A: Gosh, Lotto is the topic that keeps on giving. There are so many different takes on it.
I like what you did with your winnings, especially getting rid of that credit card debt. Please don’t run it up again! The interest is such a financial killer. I hope the cruise was fun.
However, I’m not sure the story of your friend’s partner will inspire others to “be in to win”! Your letter underlines my earlier point, that winning a relatively small amount is great, but a huge win often doesn’t seem to buy happiness.
KiwiSaver when overseas …
Q: My son is overseas on his OE. He will be away for an extended time. Should he top up his KiwiSaver account while being away?
A: As you probably know, if your son was in New Zealand and contributed to KiwiSaver each year, the Government would put in 50 cents for every dollar he put in – up to $521 from the government if he contributed $1042 or more.
Does this still apply if he is living overseas? Basically no. But I asked Inland Revenue for more details.
“The key thing here is that the scheme provider, not IR, is responsible for determining eligibility based on New Zealand residency,” said a spokesperson. The person “must reside mainly in New Zealand. There is no further definition.”
Can you receive the government contribution for the July to June year in which you left this country, provided you contributed before you left?
“The date a contribution is made is irrelevant in this scenario,” he said. “The only thing that is relevant is whether the person resided mainly in New Zealand during that year. This is determined by their provider.”
Okay, now for the tricky question: If you haven’t told your provider you are overseas (let’s say your provider is sending your statements to your parents’ address), and you keep contributing, what’s to stop you getting the government contribution, even though you are not entitled to it?
“There is nothing to stop it at the time,” said the spokesperson. “However, when you withdraw your KiwiSaver after the age of 65 you must complete a statutory declaration confirming you were eligible for all government contributions that you received. As part of that you must provide details of any periods where you lived overseas.
“Your provider will then send revised government contribution claims for those periods; IR will reassess the contributions accordingly and send refund requests to your provider. These amounts will then be deducted from your KiwiSaver account and returned to IR,” he said.
No interest is charged on that money. So someone who plays this “game” ends up ahead, as they would have received returns on the government contributions in the meantime. But it’s not what’s meant to happen.
To do the “right thing”, any KiwiSaver member who goes overseas should tell their provider, even if they still use a local address. There’s nothing to stop someone from continuing to contribute to KiwiSaver while they are away. But they shouldn’t get the government bonus.
… and NZ Super when overseas
Q: For my 65th birthday, I will leave New Zealand for a huge trip covering Africa by jeep. Are there any limitations on how long you can be out of the country while collecting NZ Super?
A: You can continue to receive NZ Super if you’re away for less than 26 weeks. And – perhaps as a result of issues that arose during the Covid lockdowns – Work and Income adds on its website: “If you’re delayed and return to NZ after 26 weeks, we may still be able to help.”
The rules are different for the Winter Energy Payment, which continues only if you are away for less than 28 days. Says Work and Income: “Tell us if you plan to leave New Zealand for more than 28 days, otherwise we might pay you too much and have to ask for some money back.” For more info, go to tinyurl.com/SuperAway
Note that you can apply for NZ Super up to 12 weeks before you turn 65. Have a great trip.
Time for a lawyer
Q: Our mother died four years ago. Our father, 76, remarried. His new wife, 65, sold her property for $2.4m and reinvested the money. Prenuptial agreements were set up, and our father’s home and commercial property are in trust.
Our father wants us to sign a “right to occupy” agreement. This allows his new wife to live in our family home rent-free for five years after his death, then at 10% below market rent until her death. She will also receive $300,000, and we would receive the commercial property. There is no reciprocal agreement if she dies.
Our late mother did not want her money going to another woman’s children. However, the new wife claims she cannot live on her own money. We want our father to be happy but also fair. Given these circumstances, how can we balance respecting our late mother’s wishes, ensuring fairness, and supporting our father’s happiness? What legal or financial strategies should we consider?
A: Firstly, I’m sure we would get a somewhat different picture if we talked to your father or his wife. But you’re the one who has asked, so let’s look at this from your perspective.
My first reaction was that surely your Dad’s new wife could manage well on $2.4m. And Dr Rhonda Powell, a barrister specialising in trusts, wills, estates, equity and family property, agrees. “It’s ridiculous to suggest that a 65-year-old woman could not live off an investment of $2.4m,” she says. “Very few people have that level of funds available to them in their retirement.”
