Untangling taxes not so simple

By MARY HOLM

Q. We have a number of accounts and term deposits in a joint name.

I am the sole income earner, and my income is taxed at the highest rate, 39 per cent, above $60,000 per year.

Do I have to have my IRD number attached to the bank accounts, getting caned at 39 per cent tax on the moderate interest earned?

Or can I have my wife's IRD number linked to these accounts, and subsequently have the interest taxed at the lower 19.5 per cent? Or is it split evenly?

A. A simple question has, I'm afraid, a rather complex answer.

Let's start by noting two things:

* The interest income on a couple's joint account is usually split 50:50 when you're taxed.

"If, for some reason, there's unequal entitlement to the income," the split would reflect that entitlement, says an Inland Revenue spokeswoman.

But I'm going to assume that it's 50:50 in your case.

* With a joint account, you can give the bank either your IRD number or your wife's, not both.

In theory, whichever number you give, you should both end up being taxed for your half of the interest at your tax rate.

In practice, if you as a couple earn less than $400 in interest, it may make a difference which number you give.

Regardless of the number given, if you don't specify otherwise, the bank will automatically withhold tax at 19.5 per cent, says Inland Revenue.

It sounds, though, as if you've told them you want tax withheld at 39 per cent.

This would work well if the account was only yours, or if you and your wife were both in the 39 per cent bracket.

You would be paying the correct tax.

In your case, though, your wife is paying too much tax.

To get that money back, she should call the IRD on 0800 227 774 and ask for a Personal Tax Summary - unless she gets a summary automatically.

If you would rather do things differently in future, you could change your withholding rate to 19.5 per cent.

To do this, ring IRD's automated stationery service on 0800 257 773, and have your IRD number handy.

Ask for an IR456 form, fill it out and give it to the bank.

Then you will, of course, receive more interest after withholding.

But your wife won't get a refund.

And - sigh - you will have paid too little tax.

Do you need to do anything about that? It depends how much interest you earn. If you receive less than $200 - your half of the $400 mentioned above - forget about it.

But if it's more than that, you're required to apply for a Personal Tax Summary. When you fill that out, you will wind up paying 39 per cent on your interest income.

Couldn't the government come up with something simpler, such as a withholding option of half at 39 per cent and half at 19.5 per cent, which amounts to 29.25 per cent, with options for other combinations of tax rates?

* Got a question about money?

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