Section GD 3 of the Income Tax Act and sections 141D and 141E of the Tax Administration Act would be good viewing (100 per cent and 150 per cent shortfall penalty - and name publication too).
A: You're quite right. From the IRD's point of view, Mrs Smith has to actually work for the business if she gets income from it.
What's more, if Mr Smith wants to deduct the wages he pays to his spouse, he must get approval from the IRD, says KPMG national tax director Craig Macalister.
This would involve writing to the IRD outlining the nature of Mrs Smith's work, hours and pay. "They're looking to see if she gets an arm's length rate for the job," says Macalister.
He notes that under the Tax Act, the rule doesn't apply to de facto partners. However, this is expected to change soon.
Q: Income splitting can be achieved for salaried people by deriving income through a trust.
You give your employer the trust's IRD number and an invoice each week or month.
It can't be used where employee benefits accrue - for example, super or health insurance.
You can also use a company, but a trust is more common.
A: Not so fast.
First, you risk losing your status as an employee, "and all the rights that go with that, such as sick pay, annual leave and holiday pay", says Craig Macalister.
Second, "rules were put in place in about 2001 to specifically stop employees from interposing trusts and companies" between themselves and their employers for tax purposes.
Macalister notes that the IRD has recently successfully challenged similar arrangements in the Taxation Review Authority.
"While people may have legitimate reasons for establishing intermediaries through which services may be performed, there are complexities and tax risks inherent in such structures.
"People should get professional tax advice before embarking on an income-splitting journey, not knowing which corner the commissioner of IRD is waiting around."
Another worry: "If you interpose a trust or company, you will also take on obligations to account for GST," says Macalister.
Speaking as someone who spent a chunk of Labour Weekend wrestling with GST records, I suggest you don't take that lightly.
Q: People earning $100,000 with four kids may pay the same tax as childless people. But they are investing in their future.
The hungry mouths of today hopefully will pay dividends in retirement.
In Japan, the eldest child (usually a son) takes responsibility for the care of the parents, in return for eventual ownership of the family home.
My father made sure I would look after him by leaving me a house in his will.
A: I never thought I would be quoting Kahlil Gibran's The Prophet in this column. But here goes: "Your children are not your children. They are the sons and daughters of Life's longing for itself.
"They come through you but not from you.
"And though they are with you, yet they belong not to you.
"You are the bows from which your children as living arrows are sent forth."
In other, much less eloquent, words, I don't think kids should feel obliged to pay back their parents for raising them.
As for the idea of a parent waving an inheritance in front of a child in the hope of getting support in old age, that's rather sad. Maybe I'm naive, but I like to think support happens - when it does - without the need for deals to be done.
Q: You ask for thoughts about retirement planning.
My husband and I have been retired for 23 years, and we could give a great deal of advice, but I shall concentrate on the car question.
Financially, two cars meant two depreciating assets.
The logical solution is to share one and, where interests conflict, one person takes a taxi or public transport. But it is vitally important that both partners keep up their proficiency behind the wheel.
A: I know quite a few younger couples in which one partner drives there and the other one home, for quite a different reason - booze.
Perhaps they should continue the habit into retirement to keep up the driving skills.
Another reader who made a similar point about cutting back to one car added: "If possible, walk instead, or do as I did and get a bicycle as a means of keeping fit."
I got many more responses about retirement finances than I have room to run, but thanks to everyone who wrote in. Many of you seem to manage well on less than huge incomes.
Q: Here are a few random observations based on l5 years of retirement living by my wife and me. For just over l3 of these we lived in our own, mortgage-free home. For the past 18 months, we have lived in a retirement village.
I receive three small pensions, plus NZ Superannuation, totalling less than $30,000 a year, but sufficient for us to live in comfort, run a car and have a holiday now and again.
The major concern for anyone near retirement should be their health and the escalating cost of preserving it. Any amount of money cannot make up for an inability to function.
Before retirement, I suggest a top-to-toe health check. Take any remedial action required - for example, if needed, buy new glasses, or have a hip replacement. Get on a hospital waiting list for the latter (if not insured).
In preparation for retirement check all household appliances. Any that are suspect should be serviced or, preferably, replaced. Living on a fixed income, large repair bills for out-dated equipment can be a shock to the budget.
If possible, clear a mortgage or any other large debts before retirement. It can be a struggle to do so afterwards.
A: Thanks for lots of good practical advice.
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