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How Can I Reduce My PAYE Tax?

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Contributor:
Mary Holm
Mary Holm

Question:

I am an average Joe Bloggs on an average middle-class income. Quite frankly I'm tired mentally and physically of working long hours just to keep myself in a job (just above broke).

What I'm also tired of is watching the many scandals out there below and above my income bracket, ripping the system off - the poorer by manipulating the benefit system and the richer Blue Chip-types manipulating the legal system.

Meanwhile, I'm stuck in the middle seemingly supporting both ends of the spectrum in one way or another.

What is in it for me? Not a lot, really. So can you please advise me of any legal way of reducing the tax burden I pay via PAYE?

To be clear, I'm not after tax avoidance per se. I'm just asking for the same benefits and perks that those buggers I'm supporting appear to gain.

Please help me and the rest of middle class New Zealand - the only ones who appear to be prepared to act with integrity and do an honest day's work.

Answer:

Mary Holm:  I'm afraid there aren't many tax breaks for PAYE payers - other than rebates for donations, childcare or housekeeper expenses - unless you have children 18 or younger.

Almost all families with kids under 18 who earn less than $70,000 are eligible for the Working for Families tax credits, as well as many families with income up to $100,000 and some large families on even higher income.

And the credits are pretty generous for some. A family on $30,000 with four children gets $328 a week, which is more than $17,000 a year.

For more information, see www.workingforfamilies.govt.nz

Apart from that, there are ways to pay less tax on returns on your savings - perhaps by investing in property or in KiwiSaver or some other PIE (portfolio investment entity) investment - but I don't think that's what you're talking about.

While it might not seem to be the case, the fact that you can't deduct much against wages or salaries is a wonderful feature of the New Zealand tax system.

Having lived in the UK, US and Australia, where tax return time was a big hassle, I appreciated coming back here and skipping all that fuss.

Sure, it might have felt good to deduct mortgage interest - and in some countries all sorts of other stuff - but in the end it comes out in the wash. Tax rates have to be higher, or government services lower, to compensate for tax deductions. The simplicity of the New Zealand tax system for wage and salary earners is something to be proud of.

But what about fairness - and your idea that those on middle incomes support others? It's time to count your blessings.

Would you really prefer to be one of those people who manipulate the welfare system?

To be on a benefit in the first place, life has to be treating you fairly harshly. And then you have to live with your conscience, and the knowledge that you might get caught and punished.

In any case, the only way to stop cheats is to monitor all recipients closely. I, for one, am prepared to put up with some welfare fraud if that means that deserving beneficiaries aren't under Big Brother's constant scrutiny.

What about envying rich ripper-offers? Does the lifestyle of the wealthy - with all the pressure to look good, do the right things and have the best toys - really appeal to you?

At the extreme, a story in last weekend's Herald said some super rich pay £225 ($589) for a cocktail.

I don't know about you, but I would have trouble swallowing that - literally and figuratively.

And that's before the rich person is under suspicion for foul play, which must make even a chat with the neighbours none too relaxing.

Over all, it seems to me that life is better in the middle than as a manipulator at either end of the income scale.

Don't forget, too, that while we hear about the cheats, there are many rich people who pay heaps of taxes. As our table shows, the 1 per cent of the population with the highest taxable income pay 16 per cent of total taxes. And the top 14 per cent pay 53 per cent of total taxes.

I suggest you try to spend less time dwelling on what others get and more time appreciating what you have.

Life for middle New Zealand could be a lot worse.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.    

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