Mary Holm

Mary Holm is a columnist for the New Zealand Herald.

Mary Holm: Wise up on tax-back donations

4 comments
Some charities want to hog the whole rebate as well as the donation. Photo / Thinkstock
Some charities want to hog the whole rebate as well as the donation. Photo / Thinkstock

I have been looking at asking people to consider donating part or all of their tax rebate to an organisation that I volunteer for, and I'm astonished at the number that have no idea what I'm talking about. You'd think people would be on the ball when it comes to recovering money from the IRD.

Am I right in saying you can claim 33.33 per cent on all donations over $5 to charities (for example, SPCA, St John's, Christchurch Earthquake Appeal, etc) and/or churches as long as you have a receipt?

School fees and kindy fees (state-run) can similarly be claimed as long as the receipt says "Donation". And other kindy/childcare fees can be claimed for payments up to $940 at 33 per cent - that is, up to $310 per family.

Housekeeper payment rebates can also be claimed up to $310 if you or your partner were disabled or physically unable to look after your home - and this must surely apply to a lot of pensioners?

It would also help a lot of parents to pay their school fees at the end of March and claim one-third back the next week - refunds come through quite fast.

To calculate and claim a rebate, simply ring IRD (have your IRD number ready) and ask for an IR526 Tax Credit Claim form.

PS. I can't see a date for claims to be made by on the form. How far back can you claim if you still have receipts?

Inland Revenue ticks most of what you say - although it does have a quibble with the idea that parents can claim their school fees back the next week. They can make the claim the next week, but it will take a bit longer to get their hands on the cash.

"Most IR526 claims will be processed within three to six weeks unless we are waiting on further information - for example, IR3 return, bank account number," says an Inland Revenue spokeswoman.

She adds, "Please note for IR3 customers, they must complete their IR3 return before filing their claim. For some IR3 filers there could be delays for the tax credit refund if their IR3 for the same year as the claim has not been filed. A letter will be sent to the customer/agent advising of this."

When it comes to getting the claim form, "We recommend customers go to our website, www.ird.govt.nz/tax2012, to download the form, or ring if they do not have internet access", says the spokeswoman.

In response to your postscript, "There is no time bar on first claims from 2000, as long as customers have the receipts."

Inland Revenue processes about 300,000 tax credit claims a year.

It adds, "People can also use payroll giving to make donations, which means they don't have to wait until the end of the year to claim the tax credit.

"Payroll giving, where offered by their employer, gives someone the opportunity to donate to approved organisations directly from their pay and receive immediate tax credits that reduce their PAYE payable." For more info, see http://tinyurl.com/nzpayrollgiving.

We should note here that the days of the childcare and housekeeper rebates are numbered. The Government announced in the recent Budget that we can make claims for such expenses incurred in the year ending March 31, 2012, but not after that.

I can't resist making one further comment, about your idea of asking people to consider donating their tax rebate to your charity.

This year, two charities that I had donated to mailed me IR526 forms. "Good," I thought, "I don't have to wait for Inland Revenue to send me one, or to download one." But then I noticed that each charity had filled in its name as the recipient of the rebate.

My reaction was, "You greedy pigs! I've already given to you, and now you want to hog the whole rebate too."

I know, I know, they'll use the money to do good things, not to line their own pockets. But I want to choose who gets how much of my money. I don't appreciate being pushed. It made me feel quite negative towards those two charities. Has anyone else felt that way - or am I just a meanie?

Health insurance

In regard to your column last Saturday on health insurance, I have been a Southern Cross member for many years. I have moved to its KiwiCare plan for the reasons you discussed - that you are covered only for major medical costs but the premiums are lower.

Recently I needed specialist care which involved pre and post consultations, a biopsy and subsequent surgical lab test.

Total cost of specialist services was $1352.50. Reimbursement from Southern Cross was $793 - a 59 per cent recovery of costs. Included was a $100 deduction, being its charge for processing the claim.

Not only does it hike the premiums post-70 years of age, but it certainly keeps the lid on refunds. In other words, people need to be aware that this type of policy only affords a partial refund of costs.

That apparently depends on what you sign up for.

Southern Cross offers no fewer than 22 health insurance plans, "with 105 variations for various levels of coverage, budgets and life stages", says Peter Tynan, chief executive of Southern Cross Health Society.