Powell also made several other comments, adding: “This is a mix of my opinion and some legal points.” You’ll like some of what she says, but not everything.
“It will all depend on the terms of the pre-nup and the terms of the trust deed, including who the trustees are, who has the power to change the trustees, and who the beneficiaries are,” she says.
“If the wife is not a beneficiary of the trust, then the trustees of the trust would not be permitted to enter into agreements to benefit her, as is proposed.”
However, she adds: “There is nothing stopping the father and his wife from revisiting their pre-nup, and this is not something within the control of the adult children. While the late mother may not have wanted another woman to benefit, the reality is that a surviving spouse does have the right to deal with their assets as they choose, including benefitting any new partner.”
A warning from Powell: “It would also pay to be on the lookout for undue influence and capacity issues, just in case these are part of the picture. Is the father receiving robust independent legal advice, and has he had his capacity assessed by a doctor recently? Is he showing any signs of deterioration?
“Another factor to consider is that the father may die first, and his younger wife could potentially remarry or form another relationship, so any arrangement would need to take this into account.”
She adds: “It sounds to me as if the existing arrangements are sensible and ought not to be interfered with.”
Perhaps if you show this Q&A to your dad, he will agree. If not, it’s time you met with a lawyer with knowledge in this area.
One last point: These types of situations so often do irreparable damage to family relationships. Please tread carefully. Your ties with your dad might be more important than who inherits what.
Landlord woes
Q: I note with interest your comments last week to the person who has inherited an Invercargill house and who is trying to decide whether to rent it or to sell it. One point that you did not cover was the impact on such a decision of the Healthy Homes legislation requirements that would be involved in renting out such a house.
It is described as “a 1980s-era property”, and as such it would almost certainly not be of a standard that complies with that legislation’s requirements. Most owner-occupied houses do not meet the Healthy Homes standards and are not required to do so, as what is perfectly habitable for an owner-occupier is classed as a dangerous health hazard to a tenant. To upgrade such a property to the standard that would be required to legally rent it would involve, at a minimum, installing ceiling and underfloor insulation to a specific standard, installation of a compliant heating system of at least a mandated power output, installation of an underfloor moisture barrier, building work to eliminate any draughts, and other more minor work. The cost of this upgrade could run into many thousands of dollars, and the IRD has already ruled this type of expenditure is capital rather than maintenance, and thus it is not an expense deductible against any rent received. On top of that, should they proceed with the work and then become landlords, they would be condemned by many people as “greedy”.
A: You don’t happen to be a landlord, do you? Anyway, you’re right – probably having to upgrade the house before it was rented out is a further argument for selling the house.
But you seem to imply the Healthy Home legislation is not a good idea. I disagree.
While it’s true that owner-occupiers are free to live in a house that lacks good insulation and heating, it’s within their power to make those changes. And – particularly if they have good health – they may decide not to bother. Tenants, on the other hand, largely have to take what’s offered, especially when rental properties are in short supply. Before the Healthy Homes legislation, unwell tenants often saw their health deteriorate because their home was cold or mouldy. That’s not only horrible for them, but costly for the health system.
I would argue the changes have also been good for landlords. Back in the old days, a landlord spending on upgrading their property might have felt outcompeted by other landlords who didn’t bother and could therefore afford to charge cheaper rent. Now the standard is higher for everyone.
And surely the changes will protect properties from deterioration over the years, which must benefit the owners.
On your point about the upgrade costs not being tax deductible, that’s not always the case. “Whether expenditure is deductible in the year incurred or must be capitalised, depends on the specific facts,” says an Inland Revenue spokesperson.
The deciding factor is how extensive the changes are. “Costs incurred in meeting the standards will be revenue in nature and deductible if work to repair or maintain an asset is completed without reconstructing, replacing or renewing the whole asset, or substantially the whole asset, or without changing its character,” she says. For more info, see Inland Revenue’s guide IR264 Rental Income.
What’s more, says the spokesperson: “If the rental property is sold and the sale is taxable under the bright-line test, you can claim a deduction at the time of sale for the cost of the property including the amount you paid to buy the property and any capital improvements made to the property after buying it.”
A final comment: If landlords don’t want to be called greedy, it would really help their image if they took pride in upgrading their properties to make their tenants’ lives better, rather than complaining about the costs. I should add that there are many landlords who do, indeed, like to treat their tenants well.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
