Taxing time for singles

Q: I am single, living alone, income $40,000, mortgage $36,000, house $420,000.

Why is it that there are tax breaks or top-ups for families, yet absolutely nothing for the single person? Surely there must be others in the same situation as me?  

A: Presumably you voted for the National Party. Oh well - assuming everything doesn't change after the special votes! There are many possible responses to your question.

Let's eavesdrop on a conversation between a non-parent and a parent of young children.

Non-parent: Why should you get all the good stuff? You're lucky enough to have a family, which I would love to have. Now you're getting lots more money as well.

Parent: Yes, but we have much higher expenses. Kids cost thousands.

NP: Sure, but your family already gets thousands more taxpayer dollars spent on it than I do. Just look at education, for a start.

Parent: I've still got to pay school fees, to say nothing of food, clothes, you name it.

NP: But you chose to have children. You've got to take responsibility for what that costs you. Or if you didn't choose, you were careless. Why should I pay for that?

Parent: Maybe because you should support New Zealand's children, regardless of what you think of their parents. They didn't ask to be born, and they deserve a decent standard of living.

NP: But how can I be sure the extra money will be spent on children rather than booze? I don't mind contributing to cheaper medical care for kids because I know that benefits them directly, but I can't be so sure about general money for families. Perhaps the government should also subsidise small-sized clothes and shoes.

Parent: Yeah. And help out small adults and not big children?

This could go on all day. What do other readers think?

Q: I am glad that you were able, in last week's column, to bring to the coal-face an issue which has so far been largely an academic debate.

The proposed capital gains tax on overseas investment gains is not only a blatant tax grab but flies in the face of the "prudent person" rule.
This rule is particularly important to trustees who seek sensible diversification of investments here and overseas to manage risk. But it is a cornerstone of good investment practice for private investors too.

The real risk is that this tax will drive some investors to repatriate funds and, by investing in New Zealand, drive up property and share prices to unhealthy levels.

It should also be noted that people who have money invested in, say, a Queensland property which they rent out or use for holidays will also be caught. And a fall in our New Zealand dollar will exacerbate the problem. 

A: It certainly will if the dollar falls after the new rules come into effect if they come into effect.

Here's hoping they don't. 

Q: As someone with a lot of superannuation in the form of investments in Australian funds, I found your article on Saturday quite alarming.

I would be interested in seeing some detail on what is proposed. Are the proposed changes available somewhere?

A: A couple of other readers have also asked for more information on the proposals. I could fill the column with details. But given the outcry about the proposals I'm sure they will be changed - and the changes will be well covered in the Herald - so let's not go down that track at this stage.

But if you want to check the Government's document yourself, go to www.taxpolicy.ird.govt.nz (link below).

At the bottom of the page, click on "Earlier news items". Find "28 June 2005, Tax discussion document released" and click on that.

At the bottom of the first paragraph, click on "Taxation of Investment Income". Then, under Publications, again click on "Taxation of Investment Income".

The issue we've been discussing, on overseas investments, is covered mostly in chapters 2 and 5. 

Q: Thank you for indicating in the Herald on Saturday last how one could lodge a protest this week about the Government's plans to tax capital gains on overseas shares and encouraging folk to do so. I hope that many have taken your advice. 

A: I know that at least nine people did, as they sent copies to me. Excellent points they made, too. And I'm sure others also took action.

Email has made it so much easier for Joe and Joanne Blow to tell the government what they think. It's great. 

Q: One comment about the reply that you gave last week to the couple having trouble getting a response from real estate agents when they stipulate that they are "conditional" buyers.

They should not discard the alternatives: www.homesell.co.nz, www.greendoor-realestate.co.nz and www.trademe.co.nz (links below).

By working directly with the owners, no commission is involved. Obviously, a non-conditional offer would take precedence over a conditional offer, but the owners usually are more than happy to pass on details about previous builders and history about the home. And they, in many cases, have a LIM report, builder's report, council final inspection certificates and so on.

If they don't already have an unconditional buyer knocking at their door, they will give the conditional buyer a lot of their time.

Real estate agents, in my view, focus on unconditional buyers as they have a much stronger ability to negotiate with the sellers. The objective of the agent is to close as many sales as possible. This generally takes a lot longer with conditional buyers. 

A: Good advice. I don't know much about the first two websites, but they look sound. And TradeMe is well run. The homesell site, in particular, seems to have all sorts of useful information for buyers and sellers.

Just one point: A seller who has had problems with a house might be less than forthcoming about the builder and the history. But that, in itself, has got to be a useful warning for a buyer.

Whether you buy through an agent, it's actually a good idea to directly ask an owner, before buying, if they've had any problems with a property. Most owners seem reluctant to look you in the eye and lie. 

Q: I'm a frequent reader of your Herald column, trying to reduce my level of ignorance. I wonder if you could give me a quick reply, identifying the different personal income tax rates. 

A: Unfortunately it can't be all that quick, as the rates are a bit complicated.

Generally, income tax is 19.5 per cent up to $38,000, then 33 per cent up to $60,000, then 39 per cent. However, there's a lower earner rebate for wage and salary earners.

Those who earn less than $9500 pay tax of 15 per cent. Those who earn $9500 to $38,000 pay 15 per cent on the first $9500 and 21 per cent on the rest.

That amounts to 19.5 per cent on the first $38,000.

National had promised to raise the cut-off points to 15 per cent for the first $12,500, then 19 per cent to $50,000, then 33 per cent to $100,000, then 39 per cent.