KiwiSaver for Business Owners

MAJOR changes to the original KiwiSaver scheme were announced in the budget, which came out after our last newsletter. This time we deal mostly with KiwiSaver from the business owner's point of view. Articles on KiwiSaver are spread throughout this newsletter. We start here by suggesting some of the things you might wish to consider before you decide whether to join a KiwiSaver scheme.

KIWISAVER has its good and bad aspects. In this section we show you some of the risks.

1. Your KiwiSaver contributions are not protected against your creditors. If you go bankrupt you will lose your KiwiSaver contributions.
2. Some KiwiSaver schemes might fail. The Government does not insure you against this. The economy, with its full employment, will not always be as good as it is today.
3. KiwiSaver providers might sell their businesses, which could lead to changes in investment strategies. Don’t invest and forget.
4. Expect many new governments during the years you are in the scheme, and hence many rule changes.
5. Fees might not stay at the same level as they are today. The Government Actuary controls KiwiSaver fees, but they might increase if the cost of running the schemes proves higher than anticipated.
6. Staff with good skills are sought-after and move on. Keep an eye on your fund managers.
7. You do not join the scheme and a future government abolishes or severely limits National Superannuation. You wish, as a result, you had joined.
8. You do not join the scheme and could have collected the subsidies, when you had the chance and then it becomes compulsory and the subsidies are abolished. You wish you had joined earlier.
   

Three markets – by price

HAVE you ever noticed you can classify potential customers into three groups. based on their sensitivity to price?

Customers spending their own money

When you have to pay for things out of your tax-paid income, you are usually quite careful with your decisions, particularly if the amount is large. These customers can be expected to be the most price-sensitive of the three groups.

Customers who own their businesses

Payments are tax deductible, so business owners spend the Government’s money as well as their own. Their purchases are subsidised. They are also less price-sensitive than the first group because:

• business people have less time to fuss over prices;
• time spent developing the business might yield more than time spent haggling over relatively small savings – for example, is it worth getting three quotes every time you want some printing, if you are already getting a good service at a reasonable price?
• they want reliability and good service, which saves them administrative time.

Customers spending other people’s money

These are the bigger organisations. Their staff will happily pay to avoid making mistakes. That is why so many of them call in consultants. Sell them on the idea you can keep them out of trouble and charge accordingly. An electrician made an excellent living out of about 10 big customers. He almost guaranteed his customers’ factory machinery would keep running. He would approach management with recommendations for overhauls and preventive maintenance and got well paid for his service. He staked his reputation on having no breakdowns. Those who spend other people’s money are the least price-sensitive.

Conclusion

If you have a choice, which segment will you choose to work in?

WHEN a new employee joins your staff, you must:

• give them a KiwiSaver kit within seven days;
• deduct 4 percent KiwiSaver contributions from the very first pay packet;
• keep records of KiwiSaver deductions for at least seven years after the employee has left your employment.

Employees can only opt out by completing a KS10 opt out form. They can complete this form on line. If the employee opts out, IRD will refund all contributions.

Trap: Any new employee providing you with an opt out form within the first fortnight of employment has not opted out. Opt out must be between the beginning of the third week of employment and the end of the eighth week. If you receive a late application to opt out, send it to the IRD and do not act on it.

Quote

Donald Trump says: “You can always rebuild a factory; you may never regain a customer who is lost.”

ONCE investors have been in KiwiSaver for three years they may qualify for the subsidy of $1000 a year towards a first home. The maximum subsidy is $5000 for anyone who has been in the scheme for at least five years, so a couple could get $10,000 between them. Other requirements include:

• The combined incomes of a couple have to be less than $100,000 (and if there are more than two people, the maximum rises to $140,000).
• The money must be used for a first home for the couple to live in and they must stay for at least six months.
• The house must not cost more than $300,000, unless they are buying in a high priced area such as Queenstown or Auckland, in which case the limit is $400,000. These figures will be revised within the next three years.

All contributions, including those from an employer, can be withdrawn to help buy a first home. Government contributions remain locked in.

Some parents might want to start a KiwiSaver account for their children. They will secure the $1000 kick-start for each child and the clock will start ticking for the home subsidy scheme. When youngsters start their first job, they restart the clock for the purpose of the three-year qualification period. Each KiwiSaver scheme has different rules about the amount you need to pay to join your child.

