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Give and Get Back

donationsGive and Get Back

It is tax refund time and if you have given funds to an approved charity or other donee organisation, you can bundle up your tax receipts and submit a claim for a tax rebate of one third of the amount donated. A list of approved donee organisations can be found on the IRD website. Many people are unaware that ‘voluntary’ school fees can be claimed as a donation as long as you have a receipt with the word ‘donation’ written on it. State run kindergartens are also approved donee organisations. The total amount of donations you can claim a rebate for is limited to your taxable income for the year.

Saving up receipts over the course of year is a hassle. They are likely to get either lost or forgotten about. There is a way of giving that is much easier both on paperwork and your pocket. It is called ‘payroll giving’. It is simple to set up, however it needs the co-operation of your employer.

Payroll giving works well if there are organisations you support on a regular basis. Your employer makes the donation to your chosen charity each payday and you immediately receive the tax credit. So if you donate $15 it only costs you $10. Giving a small amount each payday is much easier to budget for than giving one large amount annually. You don’t have to save pieces of paper or fill out the rebate form at the end of the year. There is a small amount of work for your employer to make the appropriate deductions and payments but these steps are easily put into a payroll system. Many employers are not aware of the payroll giving scheme, so if it is of interest to you, bring to their attention. More information is available here.

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Time to Review Your Tax

Time to ReviewTime to Review Your Tax

The beginning of the new tax year is a reminder to check that your investments are being taxed at the correct rate. You can check the tax rates that apply to you online at www.ird.govt.nz. The Resident Withholding Tax (RWT) rate used for income-producing investments should be the rate that will apply to income you earn over and above your other income.

KiwiSaver members or investors in any other Portfolio Investment Entity (PIE) need to ensure they start the new tax year on the correct Prescribed Investor Rate. Set your PIR too low and you may be in danger of incurring a tax penalty. On the other hand, if your PIR is too high, you will not be able to claim a refund as tax paid in a PIE is final tax. Your PIR is based on your income in the previous two years and for most investors will be 10.5%, 17.5% or 28%. The income bands for these rates are income of less than $14,000, between $14,000 and $48,000 and more than $48,000. Investors whose income is close to these cut-off points, or who have had a substantial change in their income due to a promotion, redundancy or retirement, should pay close attention to their PIR as it may have changed.

It pays to check to see if you are entitled to an income tax refund. This might occur if, for example, you only worked part of the year, you had more than one employer during the year, you have expenses you can claim or you qualify for an independent earner tax credit. While there are companies who will check your refunds, you can find out very simply yourself, without having to pay a fee, by registering on the Inland Revenue website and using the online services account.

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Don’t Overpay Tax

RETURNED COINSDon’t Overpay Tax

One sure way to get in trouble with Inland Revenue is to set up your affairs in such a way as to avoid paying tax. While tax considerations should not be the driving force behind financial decisions, there is nothing wrong with being sensible and using tax implications to help choose between options. A good place to start is to check that your tax rates are correct, particularly on bank deposits. If you haven’t given your bank your IRD number, Resident Withholding Tax (RWT) will be deducted from interest at the highest tax rate. Make sure the tax rate you have given your bank is the correct one. If in doubt about your correct rate, check the Inland Revenue website. For KiwiSaver or other managed funds, you will need a Prescribed Investor Rate (PIR), which is based on your last two years of income. If your income has changed recently, this may affect your RWT or PIR.

KiwiSaver is a form of Portfolio Investment Entity (PIE). There are many other PIEs, including managed funds and bank term deposit PIEs. The highest tax rate for a PIE is 28% which means these are tax efficient for those in higher tax brackets. PIE’s were introduced when KiwiSaver was launched and they are much more tax efficient than earlier investment products which paid tax at the company tax rate. Chances are, if you have an old investment fund you are paying more tax than you need to and it may be time to switch your funds into a PIE.

Although filing a tax return is optional for many people now, it pays to go online to the Inland Revenue website and check if you are due a refund at the end of the tax year. Never pay more tax than you need to.

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Tax Checkups

TaxTax Checkups

Another tax year has gone by and that is a trigger to check up on a few things. Not everyone is required to send in a tax return every year and so it is easy to let things slip by that should be attended to.

Firstly, check to see if you are entitled to a tax refund. This might occur if, for example, you only worked part of the year, you had more than one employer during the year, you have expenses you can claim or you qualify for an independent earner tax credit. It is common for students to qualify for a refund if they have only worked part time, and also investors who have paid a management fee to a financial adviser, as the fee is usually tax deductible. While there are companies who will check your refunds, you can find out very simply yourself, without having to pay a fee, by registering on the Inland Revenue website and using the online services account. You can do this from mid-May.

The next thing to do is to ensure you are using the right tax code for salary and wages and for investments, especially if your circumstances have changed. For example, if you have turned 65 and are now receiving NZ Superannuation as well as income from employment you may need to use a secondary tax code. A change in income may also affect your Prescribed Investor Rate (PIR) which applies to investments in Portfolio Investment Entities (PIEs) such as KiwiSaver, PIE managed funds and PIE bank deposits. Your PIR is determined by your previous two years income and, as it is a final tax, if it is set too high you will not be able to get a refund so it is important to get it right.

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Happy New Tax Year

Check your PIE

April marks the start of a new tax year, and is a significant month for investors. KiwiSaver members or investors in any other Portfolio Investment Entity (PIE) need to ensure they start the new tax year on the correct tax rate. These investments are taxed at what is called the Prescribed Investor Rate (PIR) and this should be confirmed at the beginning of each tax year. Set your PIR too low and you may be in danger of incurring a tax penalty. On the other hand, if your PIR is too high, you will not be able to claim a refund as tax paid in a PIE is final tax. Your PIR is based on your income in the previous two years and for most investors will be 10.5%, 17.5% or 28%. The income bands for these rates are income of less than $14,000, between $14,000 and $48,000 and more than $48,000. Investors whose income is close to these cut-off points, or who have had a substantial change in their income due to a promotion, redundancy or retirement, should pay close attention to their PIR. Investing in PIEs makes good sense for those on high incomes, as the top rate of tax for a PIE is 28% compared with the top rate of 33% for Resident Withholding Tax.

If you are a salary and wage earner and you think you may have paid too much income tax during the year, you should check to see if you are eligible for a refund. This can be done free of charge on the Inland Revenue website. In particular, you should check for refunds if your income is low, you have worked only part of the year, or you have expenses to claim. Don’t pay more tax than you need to!

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