Mary Holm 's Opinion

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm: A time to save and a time to spend

9 comments
When Kiwisavers hit retirement age, they can withdraw as much as they like, but some providers set a minimum

A Kiwisaver can tap into his or her funds once over 65. Photo / Thinkstock
A Kiwisaver can tap into his or her funds once over 65. Photo / Thinkstock

Q: I was wondering if I can withdraw some of my KiwiSaver without withdrawing it all. I am 66 years old and I have not touched it at all.

A: Time to spend a bit! Under the KiwiSaver rules you can withdraw any amount you like. But a few providers have a minimum withdrawal in retirement of $1,000 or $2,500.

Many providers will also let you set up regular payments and some will help you to work out how much you can take out each month for, say, the next 20 or 30 years.

Ask your provider what they offer.


Organising sex earnings

Q: I am a student in my late teens and have begun sex work as I wish to accumulate enough money to spend on my higher education. I intend to do everything legally and pay taxes and use my money well so that one day I can leave this behind.

I don't ever want to "get used to" having all this money and then find I have to keep working when I am way past my use-by date, and can never leave because I haven't set things up to be able to.

I feel I need the help of an accountant who will be accepting of what I do and not give me bad advice or look down on me or start getting funny with me. I am not from a family with money or who knows anything about money.

I have contacted the NZ Prostitutes Collective, but so far they have not been able to help with giving me the name of a sex worker-friendly accountant in my city, preferably female. If you can refer me to one please advise.

At this stage, I am earning good money, although this may change as I get older and have less novelty value, and the job is exhausting - I need breaks often. I do have expenses related to my job, such as advertising, Brazilian waxes, lingerie, very tight, short dresses especially for working which I would never dream of wearing outside of work, stockings and very high shoes, which again, I could never wear anywhere else (for one thing, they are impossible to wear for longer than 10 minutes, let alone walk very far in). I take care of my own hair and nails.

I have been told that the IRD can dispute that some of these expenses are exclusively work-related, as apparently a lot of women get Brazilian waxes and wear dangerously high shoes and stockings. However, in my case, these expenses bear no relation to my ordinary life, so that is why I feel that I need professional help.

I have good records, I keep receipts of work-related things I buy, and I have spreadsheets of all my days worked, each amount from each client (interesting reading).

Also, I am confused about the GST thing - once I earn over $60,000 in a financial year, is it true that, besides going on to a higher tax rate, I have to pay GST on my earnings? If I put my prices up to accommodate this once I hit the $60,000 mark, would I then have to back-pay GST on the amount I earned before I got to the GST threshold? I am a private, independent escort who works from a SOOB - a small, owner-operated brothel - with a couple of other independent sex workers.

I would also like to invest some of my money or do something to keep it safe and make it grow. I am not in KiwiSaver as I have no idea how to join this since I don't have an employer.

I really need the help of someone in the know. Please help.

PS: Sent the next day: If you publish my letter, could you please omit the figures I told you about how much I earn. This is because it varies, and at this stage I am earning high amounts because I am young and new, but I take long breaks of up to three weeks off at a time to catch up on study, etc.

Also, I have been told that it is unfair to bandy figures like that about as other sex workers may be under suspicion of earning that amount when that is incorrect for them, and the Inland Revenue may hassle them - especially older workers. There are a lot of divorced and single mothers in their 40s who have been under pressure to find work from Winz but they can't find jobs, so they are now doing sex work, and they tend to not get as many bookings as younger workers.

A: Earnings numbers deleted! Let's start with the business stuff. If you - or anybody else - is looking for an accountant, it's best to go with a member of the NZ Institute of Chartered Accountants.

Go to nzica.com/findanaccountant.aspx. Fill in your town or city and do a search. Some of the results have websites, so you can click through and read a bit about the people. When you find one that looks like a possibility, send them an email explaining what you want - perhaps similar to your email above. If you like their response, ask if you can set up a free initial short visit to see if you think you can work together.

You might want to also read the tips for choosing an accountant. There's a link on that page.

Meanwhile, I can give you a bit of help with some of your questions, courtesy of Inland Revenue.

