NZ 1st homebuyers are ScReWeD...

[minimoke]

Your calculations are questionable. To pay 33% you need to be earning over 150,000. Apporoximately 90% of tax payers earn less than 60,000 per annum; the tax on 60,000 is around 22%. Most tax payers pay around 20% or less.

Income over $40,000 is taxed at 33%. If you earn over $70,000 you get taxed at 39% for the income over $70K. Check the rates here: http://www.ird.govt.nz/how-to/taxrat...etaxrates.html. For home savers their primary income will be their wages. Once they earn more than $40k their tax rate goes up to 33%. Deposit income goes into the overall taxable earnings. Banks will deduct tax at source and then you have to do the usual year end wash up to see what your overall tax liability is.

[fungus pudding]

Income over $40,000 is taxed at 33%. If you earn over $70,000 you get taxed at 39% for the income over $70K. Check the rates here: http://www.ird.govt.nz/how-to/taxrat...etaxrates.html. For home savers their primary income will be their wages. Once they earn more than $40k their tax rate goes up to 33%. Deposit income goes into the overall taxable earnings. Banks will deduct tax at source and then you have to do the usual year end wash up to see what your overall tax liability is.

Using the link you provided calculates the tax on 60,000 to be 13,800 or 23%.

[minimoke]

Using the link you provided calculates the tax on 60,000 to be 13,800 or 23%.

It may well do – thats because its taking the income from 0 - $14,500 is at 12.5%, then income from 14501 to 40000 at 21% then income over 40,000 at 33%. We don’t have a flat tax system here – the more you earn the more you pay.

You have to earn to own a house. If your job pays you $40,000 and have a house deposit sitting in a bank and think you are only going to get taxed at 23% you are in for a disappointment.

[fungus pudding]

It may well do – thats because its taking the income from 0 - $14,500 is at 12.5%, then income from 14501 to 40000 at 21% then income over 40,000 at 33%. We don’t have a flat tax system here – the more you earn the more you pay.

You have to earn to own a house. If your job pays you $40,000 and have a house deposit sitting in a bank and think you are only going to get taxed at 23% you are in for a disappointment.

You have got it completely wrong.
If you earn 60,000 you still only pay 12.5% on the first 14,500, or $1750.
On the next 25,500 you will pay 21% or 5,355.
On the next 20,000 you pay 33% or $6,600.
The total tax you will pay is 13705, which is 22.8%.
You do not pay 33% or 20,000 on earnings of 60,000.
I think you are getting confused with witholding tax.
A flat tax means everyone pays the same percentage, so that someone earning 100,000 only pays twice as much as someone earning 50,000, which would be brilliant, and much fairer, but is as likely as the second coming.

[minimoke]

You have got it completely wrong.
.. you pay 12.5% on the first 14,500,
On the next 25,500 you will pay 21%.
On the next 20,000 you pay 33% or $6,600.

No. Re-read my posts and you’ll see that your post is finally getting to point I am making. Of course you don’t pay 33% on all income – my posts are clear on that (or so I thought – but obviously not). But you do pay 33% once the $40,000 threshold is passed. You, I think are confusing a person’s total tax % with what they will actually be paying on their deposits. If you are in doubt just try getting your earnings taxed each week at 22.8% - that will end up on a Tui billboard.

Alternativly work out how much tax you pay on your wages if they are $40,000. And then work out how much tax you will pay on interst income of $2,000. Doens't matter how you cut it, your combined earngings have pushed you into the 33% tax bracket on those earning over $40,000.


While you are drawing your pay you are enjoying the relatively low tax rates. But the more you earn the higher tax band you will move into for those additional earnings. Its one reason why people find mechanisms to income split.

[fungus pudding]

No. Re-read my posts and you’ll see that your post is finally getting to point I am making. Of course you don’t pay 33% on all income – my posts are clear on that (or so I thought – but obviously not). But you do pay 33% once the $40,000 threshold is passed. You, I think are confusing a person’s total tax % with what they will actually be paying on their deposits. If you are in doubt just try getting your earnings taxed each week at 22.8% - that will end up on a Tui billboard.

Alternativly work out how much tax you pay on your wages if they are $40,000. And then work out how much tax you will pay on interst income of $2,000. Doens't matter how you cut it, your combined earngings have pushed you into the 33% tax bracket on those earning over $40,000.


While you are drawing your pay you are enjoying the relatively low tax rates. But the more you earn the higher tax band you will move into for those additional earnings. Its one reason why people find mechanisms to income split.

My apologies. I think we've been trying to say the same thing in different ways. I read your comment that 19.5% was an unrealistic amount to use for tax, and perhaps took the wrong meaning from that. Incidentally I think it is still possible to recover frrom IRD monthly any overpayment because of secondary withholding tax or interest earned etc. It used to be a matter of filling in a form, but I haven't been a wage earner or payer for over thirty years so this may have changed.

[upside_umop]

I think you two have been getting at different ideas, your both right, just some misinterpretations maybe.

Fungus is right in that the 'average' tax rate is what he has been saying.

Minimoke is also right in that the 'marginal' tax rate is what is applicable to additional savings that are supplemental to income.

