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Five Taxing Questions and a Clear Way to Solve Them

Tax is a boring but necessary part of life, but you can get it right by avoiding common myths and misconceptions, writes Amy Hamilton Chadwick.

24 October 2023

1. After tax, a pay rise could mean you earn less

The misconception: If you move into a higher tax bracket, your new higher tax rate might mean you actually take home less money, so it’s not worth working extra hours.

The facts: Thanks to progressive tax rates, the more you earn, the more you earn. For example, if you get a pay rise from $70,000 to $71,000 and move into the 33 per cent tax bracket, you don’t pay 33 per cent tax on the whole amount. You only pay 33 per cent on the extra $1000, so overall you will take home more money.

Learn more here.

2. You pay less tax on your side hustle or second job

The misconception: You can get a tax advantage with a secondary job or on income from a side hustle business.

The facts: You pay tax on annual total income from all sources. If you earn $80,000 in your job and $20,000 from your YouTube channel, you’ll be taxed on $100,000. The income is all treated the same by Inland Revenue. You can’t get a sneaky tax leg-up with a second income stream. If you underpay your tax by declaring a too-low secondary tax rate, you will face a large tax bill at some point in the future.

3. You get double taxed if you take a second job

The misconception: The secondary tax rate is a way of taxing you twice for being employed in a second job.

The facts: The secondary tax rate aims to prevent you getting a big tax bill at the end of the year. You don’t pay “double tax” on your second job. As above, your tax is based on your total income from all sources. If one of your employers inadvertently pays too much tax on your behalf, you’ll get a refund.

4. You can claim clothes and meals as a business expense

The misconception: You run a business, and you need to buy clothes to wear for meetings and buy lunch to feed yourself when you’re at work. You wouldn’t be buying the clothes or food if you weren’t at work, right? Therefore, these items are a business expense that you can claim to reduce the total amount of tax you pay.

The facts: You can only claim clothing as a business expense if it is only useful at work. For example, branded gear, uniforms or personal protective equipment. Ordinary clothing can’t be claimed as a business expense, even if you wouldn’t personally wear that suit anywhere else.

You can’t just claim back all your own at-work meals, either. You can find out more here.

5. There is no capital gains tax in New Zealand

The misconception: You don’t pay tax on any of the profits you make when you sell property and shares in NZ.

The facts: We don’t have a specific capital gains tax in NZ. However, some types of capital gains and profits are taxed.

The bright-line test is essentially a capital gains tax. You pay tax on any profits (capital gains) from the sale of most residential properties that are not your family home, unless you’ve owned the house for more than 10 years. It’s complicated – you can read more here.

You may also pay tax on capital gains made when you sell offshore investments that cost $50,000-plus; these fall under the FIF tax rules.

And if you sell other things or receive dividends, the proceeds will be part of your income, so you’ll likely need to pay income tax on it.

Tax is complex!

Talk to an accountant for advice on your own circumstances, so you don’t pay more or less tax than is required.

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