On your list of expenses, an Inland Revenue spokeswoman says, "You can claim most business-related expenses in your tax return; this includes clothing that may be worn for work and brazilian waxes. However, you cannot claim personal or domestic expenses such as casual clothing and groceries. A percentage of household expenses can also be claimed; for example, rent and electricity. To do this, a specific area - that is, a bedroom - will need to be set aside and all receipts must be kept to show a record of the expenses that (you) wish to be claimed."

On GST, yes, you do have to pay that tax once you earn over $60,000 in a financial year. What's more, the spokeswoman says, "IRD will continuously look both forward and back over a 12-month working period. Once the person's turnover reaches a level that would mean their turnover will exceed $60,000 in the next 12 months (that is, turnover of $5,000 a month if that level of turnover is likely to be maintained), they then should register for GST.

"If they have not registered for GST when they have reached this threshold, IRD may go back to see when their turnover did reach that threshold and IRD may ask that they pay GST earnings received before they were registered."

You might want to discuss this with your accountant when you find one.

Note, though, that you don't go on to a higher income tax rate until you earn more than $70,000. Somewhat to my surprise, Inland Revenue has a two-page brochure for self-employed sex workers. You can find it at www.tinyurl.com/nzsexworker

On KiwiSaver, I strongly suggest you do join, to get the Government's kick-start and tax credits. Ask any financial company, including banks, how to join. It's easy.

You can withdraw your KiwiSaver money to buy a first home or for retirement. If you want to save for something else, though, you'll need to do it outside KiwiSaver.

I just want to add two comments:

• I like your attitude about doing things legally. You've obviously already done some research on your tax situation, and you're keeping good records. Well done.

• On the other hand, the very fact that one day you want to leave this work behind says a lot. You probably wouldn't say that about other lucrative businesses. I'm saddened by your letter, and I hope your "one day" comes soon. Meantime, take care.


Capital gains tax

Q: I was interested in your recent piece on capital gains tax.

It looks like the introduction of capital gains tax in New Zealand is inevitable. Almost all of the developed world now have a capital gains tax so it is very likely NZ will eventually follow suit.

A major objection to the tax is that it is an inflated value of the asset that is taxed; that is, tax is due even if the asset is sold at the inflation-adjusted cost price.

Are you aware of the Chilean system of valuing assets for tax purposes using an inflation-adjusted method (the Unidad de Fomento or UF for short)? The system is easy to use and is now part of the Chile business environment and culture.

The central bank issues a daily valuation of the UF in terms of the national currency (Chilean pesos), and this is used to establish the value of assets at time of purchase and at time of sale. If a "profit" in terms of UF is made at the time of sale then tax is due.

The UF is used for many more purposes than this of course, including the assessment of cost of living rises in wages, etc. But one of its great advantages is it provides a more just method of assessing capital gains for tax purposes.

Here in NZ we appear to have all the structures in place for the central bank to establish an equivalent to the UF for the kiwi.

A: You make a good point. It seems unfair to tax gains from inflation. Not only could someone be taxed even though their asset's value has risen only to keep pace with inflation - as in your example - but they could also be taxed when the inflation-adjusted value has actually fallen.

I asked Labour finance spokesman David Parker if - under Labour's proposed capital gains tax - he has considered adjusting gains for inflation before taxing them.

"We did consider adjusting properties for actual inflation and taxing the real (that is, above inflation) gain upon realisation at marginal tax rates," he says. "We also considered an accrual-based system to tax real gains (realised or unrealised)." In this context, "realising" something means selling it for cash. Another idea was to tax 50 per cent of realised gains at marginal tax rates - often 33 per cent for people making taxable gains - as a way of avoiding taxing inflation.

Instead, Parker says, "We opted to tax all realised gains at 15 per cent, which is simple and makes a generous allowance for inflation."

That's probably not quite as fair as the Chilean system. But - given that the introduction of another tax will complicate life - I like the idea of keeping it as simple as possible.


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 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.

- NZ Herald

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.

Mary Holm

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm is a columnist, best-selling author and seminar presenter on personal finance. She is also a director of the Financial Markets Authority and the Banking Ombudsman Scheme, and holds an MBA in finance. Previously she was business editor of the Auckland Sun and Auckland Star, and has worked for the NZ Listener, Australian Financial Review and Chicago Tribune. She has been called “The nation’s favourite investment agony aunt.”

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