"The KiwiCare Budget plan (which is being referred to in your letter) is one of the lowest-cost plans offered by Southern Cross - approximately 2.5 per cent of our membership are on this plan."

It "provides a contribution towards the cost of diagnostic tests, consultations and surgery. It is not designed to cover the full cost of surgery, and the lower premiums charged for this plan reflect this."

Even so, your 59 per cent cost recovery is lower than usual. In 2011, people in your plan received average reimbursement of 81 per cent of total costs for surgical claims, and 69 per cent for other medical services, says Tynan.

He adds that the $100 deduction is not a processing fee, but a $100 excess per claim form, "in exchange for lower premiums". If you want to save money, you can make several claims on the one form.

It seems then that you have what my mother might have called the "cheap and nasty" plan. Obviously there are other options that give fuller coverage for major medical problems while keeping premiums down by not covering the minor stuff.

On KiwiSaver

I joined KiwiSaver at the outset, aged 61. I'm still working and intend to for some time.

Later this year, five years is up, and I can use those accrued funds. If I just use some of the funds, can I continue with KiwiSaver in the normal way?

You can certainly keep contributing if you wish. The tax credits and compulsory employer contributions will stop. But some employers have said they will continue to contribute anyway. Ask the boss - nicely!

More on KiwiSaver

I started KiwiSaver in 2008, prior to getting superannuation payments. I have never had any employer inputs, and have funded it myself at the minimum allowable input ($86.68 per month). I am very pleased that I had the opportunity to join in this scheme and have been happy with the results.

My KiwiSaver can be taken out after five years. I had the comment recently that I would be better placed to take it out and put my savings into a term deposit with the bank rather than continue paying in, now that the Government has cut its input. The apparent reason is that ongoing fees would eventually cut out any earnings or increase on the sum invested, which would then decrease over time.

What is your opinion on this? I realise that it is somewhat dependent as to what fund I am in, the scale of fees and how successful or otherwise it has been or may be in the future. My money is invested half in a conservative fund and half in a balanced conservative fund.

You should definitely keep contributing until your fifth anniversary. Although the $521 maximum tax credit is half what it used to be, it's still worth getting.

But you obviously joined KiwiSaver after age 60, so once your five years are up the tax credit stops, and the game changes.

Might your account balance go down after that? The money in the balanced fund, in particular, will sometimes decrease as the markets move. But that's not important. What matters is whether it trends downwards or upwards over several years.

As you say, that depends on the fund's performance and fees. Nobody can predict performance, but you can check and compare fees on the KiwiSaver Fees Calculator on www.sorted.org.nz or at www.canstar.co.nz. You might want to switch to a lower-fee provider.

However, even with low fees, your relatively low balance - probably around $11,000 to $15,000 after five years given your contribution level - could be problematical.

Let me explain. KiwiSaver fees consist of a flat amount and a percentage - perhaps $35 a year plus 0.5 per cent of your balance in a low-fee provider. Here's what that amounts to:

•On $13,000, the total fee is $35 plus $65, or $100 a year, which is 0.77 per cent of your balance.

•On $100,000, it's $35 plus $500, or $535 a year, which is just 0.535 per cent of your balance.

Flat fees hurt smaller balances more.

Still, I would be surprised to see your KiwiSaver account dwindling over time. A part-conservative, part-balanced investment normally grows, after fees - albeit fairly slowly.

Will it grow faster than a bank term deposit? Well, KiwiSaver funds, which are all PIEs, are taxed at lower rates than ordinary term deposits, which gives them an advantage. But maybe you could choose a PIE product with the bank.

Beyond that, who knows? In situations like this, it's often good to get the best of both worlds, by transferring half to bank deposits and leaving the rest in KiwiSaver.

One reason to leave at least some in KiwiSaver is that you should be able to withdraw money pretty much when you want to - check that with your provider. In term deposits you're stuck until the maturity date.

By the way, the $87-odd you have been contributing each month is not a minimum. As a non-employee, you can put in any amount or nothing. But $87 - I can't be bothered with cents - is the smallest amount that will give you the maximum tax credit. So it's a good amount to contribute.

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 mary@maryholm.com 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.

- NZ Herald

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