Your tax questions answered

My wife and I derive all our Income from National Super and Interest from Term Deposits currently paying tax at 17.5%.We have over $700,000 invested. A friend of ours who derives all his Income the same only pays tax at 10%.Who is correct? When I questioned him he said that he decided the amount. I have gone to one of these Tax Accts. and they have told me 17.5% is correct.
As mentioned in a previous article, if you earn over $200 of interest that has not been taxed at the correct rate, then a tax return must be filed. Assuming you are receiving NZ Super for the full year, you will have earned over $14,000 each which is the 10.5% tax bracket. So unless you have any losses carried forward or other extraordinary situation then 17.5% is most probably correct for the income you would be receiving in interest. Based on these assumptions you are correct.

My wife and I increased our mortgage by about $10,000 to buy a car and put the money in an interest bearing bank account. It took a while before we bought the car and so we earned interest meantime, but paid more in "extra" mortgage interest than we earned. Is it possible for an individual to factor in this cost of borrowing if we could show it was for a specific purpose?
If you were in business and this car was purchased for business purposes then you could probably offset the interest paid against the interest income. If this car was just purchased as a private vehicle then unfortunately you would not be able to claim for the interest paid. The interest received and any tax credits may still have to be included in a tax return if you are liable to file one.

If you sell an investment property at a loss are you able to claim against the loss?
A rental investment property (for those other than land dealers and developers) resulting in a loss from selling the property will be a capital loss. This capital loss is not claimable for income tax purposes.

I retired towards the end of last year, I am now 68. For the 13/14  tax year my income was in the region of 120k including Nat super and my wife about 47k. To take advantage of the top PIE rates at 28% rather  than 33% for non PIES, as many investment as I was able were in PIE’S, Kiwi Saver, listed Property Trust, bonds etc, my share portfolio are all direct for NZ shares some in joint names and some in mine only. However for the 14/15 tax and going forwards  my income will drop to below 48k, which will put me in a 17.5% RWT rate. So as I see it I should pull out of PIE’s as I seem to fit into the 28% PIE rate based on my previous  two years income, see IRD note below.  It seems I can’t select a 17.5% PIE rates, or can I and submit a tax return?
Unfortunately there are a few disadvantages to PIE investments. If your income is going to change significantly you need to know this well in advance to be able to change your investment structures. Of course life is not always simple so things like redundancy and serious injury can’t be guessed. Also most Kiwi Saver accounts are PIEs so you can’t always change the investment structure. Your PIR tax rate is bound by the formula for the last two years of income so it might be at least a year before you can alter your PIR rate. If you end up with a PIR that you can’t change due to the formula and your income significantly changes, you end up with a loss/loss situation. For example, if your PIR is 28% and your taxable income falls into the 17.5% range, you do not get a tax refund. If you chose a lower tax rate such as 17.5% based on the formula in the past and your income has risen to the 30% tax bracket, you may have to file a tax return and pay the extra tax. The best thing to do with PIEs is to think about the likelihood of income changes within the next couple of years and base your investment decisions on this, or if the tax consequences are too much then stay away from PIEs and stick with regular interest bearing accounts.

My wife and I have a small investment portfolio that is managed by an advisory company. During the past 12 months losses have totaled some $10,000 - but income from the investments has been about the same. Can we claim these losses against the income we have earned?
More information would be needed to fully answer this. If we assume however that the investments were not subject to the Foreign Investment Fund (FIF) regime and that you are not a share dealer then the losses would probably not be claimable as they would be capital losses. The income would be taxable. If however, some of this ‘income’ was capital growth rather than interest or dividends, then this would not be taxable.

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Disclaimer:
Any views the writer has expressed are his own and not necessarily those of Accountants On Elliott LP. The information supplied has been written in general terms only. This information should not be relied upon specifically without also obtaining appropriate professional advice after detailed examination of your particular situation.