Updates to Stop Worrying About Money

Updates as at 24 May 2021

Government Super:

The amount of Government Super (Guaranteed Retirement Income) for a single person living alone after tax from 1 April 2021 is $437 (compared with $424 previously) , an increase of $13 in the hand a week.

 

Top Tax Rate:

The top marginal tax rate increased from 33% to 39% on income over $180,000 from 1 April 2021.

  

Student Loan Repayment Threshold

From 1 April 2021 you will only need to start repaying your student loan from your earnings if you earn more than $20,280 pa (previously $20,020).

 

Interest Rate on Student Loans:

The interest rate on student loans if you are living overseas is 3% from 1 April 2021 (previously 2.5%).

 

Interest Deductibility on Rental Properties

From 1 October 2021 interest paid on mortgages taken out to purchase rental properties from 27 March 2021 (other than new builds) will no longer be tax deductible.

For the year ended 31 March 2022 therefore only the interest cost up until 30 September 2021 will be deductible for the year.

An example of the costs follows.

If you purchased a property for $500,000 at an interest rate of 4% on 1 April 2021, you would have total costs of $27,174 for the year excluding tax.  You would need to receive rent of $543 per week to cover these.

 

Interest (4% of $500,000):	$20,000
Property Management Fee (8% of rent)	$2,174
Rates:	$2,000
Insurance:	$1,000
Maintenance:	$2,000
Total costs per year:	$27,174
Rent required per week excluding tax (based on 50 weeks)	$543
Tax at 33% based on only 50% of the interest being deductible for the 2021 year:   Total costs to recover plus increased property management fee:   Rent required per week (based on 50 weeks):	$3,300     $30,760   $615

 But with only 50% of the interest being deductible for income tax purposes under the new rules for this year this means your costs will still be $27,174  but you will only be able to claim $17,174 against the $27,174 rental income.  You’ll also need to pay income tax at around 33% on the remaining $10,000, a cost of $3,300.  This now gives you total costs of $30,760 for the year (as the property management fee increases with the increased rent) and you’ll need to receive $615 per week in rent just to cover costs including the tax. This is a $72 or 13% increase in the rent each week.

For the following year when there is no interest deductibility then the rent would need to be $688 per week, an increase of 27% over the rent that would have been needed to cover costs if the interest was fully deductible. This rent level may be more than the market can bear in that area and for that price.

You may need to look elsewhere for a property where you can earn enough rent to cover the costs, and preferably to make a surplus.  Or you may need to consider other options such as a multiple flat property, subdivision etc. or  buying a new property as interest on loans taken out to buy new buildings are currently tax deductible.

If you decide to proceed or charge less rent than your costs, then any resulting loss will need to be ring fenced and offset against future rental profits.

If you bought a property before the new rules came in on 27 March 2021 then over the next 4 years you will move progressively to not being able to claim any of the interest costs.  It is possible that within that period the potential rent increases required may not be able to keep up with the increased costs so you may be left unwittingly with a loss making business.

 

Miuwi

It looks like this organization, set up to connect people who want to buy a property but can’t do it on their own, has wound up and been replaced with a facebook group: https://www.facebook.com/groups/2730176813903439

 

Sharesies:

No longer charges an annual subscription.

 

First home buyer assistance:

Welcome home loan:

Eligibility criteria In the 12 months before you apply:

• you must have earned:
  • $95,000 or less before tax for a single buyer (previously $85,000), or
  • $150,000 or less before tax for 2 or more buyers (previously $130,000).

For more criteria and information go to https://kaingaora.govt.nz/home-ownership/first-home-grant/check-you-are-eligible-for-first-home-grant/

The price caps have also increased: https://kaingaora.govt.nz/home-ownership/first-home-grant/check-property-criteria/

 

Cost to set up a company:

Now $124.39 including name reservation (previously $142).