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KIWISAVER – GETTING YOUR MONEY IN TIMES OF NEED

KiwiSaver encourages New Zealanders to save for their own retirement, but changes following the Budget 2011 made the cost of saving that much harder for some. KiwiSaver funds are locked in to the fund for the long haul, except in cases of financial hardship, where members can apply to the Trustees of their fund to access some of their fund.

Those affected by the Canterbury earthquakes also have grounds to apply for relief (a category of financial hardship that has been specifically added to those previously available). This criteria is added to the existing list including:

• inability to meet minimum living expenses; or
• inability to meet mortgage repayments on the principal family residence resulting in the mortgagee seeking to enforce the mortgage; or
• the cost of modifying a residence to meet special needs arising from a disability of a member or a member’s dependant; or
• the cost of medical treatment for an illness or injury of a member or a member’s dependant; or
• the cost of palliative care for a member or a member’s dependant; or
• the cost of a funeral for a member’s dependant.

How it affects you

If you are experiencing hardship and have been contributing to a KiwiSaver scheme you may be able to withdraw all or some of your contributions from the scheme. We are advised by Damian Foster of Forsyth Barr in Dunedin that an industry-wide standardised form has been developed.

Damian said “as far as the process goes, we ask members to complete the form, and supply the relevant evidence to support their claim... This process is rather invasive and the Scheme Trustee requires quite a bit of supporting information in order to approve an application. A common fallacy with hardship applications is that the decision is made by the Scheme Provider. In fact, it’s the KiwiSaver Scheme’s independent Trustee who analyses applications and makes the final decision. Essentially our job is to help clients with their application and pass that information on to the Trustee for consideration”.

Do not be put off making an application. If you need help, contact your business advisor or scheme provider for assistance.

WORKING FOR FAMILIES TAX CREDITS – NOT AS YOU MAY THINK

There are many things about the recent changes to working for families (WFF) that have caused taxpayers concern, such as passive income of children if more than $500.

One thing that has not yet had much attention though is the inclusion of income twice through a trust. This arises because the income added from a trust includes both income derived by the trust, and also income derived by a company which the trust (together with associated persons) owns 50% or more.

Included in the income of the trustee is the receipt of a dividend from the company referred to above. Dividends are paid generally from retained earnings (past income of a company). The effect then is to include the same amount as income from the company in the year in which it is earned, and then to later include that same income when a dividend is paid.

By way of example:

In year 1 a company makes a profit of $50,000. Assuming the trust is the sole shareholder, the amount to be included in the family scheme income amount is $50,000. If the income is held in the company and in year 2 the company breaks even, there would then be no add back of income. But if in that same year the company paid a dividend of $50,000 (last year’s income), the trustees would have dividend income of $50,000 that would need to be included in the family scheme income amount. The $50,000 has then been counted twice.

This will become a major issue on 31 March 2013 as companies will need to make a decision as to whether to clear out retained earnings and attach imputation credits at 30/70, or to hold on to the retained earnings and pay an additional tax on that income if a dividend is paid later with imputation credits attached at 28/72 only.

Taxpayers will be faced with a lose/lose choice of forgoing the imputation credits or losing an entitlement to WFF.

How it affects you

If you have been making a claim for WFF Tax Credit, first, we recommend, unless you are a salary or wage earner only, that you make a claim at year end rather than throughout the year. Paying back a credit that you were not entitled to is difficult and can be costly if you do not have the funds immediately available.

If you are a settlor of a trust, and that trust (or your wider group) has a shareholding in a company, we recommend that you contact your advisor sooner rather than later to seek advice about income tax and WFF.

POINTS OF INTEREST…

The IRD has launched its Voice Identification system, which uses an individual’s unique voice print to identify the caller. You can enrol by calling 0800 257 843. Further information is available on the IRD website at www.ird.govt.nz/voiceid.

Effective from October 2011 through to February 2012, the IRD is enlisting two private debt collection companies to collect a range of debt targeting specifically domestic tax as well as overseas student loan debt. If you receive a letter, you will have 10 working days to pay and then may be referred to the debt collectors.

The Double Tax Agreement between New Zealand and Hong Kong is now in force.

TO THE POINT…

“Life is like riding a bicycle. To keep your balance, you must keep moving”.

- Albert Einstein

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