Imagine this: you're planning to sell your home and want to give your children a substantial sum, but you're concerned about potential tax implications. Well, let's unravel this together!
The Gift of Generosity
You might be wondering, "Can I give my kids $150k without them facing any tax consequences?" It's a valid question, and one that many parents face when planning their financial legacy. The good news is, generally speaking, there shouldn't be any tax implications when you gift money to your children. However, there are a few important considerations to keep in mind.
New Zealand's Gift Duty: A Thing of the Past
New Zealand has abolished gift duty, so you don't need to worry about that. But here's where it gets controversial: if you plan to apply for a rest home subsidy in the future, these gifts could potentially count against you. It's a tricky situation, as you want to support your children now, but also ensure you have the necessary support in your later years.
The rules state that you can gift up to $8000 per person per year in the five years before applying for a subsidy, or $27,000 per year for gifts made five years ago. This is a complex issue, and we discussed it in detail on our podcast, 'No Stupid Questions'. If you want to dive deeper, give it a listen!
Seeking Professional Advice
If this is a concern for you, it might be wise to consult a lawyer. They can guide you on the best way to manage your gifts and ensure you're not inadvertently impacting your future eligibility for subsidies. It's always better to be safe than sorry, especially when it comes to complex financial matters.
The Great Contribution Conundrum
Now, here's another interesting point: with many people working multiple part-time jobs, there's often confusion about eligibility for full government contributions. You might have heard that if your full contribution comes from multiple jobs, you're not entitled to the full government contribution. But here's the truth: you've been misled!
Inland Revenue confirms that this is "totally untrue". You can contribute from as many sources as you like - multiple employers, direct contributions - and it all counts towards your total contributions, which are included in the annual government contribution calculation. So, rest assured, your contributions from different sources are valid and recognized.
The Mystery of 30-Year Home Loan Fixes
And this is the part most people miss: why don't New Zealand banks offer 30-year home loan fixes like they do in the US? It's a great question, and one that deserves an answer. In the US, you can lock in a 30-year mortgage term and enjoy the stability of a fixed interest rate for the entire duration. But in New Zealand, this isn't an option. We typically fix our loans for terms of 1-5 years, with 1-2 years being the most popular.
So, why the difference? Well, it comes down to the size of our home loan market. New Zealand's market isn't big enough for banks to manage the interest rate risk associated with long-term loans. If they were to offer these long-term rates, they'd often be more expensive, as banks would need to hedge their bets and price in the risk.
The US has government mortgage entities like Freddie Mac and Fannie Mae that help manage this risk, but New Zealand doesn't have the same infrastructure. While some banks have offered 7 or 10-year mortgage options, they haven't been popular, and banks have found them to be more effort than they're worth.
So, while the US is an outlier in offering these long-term fixes, it's important to understand the reasons behind New Zealand's approach.
There you have it! A comprehensive look at the potential tax implications of gifting, the contribution conundrum, and the mystery of 30-year home loan fixes. Remember, when it comes to financial matters, it's always best to seek professional advice and stay informed.
Do you have any thoughts or experiences to share on these topics? We'd love to hear from you in the comments! Feel free to share your stories and insights, and let's continue the conversation.
