NZ Herald 19 August 2017

ALet’s be clear — I’m not accusing you of anything. But I’m sure some OEers are receiving KiwiSaver tax credits who shouldn’t be. So what’s the situation?

“To be eligible for the MTC (member tax credit) a member must be permanently living in NZ,” says an Inland Revenue spokesman. “In the case of someone overseas for two years, living and working in other countries, they are not entitled to any MTC for the time they’re away. However, if someone is on holiday for six months, travelling in other countries, they are still considered to be living in NZ so would be entitled to MTC.”

I then asked how your provider knows where you live.

“The KiwiSaver scheme provider makes the MTC claim each year based on information the member provides to them, so there is a degree of input from the member. The member has a responsibility to ensure their scheme provider has correct and up to date details and is advised of any changes of circumstances that may affect their eligibility to MTC.”

The spokesman adds, though, “If a member is overseas but has left a New Zealand address with their scheme provider, it is possible a claim could be made.”

This led me to ask, “If Inland Revenue found out that someone had been receiving the MTC while living overseas, would they take back the money paid? Plus any interest? Plus any penalties?”

The reply: “In this circumstance, IR would communicate with the member’s KiwiSaver provider about doing a revised MTC claim, bearing in mind there are legal parameters around the types of taxpayer information we can share with third parties. Penalties and use of money interest are not charged on any overpaid MTC.”

Sounds as if ripping off us taxpayers — whether knowingly or inadvertently — would be fairly low-risk.

However, the spokesman adds, “It’s also worth noting that when a member withdraws their funds from KiwiSaver, they are required to sign a statutory declaration to confirm that they have been mainly resident in New Zealand. If they indicate that they weren’t mainly resident here for a period of time, an MTC adjustment may be made even if the period spent overseas was some years ago.”

You might want to tell your friends, and anyone else living overseas who might be continuing to claim the MTC, about this declaration. It wouldn’t be wise to lie in a document like that — at a time in your life when you’re probably about to start receiving NZ Super from the government.

Who knows what data exchanges might be happening by then between Immigration and Inland Revenue? Nor could you be sure the rules about penalties and interest on the ill-gotten money won’t have changed.

AYou’re probably not eligible for tax credits — unless you’re one of the exceptions: New Zealand government employees or New Zealanders volunteering or working overseas for token payment for a “specified charitable organisation”. But you can contribute to KiwiSaver if you wish.

AI’ve got three suggestions for you:

• Set aside some of the insurance money — maybe $8000 to $10,000 — for emergencies.

  With only $2000 in savings you could run up a high-interest credit card bill if you needed money in a hurry, although maybe you could add to your mortgage. Either way, though, you’d still be paying interest.

  Where should you park the emergency money? A glance at interest.co.nz shows that you get much higher rates for four-month than one-month term deposits. But ideally you want the money to be accessible within a month, so you can put emergency spending on a credit card and then pay it off by the due date.

  The solution is laddering. Set it up by putting a quarter of the money in a one-month deposit, a quarter for two months (or one month and then reinvest for another month if you can’t get two months), a quarter for three months, and a quarter for four months.

  As each deposit matures, reinvest it for four months. You will then always have a quarter of your funds becoming accessible every month, but you’ll earn the higher four-month interest.

• Put the rest towards reducing your mortgage, rather than in KiwiSaver.

  It’s good to put enough into KiwiSaver to get the maximum from the government and your employer. But beyond that people with a mortgage are usually better off putting further savings into the mortgage.

• Try having a flatmate or boarder, perhaps for a fixed period such as one year. Then if you don’t like it, you can easily stop.

  It could be a great way to pile money into your mortgage. And the sooner that’s paid off, the sooner you can get into serious saving for retirement.

  Note that the tax situation differs for boarders and flatmates. See tinyurl.com/BoarderFlatmate.

AI’ve asked around, but it seems nobody can give you a definitive answer.

The son in the Q&A two weeks ago was already in KiwiSaver, so the issue was whether he would be likely to get his money out before age 65 under the serious illness provisions. I asked the Public Trust which, as supervisor to several KiwiSaver schemes, would make that kind of decision. And it sounded fairly likely that they would okay a withdrawal.

But your son isn’t in the scheme yet. So the question is: should he — or you on his behalf — take a risk that the other family had already taken?

I tend to think so. The supervisor of your son’s provider would have to be pretty tough to turn down an early withdrawal request. And if they did, you could easily move to another KiwiSaver scheme with a different supervisor and try again.

Failing that, come back to me — if I’m not busily spending my own KiwiSaver tax credits by then! If I’m retired, I’m sure other media would kick up a stink about it. It just doesn’t seem fair that people like your son can’t get their fair share of KiwiSaver.

One more point: I suggest you contribute only the $1043 needed for your son to receive the maximum tax credit of $521 a year. Perhaps set up an automatic payment of $87 a month. Leave his other savings where they are, for accessibility.

AOh dear. I was assuming my lovely readers would be honest when choosing their KiwiSaver tax rate. But perhaps that’s inconsistent with my suspicions about people doing their OE in today’s first reply! And no doubt accountants know more than I do about what goes on in the Wonderful World of Tax.

As another accountant, who sent a similar letter, puts it, “A few of my clients have got a bit upset when I have included their KiwiSaver earnings in the IR3 for the year, resulting in increased tax bills they weren’t expecting.”