[upside_umop]

Thanks upsidedownmop – a useful analysis. Just a couple of things though. I’d be plugging in a tax rate of 33% rather than 19.5 for general analysis. Lets face it the tax rate of 12.5% on $12k then 21% to $40k income isn’t really real world for house savers. Somebody wanting a house is really going to need an income of more than $40k to either save enough for the deposit or afford the repayments. Your inflation rates are a bit optimistic – expected to drop to 2.7% but currently at 3.4%. And as for deposit rates today you can get, say 3.75 from Kiwibank (may as well use them since posters like to use their deposit mortgage rates) but either way you’d be doing well to get 4% on call.

Yeah sure, thats fine. 33% would actually bring it more to the savers advantage than a 19.5% tax rate. As would a 39% over a 33%. In short, the higher your 'marginal' tax rate, the greater your comparative advantage is when interest rates fall as the 'real' interest rate should stay relatively the same.

Using 2% is fair, as we are forward looking, and according to the RBNZ latest statement, they're saying 'comfortably' within the 1-3% band over the medium term. 2.7% isnt very comfortable...

On call at national bank is currently 5.25%, but I'm sure will fall also. Since we're around a year out, we could use a term deposit which kiwibank is offering 4.75% interest.

My point is, as interest rates fall, savers generally should gain as the real rate of return increases. The government loses as their tax take is less.

So if you plug in 3.75% interest rate, 33% tax and 3.4 inflation you are getting -.89% in a real world analysis. For those looking for your first home your deposit money is going backwards.

As above...

You are right not to be buying now and 10 months will be better. Regardless of everything else you do need consistent cash flow to service your debt. Trouble is, as we have seen banks are getting more nervous on what debt they want on their books. Who knows what their loan criteria will be in 10 months time – but good luck all the same.

They shouldnt be too nervous with people who have a decent deposit and secure job. If they are that tight to turn me away, then I will know there will be more declines to come in the market as supply of credit would deal to that. Do you not see it that way?

What I mean by distressed sellers is those people who have leapt blindly into the property market over the past few years thinking that property values only ever go up. Well they don’t – they are like anything else where there is supply and demand: the values will go up but they will also come down – but over time they always head up.

Agreed.

The distressed people will be those that bought land at say Pegasus town hoping to build a spec home and flog it off, Jacks Point might be the same as is coastal holiday homes.

Agreed.

Distressed people will have bought a rental for capital gain only to find that the rent really doesn’t cover outgoings. They will also have discovered that they are in a “service” industry – and if they as landlords aren’t providing the service tenants want they end up with higher vacancy rates. The distressed sellers will have mortgaged to the hilt, thinking negative equity was some magical potion only to find its not a great place to be when property values for non-essential property starts to fall, buyers dry up, their income gets squeezed (or they feel more risk adverse) and people don’t pay the huge dollars for a week by the sea.

Agreed.

Run of the mill brick and mortar family homes are unlikely to hit the “Distressed Seller” market. But your rental properties bought in haste will – which is possibly why Dr Who is buying. But this might mean buying in rental areas – which may not be an area you actually want to live.

Unlikely not to be distressed, but all the same they will have a few casualties. Ie Unemployment, overextended, etc. Same as before. It will still happen with them as their personal assets might not be smartly tied up when their pegasus property fails to sell.

I'm still all for a rental property as first house as the tax, cashflow advantages are still well ahead of trying to buy your own home and struggle away for 10 years before you can do anything else. I dont know whether I have said, but I plan to buy in Ilam, Christchurch which as you know is in the university area, and rubs shoulders with Fendalton, and with some value adding activies, a decent rental yield should be able to be achieved.

Even though these are solid properties, they will fall in value as other surrounding suburbs fall as a flow on effect from pricing incentives to buy there, leaving higher supply and less demand for properties in the more family orientated areas. Ie Riccarton to the likes of Ilam, and Ilam to the likes of Fendalton. Didnt Fendalton fall 13% last year?

[George]

From 1 April the threshold for 21% rises to 48,000 from 40k,
the 33% rises to 70,000.

[minimoke]

Unlikely not to be distressed, but all the same they will have a few casualties. Ie Unemployment, overextended, etc. Same as before. It will still happen with them as their personal assets might not be smartly tied up when their pegasus property fails to sell.

I dont know whether I have said, but I plan to buy in Ilam, Christchurch which as you know is in the university area, and rubs shoulders with Fendalton, and with some value adding activies, a decent rental yield should be able to be achieved.

Didnt Fendalton fall 13% last year?

Yes – there will be a few. But in the main those home owners who have spent /invested wisely over the past few years will be OK. Its those that have bought Pegasus town using their own home as equity with the same bank; those that have mortgaged to buy the boat or overseas holiday will potentially be the ones in trouble. But they will try to quit the second property first – they will hold to their personal home till the end. There will be some that will buy from those selling their home but I’m not one of them.
I haven’t looked at detail at Fendalton for a while. When I last looked my observation was that there were less properties for sale (normally this suburb has the most for sale in all of Christchurch) and those that were selling tended to be the lower end properties around the $5 - $600,000 range.
Interesting choice of rental zone target. Its demographic has my very first tenants and my last tenants. You’ll be learning lots in that area. Hopefully you’ll avoid the mistakes I made.