[batgirl1001]

Hi

I will be coming to NZ sometime in May 2009 and I am a bit confused on the taxation matters in NZ.

I understand that new residents can ask for tax-exemption for up to 4 years after we arrived.

But this is at the expense of family assistance (Family Tax Credits) for life and may not benefit from future benefits and savings that come from giving up this option.

So I need to understand the pros/cons of such a move. I am considering not using the tax-exemption but I need to work out how not to lose all my hard-earned savings when I arrived.

Let's say I am bringing in about NZ$40,000 of savings and putting it into a bank earning an interest of about 8% pa on average.

I understand that I can be taxed anywhere between 19.5% to a prohibitive 45% on the money I put in depending on what my resident tax status will be when I get my IRD no.

So if I get 19.5% tax deduction on my savings, I will lose about $8000 for tax. Is this a one-time thing only? Will I be continually taxed on my savings every year while my money sits in a bank trying to get an interest of 8% pa. It makes no sense to put money in NZ bank if I keep getting taxed hard on it every year because the interest is so small (8% compared to 19.5% deductions)

I hope somehow someone can explain to a dumb person like me who is clueless about these taxation matters. THANKS:(

[Mickstim]

Hi Batgirl - you won't be taxed on your savings but only on the interest you receive on your savings, just as you are in the UK.

Bx

[dharder]

As pointed out above, you will not be taxed on the savings, but the interest earned. So in your example case, you'd be taxed on $3200. Not sure what rate, but if you are a tax resident wiht IRD number, I believe the highest, depending on your earnings, will be 39%. So the worst possible scenario is paying about $1000 tax.

You will not lose the work and family credit thingy for life, only for the four years you are claiming the tax exemption, as far as I know.

If you only have a moderate income from the interest you are earning, it indeed might not be worth claiming the tax exemption if you'd be otherwise eligible for the work and family payments. In our case, we're better of paying tax on the interest and receiving work and tax payments from Inland Revenue.

I find dealing with all things financial horrid, and was not a happy bunny having to do my tax return the other day. Yuck.

Good luck with everything,

Daniela

[Familyofmonkeys]

I thought that the tax exemption only applied to intererst earned on savings outside of NZ....not interest earned on savings in NZ bank. Which is correct?

[dharder]

I thought that the tax exemption only applied to intererst earned on savings outside of NZ....not interest earned on savings in NZ bank. Which is correct?

Applies only to interest earned overseas.

Daniela

[IanW99]

...
I understand that new residents can ask for tax-exemption for up to 4 years after we arrived.

But this is at the expense of family assistance (Family Tax Credits) for life and may not benefit from future benefits and savings that come from giving up this option.

So I need to understand the pros/cons of such a move. I am considering not using the tax-exemption but I need to work out how not to lose all my hard-earned savings when I arrived.

Let's say I am bringing in about NZ$40,000 of savings and putting it into a bank earning an interest of about 8% pa on average.

I understand that I can be taxed anywhere between 19.5% to a prohibitive 45% on the money I put in depending on what my resident tax status will be when I get my IRD no.

So if I get 19.5% tax deduction on my savings, I will lose about $8000 for tax. Is this a one-time thing only? Will I be continually taxed on my savings every year while my money sits in a bank trying to get an interest of 8% pa. It makes no sense to put money in NZ bank if I keep getting taxed hard on it every year because the interest is so small (8% compared to 19.5% deductions)

I hope somehow someone can explain to a dumb person like me who is clueless about these taxation matters. THANKS:(

OK, well you do seem completely confused about how all this works.

First, you are only exempt from foreign earned interest for 4 years, if you transfer your savings to NZ then any interest will be taxed. If you were to leave it in a foreign bank then you wouldn't be taxed on it.

When you first arrive you will automatically be given this tax exemption, which you can "give up" at any time so that you can claim family assistance. But again, if you were to transfer all your funds to NZ, then it doesn't really matter ethier way. You would of course keep the tax exemption for as long as you can until you need to claim family assistance (just in case you can use it later).

