Invitations for the gullible

By MARY HOLM

Q: I recently had a conversation with a friend who has money invested in the United States. This, he claims, attracts no tax and earns compounding interest rates on short-term deposits of around 9 per cent.

This seems unlikely. It is something that cannot be entered through a bank or broker but "by invitation".

One of the problems stated, however, was getting the money back into the country.

What are the tax laws that apply to New Zealanders investing in the US? And if one wanted to invest in fixed-term interest in the US, how would one go about it?


A: One probably wouldn't.

Your friend's investment sounds wobbly to me.

Firstly, the 9 per cent is well above the going rate in the US for an ordinary term deposit, says David Coleman of Craig & Co.

American interest rates these days are below New Zealand rates on similar investments. That suggests your mate is in a high-risk investment.

But the clincher comes with the "by invitation" bit. Presumably your friend was "invited" to take part through a phone call or letter.

Didn't he stop and wonder why these kind people picked him, a stranger on the other side of the world, to share in their good fortune?

Why didn't they keep this wonderful investment to themselves? Could it possibly be that they'll get rich not from the investment, but from conning gullible types like him?

To answer your question more generally, you can get into US interest-bearing investments through a New Zealand sharebroker. But not many people do, says Coleman.

Not only are the interest rates lower, but you run the risk that foreign exchange rates will move against you.

"It's better to invest in fixed interest in the country you live in," says Coleman.

As far as the tax situation goes, your friend may not be paying tax in America. Non-residents are exempt from US tax on bank account interest.

But he should be paying tax in New Zealand under the accrual rules, says a PricewaterhouseCoopers spokesman.

Generally, under those rules, you pay tax on the interest and any gains from foreign exchange movements, in some circumstances whether or not you've "realised" those gains. (The gains would be realised when you physically convert US dollars into New Zealand dollars.)

If, instead, you had a foreign exchange loss, that would be offset against the interest income.

The rules are different on other types of investments in the US. And there are various exemptions and exceptions.

It's complex stuff. "Investing offshore can be quite dangerous," says the spokesman. "New Zealand's international tax rules can bring to tax more than you bargained for."

By now, you're probably feeling happier about settling for what you can get, in the way of fixed interest investments, in little old New Zealand.

Your friend might do well to bring his money home, too. How it's taxed might turn out to be the least of his worries. I hope he gets his capital back.

Q: I read last week's column with interest, but your advice to the woman who feels like JFK junior was not the advice modern ambitious women give one another.

More likely: "Hang in there. Thousands like you are out there, and many are agitating for the passage of Doug Graham's bill, which will extend the Matrimonial Property Act to include de facto relationships.

"Wait just long enough to qualify, then leave him. Half of that house which he bought and paid for long before you arrived on the scene will be all yours.

"Whatever you do, do not share your huge nest-egg as he has shared his house. Ideally, move it secretly to Australia.

"Take great pains to avoid the topic of the Matrimonial Property Act. Otherwise he may become aware of the proposed bill and end the relationship - as thousands, with themselves or colleagues already skinned once by the act, have felt compelled to do."

I suspect the correspondent is like many women who regard all her money as exclusively hers, and half her partner's money as also hers. Is it the frivolous spending of her $195,000 cache that he objects to?

Women seem often to regard men's "good" jobs as akin to secure pensions. They underestimate the effort invested in these jobs and cannot fathom the value placed on the consequent income.


A: How kind of you, a bloke, to step in and give last week's correspondent the benefit of the modern ambitious woman's view.
(For those who missed it, I suggested the woman use her $195,000 to leave a partnership that sounded miserable.)

Only trouble is, at least one modern ambitious woman doesn't agree with you.

Auckland barrister Margaret Lewis, who gave last week's advice, says the Graham bill, if it gets through Parliament after sitting around for more than a year, doesn't treat de facto relationships the same as marriages.

The bill, which will be a completely different act, "creates a presumption of equal sharing only of the family home and chattels", rather than the wider range of assets covered under the Matrimonial Property Act, she says.

"And that presumption can be displaced if the equal sharing would cause serious injustice.

"In that case, the division of the home and chattels would be according to the contributions to the relationship."

Under the Matrimonial Property Act, on the other hand, "the presumption of equal sharing of the home and chattels is displaced only under extraordinary circumstances. The standard is different," says Lewis.

Last week's correspondent apparently has no dependent children and has made no financial contribution to the home or living expenses, but has contributed housekeeping services.

"It's unlikely there would be equal sharing in this case," Lewis says.

By the way, if you're correct when you say that thousands of men have left de facto relationships through fear of the new bill, that's a pity.

They could, instead, have reached an agreement to contract out of it, and determine for themselves how they allocate their property, Lewis says.

As for your own situation, you wouldn't, by any chance, count yourself among the "already skinned" would you?

Chin up! Just take a look at the statistics on how well off the average woman is a few years after a relationship break-up, compared with the average man. That should make you feel much better.

Q: Page 3 of this year's IR5 guide asks: "Do you need to fill in a tax return?" If one answers "no" to a series of questions, then a return is not required.

My wife answered "no" to every question, so she did not file a return. However, out of interest I filled in an IR 5, only to find that she owes more than $100 in tax.

All of her income is taxed at source, so it's really the end of the matter as far as we are concerned. I do not understand how she can still be owing $100-plus.

My question is, if we do nothing, (after all, that is what the tax guide is inviting us to do) are we possibly going to get a notice from IRD at some time in the future for short payment of tax?

Or is the IRD now working on a "unders and overs" system where what they lose on some is made up from gains on others?


A: Inland Revenue doesn't quite put it that way. But, in the process of drastically reducing the number of people who have to file tax returns, it seems willing to miss out on the odd hundred bucks here or there from those who have stuck to the rules.

Hopefully, not too many people are in the opposite position - missing out on refunds.

It's often worth doing what you did - filling out a return even when you're not obliged to, just to make sure there isn't a refund due to you.

There are various possible explanations for why your wife owed more than $100.

That can happen when a taxpayer gets a pay rise during the year, or has used an incorrect tax code. Or it could result from a change in tax rates.

Don't worry about being tapped on the shoulder later on. As long as your wife was honestly able to answer "no" to all questions, and told the IRD that she was not required to file, she'll be fine.

Inland Revenue says it would get back to her only if it found out later that she did not, in fact, qualify as a non-filer.

The whole system will get much more sophisticated next year, when IR5s go out of existence and the number of non-filers will zoom up.

But any taxpayer will still be able to ask Inland Revenue for the information they'll need to find out if there's a refund coming to them. And then they will, of course, be able to get that money.

In many cases, the IRD will actually get in touch with them.

"During the year, we will be able to identify those people who have used an incorrect tax code and have paid too little or too much tax," says an IRD official. How? Well, employers, financial institutions and others - anyone who withholds tax when they pay wages, interest and so on - sends info about the recipients to Inland Revenue.

The department puts together all the data on each person, under their tax number.

Sounds rather Big Brotherish. But that's how tax departments work.

An example of what will happen: If you've had tax on interest withheld at less than 33 per cent, "your tax certificate from the bank will prompt you to consider whether sufficient tax has been deducted, and to advise Inland Revenue if not," says the official.

But if the total of that income is less than $200, you won't have to bother.

"We will be able to tell, however, if someone should have told us and didn't, and we'll send out a statement automatically," she says.

These statements - which will go to anyone IRD identifies as having paid too much or too little tax - will show their income and tax position.

If you receive a statement, you'll have at least two months to tell the IRD about any corrections. Then the statement will become a "formal assessment" of what you owe, or get as a refund.

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