NZ Herald 20 July 2024

AYour plan looks good. “Money paid directly into a KiwiSaver account which is ‘locked-in’ (i.e. the person can’t access the funds until they are 65), does not impact a person’s benefit,” says Jayne Russell of the Ministry of Social Development. “It is not treated as a cash asset, and any interest earned from the KiwiSaver fund is not considered income.

“There is no expectation for a client to withdraw funds from a KiwiSaver account before someone applies for MSD assistance, unless the funds are not locked-in, for example if they are over 65,” says Russell.

Your daughter will need to sign up for KiwiSaver, but she doesn’t need to deposit anything. Then I suggest you deposit $1,042 each year for five years — which totals $5,210. That way, she will receive the maximum $521 government contribution for each of those years. If you deposit it all at once, she’ll get just one $521 in the first year.

In the meantime, it would be wise not to park the rest of the money in your daughter’s bank account. While most main benefits are not asset-tested, “benefits granted on the ground of hardship or the Emergency Benefit may include income and asset tests to check a person’s eligibility. A lump sum payment gifted to a person’s bank account would generally be treated as a cash asset,” says Russell.

“Cash assets can also affect some extra MSD assistance, such as Accommodation Supplement and hardship assistance like a Special Needs Grant and Housing Support Products.”

What about when your daughter turns 65? Says Russell, “Clients who are able to access their KiwiSaver (e.g. when they turn 65) will have these funds treated as a cash asset (or income where appropriate) when assessing whether someone can get benefits and other MSD assistance.”

But at that point your daughter will be getting NZ Super, and that is not affected by any assets she holds.

There’s no requirement for your daughter to make ongoing contributions. However, if she sets up an automatic payment of, say, $5 or $10 a week — the provider can tell her how to do that — she will keep receiving a government contribution each year of 50 cents for every dollar deposited. That will add up over the years.

What would really help her, though, would be the Government’s adoption of a KiwiSaver recommendation in the Retirement Commission’s 2019 Review of Retirement Income Policies.

It recommends the auto-enrolment of all beneficiaries into KiwiSaver, with the government making regular “employer” contributions of 3 per cent of their benefits. This would be on top of current benefit payments, and beneficiaries would not be expected to contribute themselves.

Says the Review, “We think that this 3 per cent contribution would be fairly modest in cost terms to the Government, as at jobseeker rates of $245 per week, or $12,740 per year, 3 per cent would be in the order of $382 per year per member, at a total annual cost to the taxpayer of around $114 million.”

Those are 2019 figures. The benefit has risen somewhat since then, and the numbers on a benefit have probably increased, so the total might be, say, $200 million. That’s only about 5 per cent of the annual cost of the tax breaks coming up.

The recommendation continues, “We know that KiwiSaver exacerbates the wealth gap over time, as some New Zealanders can’t afford to save and so miss out on the compounding benefit of saving even a small amount of money over time. …We believe that targeted incentives would improve the chances of some of the most vulnerable New Zealanders being able to have a pool of savings to supplement their income in retirement.”

A change like this could really help people like your daughter feel part of mainstream New Zealand society, with a future to plan for. How about it, Government?

P.S. I should disclose I was part of the team that wrote that Retirement Commission recommendation. It’s the one KiwiSaver change I most want to see.

A“This is a really interesting scenario,” says tax expert Terry Baucher of Baucher Consulting. “And one which I think we will see more frequently as the population ages.”

Is the situation any different — taxwise — from what happens for landlords renting to a non-family member?

Says an Inland Revenue spokesperson, “Normally income that you receive from renting out property will be liable for income tax, so you must include it in your tax return.

“Sometimes your allowable rental expenses for your residential rental property are more than the rental income. When this happens you have excess deductions. Generally, you cannot offset excess deductions against other income, such as salary and wages, in your tax return. You’ll need to carry excess deductions forward into the next tax year you earn residential rental income.”

What about your rather unusual situation? “If you rent your property out for less than the market rental value, for example, to a relative or friend at mates’ rates, and you still make a profit from it, the profit is taxable as part of your income,” says the spokesperson. “But if you make a loss in this situation, because the expenses of the property are more than the reduced rental income, you generally will not be able to deduct expenses more than the amount of income you received.”

For more info, see IRD’s guide called IR264 Rental Income or go to this page.

Baucher gave similar advice. Okay, I said to him, given the reader is making a loss on the property, won’t they end up paying no tax anyway? So can’t they just ignore tax?

His reply: “As you point out the net effect is almost certainly nil. However, I’m very, very reluctant to say it can be safely ignored for tax purposes because we don’t know the full circumstances (and my experience is that sometimes important details are overlooked). The safest approach would be to declare the income, even though it appears likely to have no net effect. With tax it pays to be cautious.”

By the way, it’s not really fair to call IRD bandits! None of us would get far if we didn’t have all the services paid for by our taxes.

AUntil three years ago, I ran a list on my website of financial advisers who make money from client payments only. Since then, that list has been run by MoneyHub. You can see it here.

Please read all the important info above the list, and especially this: “The work of these advisers has not been checked by Mary Holm and/or MoneyHub. They have simply said they comply with the rules about fees.”

I suggest you interview several advisers on the list. You’re hiring them for the job of looking after your money.

AFair point. Bright spots and small joys are important.

AI usually edit out kind comments about the column, but I liked yours too much! Thanks. I do try to lighten up what can be a rather stodgy topic.

Another reader made a similar comment to yours about Lotto: “A large portion of the Lotto ticket takings go back to the community in the form of grants. Without Lotto a large portion of charities would not be able to provide the service and assistance to others within our communities.”

Sorry to be a wet blanket, but only 25 cents of every dollar spent on Lotto goes to grants. Fifty-three cents goes to prizes, 12 cents to tax, and the rest to expenses.

The sad fact is that your charity dollars would go a lot further — and you could pick the organizations you value most — if you gave to them directly. But then you’d miss out on “the dream”. And — as noted in the Q&A above — that’s not nothing.