This article was published on 17 May 2008. Some information may be out of date.

Q&As

  • 61-year-old struggling to pay off mortgage considers renting out her house and becoming a tenant elsewhere.
  • Self-employed man wants to get back “over payment” into KiwiSaver

QI am a female, 61 years old with three jobs trying to keep my head above water. I’m thinking how ludicrous this is at my age.

I have two mortgages totalling $110,000 and $300,000 equity in my home. I have a small retirement fund, amounting to less than $10,000. I have joined KiwiSaver. I have got high repayments trying to get the mortgages paid off before my retirement.

My salary is $42,000 plus commission of less than $50 per week. Extra jobs earn $150 per week.

Shall I rent my house out to cut costs? What do you suggest? I am a single income earner.

AGood on you for working so hard to get rid of those mortgages. Still, you must get sick of the grind.

It’s a matter of tradeoffs. If you rent out your house and become a tenant elsewhere — paying less rent than you receive on your house — that may mean living in a smaller or less pleasant place.

Do a bit of research, perhaps asking a rental agency how much rent you could get for your house, and looking around at how much suitable rental accommodation would cost you.

You might find something different, such as an apartment at a relatively low rent, that would be fun to live in for a few years. And perhaps it would be nearer your main job, reducing transport costs.

There are several things to keep in mind, though.

Firstly, you’ll have to pay tax on any profit on renting out your house, after deducting expenses such as rates, insurance, routine maintenance and depreciation of chattels.

And you won’t be able to tax deduct your mortgage interest. The deductibility depends on why you took the loans out in the first place, and that was to finance your home, not a rental property.

Depreciation is also tricky. It might not be wise to claim depreciation on the house if you are thinking of moving back in later. If the house value grows while you are not living there, you would have to pay back the depreciation when you move back in, says PriceWaterhouseCoopers tax partner Scott Kerse.

Mind you, if you diligently put the money gained from claiming depreciation into reducing your mortgages, you would still be ahead — even if you have to later increase a mortgage to cover a depreciation clawback. That’s because you’ve saved on mortgage interest in the meantime. Note, too, that over the next few years the value of your house might fall, which would reduce or eliminate the clawback.

Clearly, a chat with an accountant would be a good idea before you go too far along this track.

You also need to consider how you would cope with any tenant problems — not paying, damaging the property, long vacancies and so on. Some people take this in their stride, for others it’s a nightmare. You could hire an agency, but that eats into your profit.

I don’t mean to put you off. Your idea is not silly, and once you have things set up it could all work smoothly.

There is a simpler option, though — taking in a boarder or two. If you have one or two boarders and you charge less than $213 a week (a number soon to be raised a little) for each one, you don’t have to pay tax on that income or keep records about it. If you charge more, go to www.ird.govt.nz and do a search on “boarder” to get info on taxation.

QNot sure if you mind, but using information from your KiwiSaver book, a colleague and I put together a PowerPoint presentation of the pros and cons of KiwiSaver for our Indian community organization in Wellington.

The members of this organization would not typically read the newspaper or go to the internet to find out about KiwiSaver. You will be pleased to know the seminar was well received.

I have joined KiwiSaver myself. Your book talks about the tax credits of $1040 per year. From this I got the impression that you could still receive the $1040 tax credit by not having to contribute regularly at, say, $20 per week, but as long as you contributed the $1040. I am self-employed so have chosen to make an annual lump sum contribution of $1040 every year.

I joined the provider in early March. My provider confirmed verbally to me that my lump sum of $1040 would still attract the full tax credit, which is paid in early July of every year.

However, someone I know is adamant that the IRD would only apply the tax credit at a level of $20 per week for the number of weeks you have been in KiwiSaver to 30 June every year. The IRD KiwiSaver website said the same thing.

Had I known, I would not have contributed the $1040 in March, but instead put in closer to $300, which is about the level of tax credit I would get at $20 a week from 1 March to 30 June. I would then put in $1040 on 1 July every year, which in future would attract the full $1040 tax credit.

Sorry for the long rambling as I get to my questions. What recourse do I have with my provider for giving me incorrect information, which led to my decision to put in $1040 on 1st March?

And is there any way I can reverse my contribution of $1040 and change it to a $300 contribution?

I am still pleased with my provider and have no intention of swapping. I just want to correct the decision I made based on incorrect information.

AMy KiwiSaver book didn’t go into detail about the first-year KiwiSaver tax credits being proportionate to how much of the July-June year you were contributing. The government didn’t reveal that information until after I wrote it.

Given that government officials in three departments checked the book for accuracy before it was published, I suspect they didn’t know about it either. That’s what happens when a government radically changes a programme weeks before it is implemented.

Since then, though, I have written heaps about it in columns and on my website, but perhaps you missed them. What your friend and the Inland Revenue website say is correct.

Note, though, that after their first year in KiwiSaver, non-employees can contribute $1040 — more accurately close to $1043 — in a lump sum any time up to June 30 and still get the full tax credit.

So there’s no need for you to put next year’s money in on July 1. You’ve got almost a year to do it — although I suggest you deposit it by early June next year in case it takes a while to process.

On your specific questions, Inland Revenue says you can’t reverse your contribution. I’m not sure what recourse you have with the provider and, to be honest, I can’t be bothered finding out.

It’s hardly a huge injustice that you get only a third of the credit when you’ve been in the scheme for only a third of the year. And the $1040 you’ve put in is still yours, to be spent in your retirement. It’s not like a tax.

By the way, you’re optimistic to expect your tax credit in early July. Firstly, the provider has to send Inland Revenue a list of how much each member has contributed up until June 30. Then Inland Revenue has to send the tax credits to the provider within 30 working days, and then the provider has to distribute the money to each account.

It will be interesting to see how long it all takes the first time. Given how long various other KiwiSaver transactions have taken, I wouldn’t be holding my breath for tax credits until at least August, if not later.

Your letter raises some important points for others in KiwiSaver:

  • Non-employees planning to contribute between now and June 30 should note that unless you joined KiwiSaver near the start last year, you won’t be eligible in your first year for a full $1043 tax credit.

    You might want to estimate your credit and then contribute just that amount in the first year — in the same way as our correspondent wishes he had contributed only about $300.

    For most non-employees, the key date for calculating your credit is the first of the month in which your first contribution — no matter how small — was made. From that date, the maximum tax credit is $20 a week.

    The exception is those who joined in July through September last year and made their first contribution before October 31. For them, the key date is the first of the month when they joined.

  • I have suggested that employees earning less than $26,000 — whose 4 per cent contributions therefore total less than the maximum tax credit of $1043 — might want to top up your contributions in June so you get the full tax credit.

    But you, too, should note that in your first year in KiwiSaver, your maximum tax credit is $20 a week, starting from the first of the month that you joined. Any contribution beyond that won’t be matched by the government.

  • Employees earning more than $26,000 don’t need to take any action. But you should be aware that, unless you joined last July, your tax credit will be less than $1043 in your first year.
  • The message for everyone who hasn’t yet joined KiwiSaver is to get in and start contributing as soon as possible. The earlier you start, the bigger your first year tax credit will be.
  • For more information on all situations, see the bottom of the KiwiSaver book page on www.maryholm.com. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]

PS That’s great that you used my book for your presentation, and that lots of people came. I’m sure you played fair and told people the source of your info!

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. 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 [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.