If an individual is eligible for family assistance, when their foreign-sourced income is taken into account, they can choose not to be a transitional resident and pay tax on their foreign-sourced income. Furthermore, if a transitional resident finds that his or her circumstances change and they require family assistance, he or she could "give up" the exemption by paying tax on their foreignsourced income. That way they can be assessed for family assistance entitlements in the normal way.

Yes, you could be charged 19.5 to 45% tax on your interest earned, but as you would give the bank the correct rate, it will only be the amount that you should be taxed anyway.

Now onto the confusion. Yes, each year you have money in a NZ bank, you will be charged tax on your bank interest just like happens anywhere else.

But, you only get taxed on your income (interest), so if you were to make $3,200 interest on your $40,000 (at 8%) and then you were to pay 39% (highest declared rate) you would pay $1,248 in tax or you would make $1,952 for the year or 4.8% net of tax.

Ian

[batgirl1001]

Thanks very much.:) What a relief....

It was all sort of confusing since NZ tax laws are quite different from Singapore's. Here we don't charge tax on interest and savings in the bank.

I will be happy to leave some of my money in a NZ bank to watch it grown over time even with interest taxed.

But I think I may indeed apply for tax-exemption since I may have a foreign source income. I will be planning to let out my flat in Singapore during the time I am in NZ. Unless of course, I won't bring the money into NZ.

Thanks for your help everyone.

[eternalkiwi]

Whether you take the exemption is something that does depend on your own situation, and from memory you can stop claiming the overseas income tax exemption and take the Family tax Credits.

Also NZ Income Tax is payable on your worldwide income, so any income you earn in Singapore must be declared in NZ. Though Singapore and NZ have a Double Taxation Agreement that will reduce your NZ tax by the amount of tax you have paid on the same income in Singapore.

Shawn

[Cobra]

So would i be right in saying that if i had say: 300000 in British Bank for four years while resident in N/Z I would not pay tax on that money in Britain or in N/Z if i withdraw and transfered the money after four years.

[nellyt]

Cobra,

I believe your theory is correct but maybe not the size of the numbers.

My understanding is :
You will be taxed on income/interest in the uk by HMRC.
You will be taxed on income/interest in NZ by IRD

but

You have single persons allowance in the UK that you can still use on the UK income. So you can earn 5k+ of interest and assuming that is your only UK income it will be inside your single persons allowance so you will not pay UK tax. That is where the 4 year exemption helps (lots) because the IRD will not want to tax it either.
There will be some advantage also if you earn more than this as you'll pay UK tax at the lower rate (22?%) which might be lower than your NZ tax rate.

[IanW99]

...
My understanding is :
You will be taxed on income/interest in the uk by HMRC.
You will be taxed on income/interest in NZ by IRD
...


But if you aren't resident in the UK for tax purposes then you can apply for the interest to be paid without tax being deducted.

Tax on UK bank and building society interest
If you're non-resident, the only UK tax you'll usually pay is the tax deducted before you get the interest.

If you're also 'not ordinarily resident' (you normally live outside the UK), you can get your interest without tax deducted by giving form R105 to your bank or building society.

In either case, if tax has been deducted from interest, you might be able to claim a refund against UK tax allowances using form R43.

Ian

[kanatakiwi]

Totally confused!! I have applied for the 4 year exemption, as my monthly pension payment from Canada is classed as income. so have a bit of a breather while I figure out what to do. I dont worry about not claiming "Working for Families" benefits etc as am semi retired, no kids and dont think I would qualify for any of that. I am in a lower tax bracket in NZ (under 38,000 at the moment) but will not be once I add in my monthly pension from Canada, what with the exchange rates. Also have some privatesavings for pension plans (RRSWPs) and have to figure out what to do with them. If I leave them in Canada in a atax free scheme will I have to pay tax in NZ on the interest gained.

anyone care to recommend a good advisor in auckland??
Gloria