exceptions, but generally, trusting bosses get trustworthy workers.
At government level it's a bit different. Lots of otherwise honest people seem to think it's fair game to cheat on their taxes, benefits, KiwiSaver and other government money flows.
That's not helped by lawyers, accountants and financial advisers who say, "As long as nobody is actually breaking the letter of the law, it's our job to minimise the tax our clients pay". I challenge them to look in the mirror and tell themselves such work is good - not clever, not lucrative, but good.
Still, New Zealand does well at honesty. We are ranked No 1 by Transparency International in its annual Global Corruption Perceptions Index. New Zealand is said to be the least corrupt country in the world.
Something tells me that close government monitoring might spoil that. We might start behaving like employees who are not trusted, and end up like the inhabitants of countries you speak of. Your blood-screening example is chilling.
Instead, let's just start telling people who skite about how they or their clients are ripping off the system that next time they are victims of a crime, we hope the police are too under-resourced to turn up.
I wonder if other readers preparing tax returns are as irritated as I am by the late provision of tax summaries, and the Inland Revenue's stance on PIR rates.
The tax year may end on March 31, but most banks and financial providers rarely provide the annual tax summaries required for tax returns before June.
And what about Inland Revenue's position on PIR rates? We are liable to pay arrears if an incorrect, lower, PIR rate is applied to investments, but overpayments due to an incorrect higher rate being applied are not refunded.
Isn't it better to nominate a low PIR rate and pay any arrears than choose a higher rate and have no redress?
Some banks and providers do seem rather slow with sending out tax information, but I can't say it's an issue I would die in a ditch over.
If you really care, maybe you could ask competitors when they send out their summaries. If they do it earlier, you could switch to them - or at least tell your current bank or provider that you're thinking of moving and why.
PIR tax rates apply to investments in portfolio investment entities or PIEs - which include almost all KiwiSaver funds. Investors have to tell the bank or provider which PIR to apply to their savings - with some guidance from the financial institution on applicable rates.
And you're right, if you name too high a rate, you can't get that money back later when you realise your mistake. But if you name too low a rate, Inland Revenue wants the difference made up.
You could play games and tell the provider to apply a lower rate than they should. But if you're caught, "shortfall penalties may apply", says Inland Revenue on its website. It could also be a big hassle - to say nothing of dishonourable. See the previous Q&A.
Far better to pay the correct rate. And it's not that hard. If you aren't certain from the information the provider gives you, go to www.tinyurl.com/PIRrates for Inland Revenue's explanation - and also what to do if you have got the rate wrong in the past.
I am referring to your lead correspondent last week who wrote in praise of the IRD, followed by your less than enthusiastic response.
My experience with IRD staff over the years, not only in New Zealand but in many other parts of the world, has been that they were uniformly helpful and pleasant to deal with. This was particularly true of the New Zealand small business advisers (what a great service that is), who routinely and without fuss help "customers" to legitimately minimise their tax exposure, while explaining carefully what things they are not allowed to do.
I have heard that "regular" staff would not be keen to work for the "enforcement" section - that part of the service that is most likely to attract all the attention and the adverse publicity.
I didn't mean to suggest Inland Revenue isn't helpful. For a start, they put lots of time into helping me answer questions in this column. And you are certainly impressed.
But we wouldn't want them always to be nice to everyone - including the tax cheats.
End to credits
We know that for the 65-years-plus people whose five years in KiwiSaver is coming up, we can either take all the money out or leave it all in or any amount in between. But is it possible that we could continue to subscribe and still get the tax credits?
No. You've actually done well out of KiwiSaver, getting tax credits and perhaps employer contributions and tying up your own money for only five years. But after five years, there'll be no more tax credits.
In August 2007 at age 63, I joined KiwiSaver and have been paying in $87 a month.
My five-year anniversary comes up in August and the Government subsidy will cease. I will have received the Government tax credit of $521 for the previous year up to June 30, 2012.
If at the end of the next month, July, I paid into the fund the full $1043 in one payment (that is, before my five years is up), would I get the full tax credit of $521 for the next year, or would I still get only two months, that is, 2 / 12 of $521?
Nice try. But you'll get only about 2 / 12. To calculate the maximum tax credit for your final year, firstly find the number of days from July 1 to the anniversary of your joining date, which is the earlier of the date you signed a contract with your provider or the date the provider or Inland Revenue received your first contribution. You may want to check the date with your provider.
Multiply that number by $521.43 - the exact tax credit - and divide by 365. For example, if you joined on August 15, 2007, your number of days will be 46. Multiply by $521.43 and divide by 365 and you get $65.71.
Don't forget to contribute twice that amount, as the tax credit is 50c for every dollar you contribute, up to the maximum.
You will need to make that contribution before your fifth anniversary in KiwiSaver. Any contributions after this date are not included in the tax credit calculation.
Alternatively, you can do a rough calculation and then contribute a bit more. You'll be able to take it out again soon, so it won't make much difference.
You said in answer to my question a while ago that as we are over 65, after five years we are not eligible for the KiwiSaver tax credit. Later this year we will have been in the scheme for five years, and we stopped working last year.
Do we still get the subsidy in July this year? In my calculations we have received the credit only four times so far. As we are no longer earning we should send our providers money to receive it if we qualify.
I find it confusing as I understand that this year we are allowed to take our money out, should we so wish.
Yes, you do get the tax credit this July, based on your contributions made in the year ending June 30. And you will probably get one next year as well - as long as you contribute.
Everyone who joined in the first year of KiwiSaver received their first tax credit in about July 2008, and will get their fifth in about July 2012.
Then, as long as you joined after the very first day, July 1, 2007, you will get a smaller tax credit in July 2013 - because you are eligible for part of the July 2012 to June 2013 year. You're in the same situation as the previous correspondent.
What all this means is that you should try to contribute $1043 to your provider before June 30 this year, to get the full $521. And next year you can make the calculation as explained above.
Meanwhile, withdrawals. Yes, from your fifth anniversary - roughly - you can take money out. I say "roughly" because there's a form-filling process to go through that will take a little while. Ask your provider for information about that.
Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and 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 firstname.lastname@example.org or Money Column, Business Herald, PO Box 32, Auckland. 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.