Can working make me worse off? - Ask Susan

I'm a single mum by choice. Unfortunately I had to give up my career as I had major pregnancy health issues which resolved with the birth of my baby in 2020. I've been on sole parent support since my paid parental leave expired six years ago. In that time I went back to studies and picked up another degree. Earlier this year I picked some digital freelancing work for a company in the US. I carefully put aside 25 percent of my earnings to pay my end-of-year tax. I thought this would be enough. I consulted with AI as to how much to set aside. I earned roughly $500 a week until the work ran out after a month. Around $300 of that was deducted from my benefit. I bought groceries, which at the moment are a bit of a luxury. Then March 30th comes. I get a tax bill for around $380. I paid that off. Then IRD insist they want $210 towards my student loan. I have tried to appeal it but they don't care. I've been told because the majority of my income has come from the benefit I am not eligible for an exemption. At the same time they're trying to tell me that MSD are my employer. This is completely and utterly unaffordable for me. It means there was absolutely no point to my working. In fact, it has left me much worse off. The previous tax year with the benefit, plus an unpaid compulsory internship, and in full-time study so I got a Training Incentive Allowance, I got $37,000 in my bank. This tax year I got only $31,000 before student loan deductions. I barely survived. I used my entire savings and I needed a KiwiSaver hardship claim, in which they told me with what's coming in I can't even afford the basics. My mortgage/rates/insurance takes around 70 percent to 80 percent, over $400 housing costs per week and accommodation supplement is at a record low of $75 a week. AI is telling me this is totally wrong and the IRD can't do that when I only earnt around $2000 for the year gross. Can they? I asked Susan St John, an associate professor at Auckland University, about your situation because she's spoken to me in the past about how people can have their support reduced when they start working, even if they're only earning a small amount. She said the first $160 a week you earned would not have reduced your benefit, the next $90 would have reduced it by 30 percent, and the remaining $250 would have reduced your sole parent support payment by $175. So in total, the reduction would be $202 for each of those weeks you were working, to a total $808. Tax would take another $350 and repayment of student loans $240. "So already as a result of that $2000 [earned] she loses $1400, a 70 percent loss," she said. She said if the government could assess benefits on the basis of annual income, rather than week by week, you would be in a much better position. "At least she is not triggering the threshold of $44,900 for Working for Families. The overlapping effects of abatements and the inability to spread casual earnings over the full year are trapping her in poverty. Her children also miss out on the in-work tax credit - currently nearly $150 a week because she has a part benefit. "It is a total disgrace what we are doing to so many in the welfare system and on low wages -- and don't forget when she comes to spend the few meagre dollars she gets there is a 15 percent GST component. So much for a system that is supposed to make work pay." She suggested you talk to a trained advocate who could check that the amounts have been deducted correctly. Terry Baucher, a tax expert who also works in this area, describes this as a "nightmare" and a poverty trap . "This is a real live example of how people on low to medium income face the highest effective marginal tax rates of all." He said student loan repayments would begin at annual income of $24,128, "considerably lower than the threshold in Australia". I own a mortgage-free property that I lived in until recently. Then I moved cities and bought another property on mortgage in which I live now. So now I rent the mortgage-free property and I am really struggling with the tax that I have to pay at the end of the year. I feel stuck as if that house was on mortgage I would save on interest. Even with rates and expenses I am still at a $9000 tax and have a cash crunch at tax time. What are my options? You're right that if you had debt on your rental property, you could offset the interest costs you pay on that debt against your rental income. With no debt, you're liable for tax on the whole lot. Jeremy Tauri, of Plus Chartered Accountants (disclosure - my husband) says there are ways you could address this. It may be possible to set up a company to buy your rental property, and transfer the debt to that entity, where you would be able to claim the interest cost against the rental income. You'll need to get some advice from an accountant or tax adviser on this. I am just wondering what your general advice is in regards putting additional funds into managed funds (such as Craig's Investments) or making extra payments into KiwiSaver. More specifically, for someone who is already mortgage free, 60 years of age and looking to continue working for another six or seven years. What advantages or disadvantages are there for keeping my KiwiSaver funds now I have retired? Once you reach 65, a KiwiSaver fund is much the same as any other managed fund , because there are no restrictions on access to your money. If you are working and your employer will keep making contributions, you should maximise those. Beyond that, you may just want to consider things like what fees are charged on various funds (KiwiSaver managers have a requirement to keep fees reasonable) the diversification you're getting across your portfolio, that sort of thing. I would keep investing, but whether you do it in KiwiSaver or somewhere else is up to you. This is a good time to get financial advice, to make sure you're well set up for the decades ahead.