Navigating Taxes and Pensions: Your Questions Answered
Are you 65 and still working, wondering how your pension impacts your taxes? You're not alone! Many people have questions about how these two aspects of their financial lives intersect. Let's dive into some common queries, with insights from RNZ's 'No Stupid Questions' podcast, featuring Susan Edmunds.
Question 1: Working and Claiming NZ Superannuation
"I'm turning 65 soon and have received notification about NZ Superannuation, but I'm still working. How does this affect my tax rate? Should I claim it now or wait?"
The good news is, you don't have to wait! You can claim NZ Superannuation as soon as you're eligible. There's no income or asset test to qualify. However, here's where it gets a bit more nuanced: receiving NZ Superannuation while working might mean it's taxed at a secondary tax rate. Don't worry, this doesn't necessarily mean you'll pay more tax overall. It simply reflects that your pension is added to your existing income, potentially pushing you into a higher tax bracket. If you end up paying too much tax during the year, you'll get the extra amount back when you file your tax return.
Important Note: New Zealand's tax system is progressive. This means you only pay higher tax rates on the portion of your income that falls within the higher tax brackets. For example, if your total annual income (including your pension) exceeds $53,501, only the amount above that threshold is taxed at 30 percent. The rest of your income continues to be taxed at the previous rates.
Question 2: Selling Overseas Property and NZ Tax Residency
"I'm planning to retire to New Zealand and access NZ Superannuation. If I sell my Australian home, will I be taxed on the sale?"
To answer this, you'll need to determine if you're considered a New Zealand tax resident. This hinges on how long you've been in the country. Generally, you're considered a tax resident if you've been in New Zealand for more than 183 days in any 12-month period or if you have a permanent place to live here.
If you are a tax resident, you could be subject to the bright-line test, which taxes capital gains from selling property. However, this applies only if you bought and sold your home within two years. Remember, you might also have tax obligations in Australia.
Question 3: Gifting Money and Tax Implications
"What are the rules for gifting money, and what are the tax implications?"
Fortunately, New Zealand doesn't have a gift duty, so you won't pay tax on gifts to family or others. However, there's a crucial exception to be aware of. The main area of concern is gifting assets in the years leading up to applying for a rest home subsidy. If you gift more than the allowed limit, it could affect the government's calculation of your assets.
The Ministry of Social Development states that they won't count up to $8,000 of assets gifted each year in the last five years (from the date you apply for the subsidy). This means a total of $40,000 of assets gifted by you and your partner (even if one of you has passed away) in the last five years is disregarded. If your partner applies at the same time, this amount doubles to $80,000. But remember, if you apply at different times, the individual limit remains at $40,000.
Controversy Alert: Gifting a house to a family member could trigger the bright-line test if you've owned it for a short period. This is because, for tax purposes, gifting a house is considered a sale at its market value, even if no money changes hands. This can be a complex area, so it's always wise to seek professional financial advice.
Final Thoughts:
Navigating taxes and pensions can be tricky, but understanding the basics is essential. Remember to stay informed, seek professional advice when needed, and always keep an eye on how changes in legislation might affect your situation. What are your thoughts on these tax implications? Share your insights and experiences in the comments below! And don't forget to sign up for 'Money with Susan Edmunds', a weekly newsletter to stay up-to-date on all things money.
