Source: Radio New Zealand

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I have recently started investing more seriously and have heard many positive things about the S&P500. However, from my research, I understand that if I invest directly into this fund, I will be liable for FIF tax once my portfolio exceeds $50,000 in value.

It is possible to invest in the S&P500 from a NZ domiciled fund within a PIE structure, and these are advertised as ‘taking care of the tax for you’ and keeping your tax rate to 28 percent or less depending on your earnings bracket.

My question is, isn’t the fund manager of the NZ domiciled fund still required to pay FIF tax, and as any cost is generally split over all the investors, and the combined value of the fund is way over $50k, isn’t FIF already triggered? So even if you had just started investing and had less than $50k invested in the S&P500 through the NZ domiciled fund, you would still proportionally have FIF tax deducted?

If this is correct, shouldn’t this be more transparent by the fund managers, as investors I know think they’re avoiding FIF altogether by investing in this type of PIE NZ domiciled fund and the funds note tax is deducted on your behalf, but there is no mention of FIF tax?

You are right that if you put more than $50,000 into certain types of foreign investments, you will be captured under the Foreign Investment Funds (FIF) regime. Under that level, you only pay tax on the income received.

New Zealand funds that invest in international shares such as the S&P500 index fund are subject to the regime without the $50,000 cap.

PIE fund are required to calculate their FIF tax using the fair dividend rate (FDR) method which means they work out what investors have to pay with a calculation of the investor’s prescribed investor tax rate on 5 percent of the average daily portfolio value.

If you are earning a higher income, you might find that the 28 percent cap on the PIR rate is a benefit.

Dean Anderson, founder of Kernel, said one of the reason he launched the shares and ETFs feature was to help navigate this.

“For some tax optimising investors, they could reduce their total tax costs by purchasing an offshore ETF or shares to the combined value of say $49,000, and then investments above that they start direct to a PIE structured fund.

“One thing investors need to be conscious of, is some broking platforms have a ‘money market’ fund for their wallet. This means that an investor may intend to purchase just under $50,000 in an investment, but then when those investments start to pay out dividends and they land in the money market fund it gets captured and counts towards their FIF threshold and they can be triggered over $50,000 and now have to calculate FIF tax on their entire portfolio.”

He said whether there was more tax to pay overall by investing offshore would depend on the investment.

“It is possible to have lower tax by buying offshore investments directly for the first $50,000. However, if the dividend yield was high then that may not be the case. Investors also need to consider the other costs of investing – including brokerage fees, foreign exchange fees…”

My mum and the rest of my family and I (two adults, two teens) are about to move to a new house with two units, and I’m looking for advice on the simplest way to run our bills banking-wise. We both bank with the same bank, which helps a little.

My husband and I will be solely responsible for the mortgage and our power is split by unit, but other than that we will be splitting 80/20 for rates, piped gas, broadband, insurances (house, contents, two cars), food box subscriptions, takeaways, and groceries. We will continue to share our main family meal each evening.

The two unpredictable values (per month) are groceries and gas costs. But I don’t want either us or mum to need to be adjusting the amount to put into a shared account each month. We need to pay for the subscription box by debit card, and would like to also be able to access the debit card-linked account for our streaming accounts.

Do we make the account we get paid into the bills account too? And get everything going out of that, with mum just paying a set amount per month into it, setting aside our regular spending money into a different account? But how do we budget for gas? Is there any predictable value we can put on this, allowing for peaks in winter?

I took your question to David Verry, at North Harbour Budgeting Service.

He said, for the regular expenses, a good way to work it out would be to use history to guestimate what you might each have to pay under your new structure.

“Take the last six – or 12, even better – months and work out what each expense cost and then work that out on a monthly basis for the mother’s contribution.

“Some expenses may also be set for the next six or 12 months – rates, insurances, broadband, possibly even the foodboxes – so these can be calculated with some accuracy. It’s the grocery costs that tend to move around a bit but averaging them out usually works out pretty well.

“Vehicles can be a bit tricky depending on who is paying for what – mother may be running her own vehicle – WOFs, regos and insurance can be calculated reasonably accurately. Petrol can be worked out by keeping a mileage log – I recall having to use a logbook when I was using the family vehicle and living at home. Repairs and maintenance are the biggest unknowns – I generally default to $400-$500 per year for this per vehicle.”

He said you would probably need to repeat the exercise regularly to ensure your budget was working once you were in your new place.

As for the account structure, he said it would need to be worked out so that it suited everyone without too much transferring going on.

Verry said he would generally recommend three accounts for households.

One would be a general or everyday account into which income was paid and from which weekly and fortnightly expenses were paid.

A monthly account would cover monthly bills, and you would transfer a set amount in each time you were paid to build up a buffer to cover these.

Then an annual account could be used to build a fund to cover yearly expenses.

“The general/everyday account then becomes the wash-up account. So, if a household has a budget surplus, what’s left over in this account can go into an interest-bearing savings account. It can act as an emergency fund too.

“Account structure is very family-dependent and what works best. For instance, in our household we put as much as we can on credit card but ensure we have sufficient to pay the balance owing off every month.”

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