From the IRD:

The Government has announced changes to student loans and income tax as part of Budget 2013. These will be implemented gradually over the next few years. As the legislation has not yet passed, some details may change.

Changes to student loans focus on improving repayments from overseas-based borrowers and increasing personal responsibility for debt.

Information matching with Department of Internal Affairs:The Department of Internal Affairs will share the contact details of customers who apply for or renew an adult passport. This will allow us to contact any overseas-based customers who are in default with their student loan, and or child support customers with arrears or out-of-date contact details. We'll discuss with them any student loan or child support arrears and confirm their correct details.

This information-sharing proposal will be put in place later in 2013.

Changes to repayments for overseas-based student loan borrowers: We will introduce a fixed repayment obligation threshold for overseas-based borrowers. This means borrowers with higher loan balances will have a higher repayment obligation each year.

These changes will be included in a bill later this year.

Defaulting student loan borrowers unable to leave New Zealand: Inland Revenue will be able to prevent student loan borrowers in serious default from leaving New Zealand when legislation is passed later this year. This is similar to the law already in place for child support.

With the news that the majority of New Zealanders support the tough new policy to arrest student loan debtors at the airport, don't expect this policy to change any time soon. If you have issues with your student loan debt please contact us, we're professional and non judgmental.

The tax rules for overseas superannuation schemes will change on 1 April 2014. In addition to the change in rules there will be an amnesty available for people who have not paid tax on previous withdrawals or transfers from their overseas pensions. The amnesty will be available only for a limited time. These issues may not apply to transitional tax residents. If you are a transitional tax resident, transfers of all or part of your fund will usually not be taxable as long as they happen within the required time. Superannuation schemes usually involve large amounts. The tax amount at stake is also large. It is important that you take advantage of any tax free transitional tax benefits available to you and the amnesty provisions.

Please talk to us if you have any questions.

With forecasts of home loan interest rate increases of 3% within a year, it is important to stress test your investment properties. A 3% increase on a $500,000 loan equates to around an extra $200 per week to pay for the mortgage. While there may be some capacity to increase rentals, that capacity will be much less than the increased mortgage payment. Fixed rates may also provide some protection but eventually the higher mortgage rates will bite.

The time to check your future affordability is now. That way if you need to sell you can do so while there is buyer demand.

There is more news today about the government's drive to pursue student loan debtors. It will use private detectives and debt collectors to pursue 10,000 student loan debtors in Australia. 

In an ideal world everyone would repay their student loan debt, however, sometimes people find that they just don't have the money to repay the debt and/or it has spiraled out of control, once penalties and interest are added, to such an extent that even someone on a good income has no hope of getting the debt under control. In these situations it is better for everyone that an alternative is sought - as soon as possible. We can help with negotiations, or with evaluating bankruptcy or other options, so that the best solution is found for you so that.you can get on with your life.

Given that the government reports that it receives $12 for every $1 spent on pursuing student loan debts don't expect its efforts to stop any time soon.

With forecasts of large rises in interest rates and the exchange rate, perhaps within the next year, tougher times could lie ahead - especially for exporters. Now could be a good time to reduce debt and look at hedging in order to reduce future risk.

The government is targeting 9,000 student loan debtors for arrest when they enter or leave New Zealand. They are also looking at refusing to renew New Zealand passports for student loan debtors. The clear message is that doing nothing about a student loan debt, that you are not up to date with, is not an option. Doing nothing will just cause the debt to grow and increase the likelihood of severe measures being taken against you by the New Zealand government.

We can help to evaluate all of your options, which may include:

• Applying for a write off of part of the debt.
• Negotiating a repayment arrangement that actually works for you.
• Assessing whether bankruptcy would leave you better off.

No matter what the best long term path is for you, you can be sure that taking control and dealing with the problem will leave you better off.

Should you declare bankruptcy? People should pay their debts, however, sometimes people find themselves in situations beyond their control and paying debt becomes unrealistic.  This can happen because of a business failure, relationship breakdown, unemployment, tax or student loan debts that have grown unmanageably large, or credit card debts that seem to increase not matter how much you try to pay back.

Bankruptcy usually lasts for 3 years, and it normally stays on a person’s credit record for 7 years (indefinitely if you have had more than one bankruptcy). This means that for 3 years you will be unable to leave New Zealand without permission, and you will face other significant restrictions. For at least 7 years you may be unable to borrow money.

If you become bankrupt you cannot usually be self employed and you may not be able to work in some professions. Other professions are unaffected. There are sometimes ways to restructure a self employment situation that effectively allows a person to keep on working in their usual job while bankrupt. Some people lose their homes; others are allowed to keep them.

If you have large debts what is the best option for you? Obviously if you have a $300,000 student loan debt and other debts that you struggle to pay, the reality is that you are unlikely to ever repay them. They will hang over you and cause you stress forever if you don’t do something about it. In that situation it may be best to take control of your life and go bankrupt.

Bankruptcy can also be the best answer in situations of much smaller debts. If, for example, you earn $50,000 a year, but after living expenses and tax you are left with $2,000 a year, if you have debts greater than $14,000 (7 years times $2,000 per year), you may be better off, in the long run, declaring bankruptcy. Not only will bankruptcy stop creditors harassing you, it means that when you are discharged your debts disappear (in most cases). The effect on any assets that you own, possible inheritances, your ability to work during the bankruptcy period, and financial dealings prior to bankruptcy are all factors that need to be carefully considered prior to making a decision to become bankrupt, however, it is clear that for some people bankruptcy is the best way to start afresh. The possibility of bankruptcy is often a useful bargaining chip in seeking to negotiate a resolution of tax or other debts.

We often advise people on the pros and cons of bankruptcy in their particular situation and provide advice on bankruptcy planning. For $150 you can ensure that you are fully advised on whether bankruptcy is a good option for you. Please talk to us in confidence if you would like advice on your situation.

The taxation of foreign superannuation funds in New Zealand has been an area that has caused much difficulty for many foreign migrants and returning residents. The incorrect application of New Zealand’s tax laws, or general non compliance, was common. Under the new provisions (introduced to Parliament today) a streamlined system will apply to the withdrawal, by New Zealand tax residents, of lump sums from foreign superannuation funds (this includes lump sum transfers to other funds in New Zealand or overseas).

For everyone who has not paid the correct tax the government is offering a partial amnesty. This applies to lump sum withdrawals or transfers from foreign schemes from 1 January 2000 to 31 March 2014.  The amounts must be included in the 2013/14 or 2014/15 tax return.

There are some cases where applying the existing law may yield a better result, however, these people will be liable for penalties and interest from the date that they did not pay the tax due (as an example, this could be from the year 2000).

The key message for those many people who have failed to correctly declare and pay tax in New Zealand, on their overseas superannuation income, is that you should deal with this now. The limited amnesty will only be available for a short time. Bearing in mind that liabilities and interest usually cause tax debts to double after the first three years (and then it gets worse after that) dealing with this now is the only option. If you have a concern about affording payment to the IRD, the correct thing to do would be to declare and then to seek a repayment arrangement. Doing nothing is likely to catch up with people given the IRD’s focus on international tax disclosure and avoidance.

If you are in a situation where double tax may apply, or if you are affected by New Zealand’s transitional tax system, please note that different considerations may also apply.

Generally the FIF rules will no longer apply (although they may continue to do so in certain circumstances where they have been consistently applied in the past).

Please talk to us in confidence if you have any questions.