BUILDING industry suppliers are getting lists of building permits issued and using them to build their databases.

Good selling is about targeting your sales effort. Someone who has a building permit is going to want doors, kitchens etc. Why not send your advertising where it is likely to make the most impact? Small firms, with limited resources, have to find cost-effective ways to sell their products. Mass advertising is not an option for them.

Letters addressed directly to potential customers and having their names on them will be more effective than an advertisement in a newspaper. Build up your database and use it constantly.

Put in all your contact details, including your email address. Your ad might be read outside working hours. Email is a convenient way to get a response.

Keep copies of GST returns

IRD is providing only one copy of every GST return. Be sure to keep a copy of any return you send to the IRD. It may be needed for preparation of your annual accounts.

“YOU can use half your savings to pay off your mortgage,” someone said on TV a few days before 1 July. It is not completely correct. It requires the fund manager and your mortgage provider to agree to the arrangement. We know of one firm which will charge 2.5 percent on all payments applied to the reduction of the saver’s mortgage.

IF you choose a trustee company to administer your family trust, monitor its performance. The trustees of a family trust decided to withdraw all the trust’s investments from a trustee company and put them in an interest-bearing bank account. As a result of this decision, they made the following gains:

• they achieved a big increase in the income of the trust;
• the trustees distributed the income of the trust to its beneficiaries and cut the income tax rate from 33 percent to 19.5 percent;
• capital losses, though small, ceased;
• administration costs halved.

It is not a good idea to hand your wealth to someone you do not know and believe you can forget about it. The same applies to KiwiSaver. Keep an eye on the performance of your chosen fund. Expect some short-term downturns. It is the longer view which matters.

Ring-fencing rental property

RING-FENCING, in tax talk, means isolating. If the Government ring-fenced tax losses incurred from owning rental properties, it would make rental tax losses claimable only against rental tax profits. Any losses left over would not become individuals’ tax claims. They would be carried forward into the future and used up as the properties became profitable.

The Reserve Bank Governor is getting agitated about inflation. To contain it he uses the only weapon he has. He increases interest rates.

The Government is concerned about the high interest rates and its effect on our economy. It is also concerned about high house prices. It is, therefore, considering ring-fencing rental losses.

Will ring-fencing be introduced? Cynics count up the number of MPs who have rental properties and suggest the answer is no.

Ring-fencing would be likely to significantly affect the price of houses at the lower end of the market, thus reducing inflation.

Lifestages KiwiSaver Scheme
Medical Assurance Society KS
Mercer KiwiSaver Scheme
National Bank KS Scheme
Smartkiwi (NZEX)
SIL KiwiSaver Scheme
Staples Rodway KS Scheme
Superlife KiwiSaver (Provisional Reg)
Tower KIWIPLAN
Waterfront Industry KiwiSaver
Westpac KiwiSaver Scheme
Grosvenor KiwiSaver Scheme
(provisional registration)
ING KS Superannuation Scheme
KS Supereasy Superannuation Scheme
(Civic Assurance)

Is it worth joining for business owners?

EVERY dollar you put into KiwiSaver is another dollar you will not be able to use to develop your business. Compare the return on your investment from applying your money to your business with all the gains you could make from investing in KiwiSaver. Which gives you the better return? Add to the KiwiSaver side of the equation the forced discipline of saving for your retirement.

KS and working in more than one job

IF an employee has opted out of KS in her primary employment, she must also complete an opt out notice for any new secondary employer. Otherwise she is in the scheme and will have to pay 4 percent of wages for both jobs. Employees can take a contribution holiday after 12 months, by advising IRD using form KS 6, from either or both their jobs. The department will then tell the employer(s) to stop making KS deductions.

How to join KS

TO join a KiwiSaver scheme if your income is not subject to PAYE tax deductions, approach any of the KiwiSaver providers. Each has its own rules. You do not need to pay them 4 percent of your income. You can nominate any amount, which fits within the provider’s rules. You get the $1000 kick-start and the $20 per week dollar for dollar subsidy. You cannot get an employer contribution.

• a brief discussion of each topic covered by the meeting.
• decisions made;
• management’s post-meeting response to the decisions;
• management action plans resulting from those decisions.

Thus committee members arrive at the next meeting   knowing what has happened as a result of the decisions they made at the previous meeting.