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Thread: Double taxed?

  1. #1
    Join Date
    Apr 2016
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    Default Double taxed?

    When I get paid I get taxed. How come when I have money in a savings account I get taxed on the interest?

    If I have money in a revolving account I dont get taxed?

  2. #2
    Join Date
    Oct 2015
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    191

    Default

    Interest on saving is another earning. Your RWT is tax deductible though.

  3. #3

    Default

    You get taxed on interest because it is new income. You don't get taxed on the principal, which is your post tax income.

    This is the appeal of tax deferred retirement plans BTW

  4. #4
    Join Date
    Apr 2016
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    Default

    Thanks

    Because im quite risk adverse i wanted to take some money out of a revolving account and put it in separate bank account in term deposit

    That way if the revolving account is closed i still have a buffer

    Advantages
    Buffer incase revolving accounts are closed

    Disadvantages
    I would pay tax on the interest of the term depositInterest would not be as high compared to the interest rate i take from my revolving account
    Does that sound right? What would people recommend?

  5. #5
    Join Date
    Oct 2013
    Posts
    1,617

    Default

    You get taxed on all income, it's a good part of our tax system. Some countries overseas treat different types of income differently, we don't.

    To clarify the above, RWT is not 'deductible', it's tax. If you earn $1,000 in interest and are getting RWT deducted at 17.5%, you'll have $175 of tax taken from you. At the end of the year you have earned over $48k in total from all income sources, you'll need to pay some extra tax because it should have been taxed at 30%. If you have earned less than $14k, you'll get a refund because you should only have been taxed at 10.5%.
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  6. #6
    Join Date
    May 2007
    Location
    Hamilton
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    Default

    Quote Originally Posted by investorak View Post
    Thanks

    Because im quite risk adverse i wanted to take some money out of a revolving account and put it in separate bank account in term deposit

    That way if the revolving account is closed i still have a buffer

    Advantages
    Buffer incase revolving accounts are closed

    Disadvantages
    I would pay tax on the interest of the term depositInterest would not be as high compared to the interest rate i take from my revolving account
    Does that sound right? What would people recommend?
    Hi Investorak,

    If you are an investor, a revolving credit and savings account will be even for tax, just the interest rate might be different.

    Option 1 - have $100,000 in revolving credit used to buy rental. Save interest at say 4.5%, so 4,500. Then you won't get the tax deduction on the $4,500, so really gains you $3,000 after tax.

    Option 2 - 100,000 in savings account at say 3.5%. Earns $3500 in interest, less tax is say $2345.

    The difference is the 1% interest rate, otherwise the same.

    If revolving credit on your personal house, then different!

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  7. #7
    Join Date
    Oct 2013
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    Default

    If revolving credit on your personal house, then different!

    Actually, I've got to disagree here. It's exactly the same. Pulling money out of any revolving credit account to invest in a Term Deposit would be deductible. The borrowing is for the purpose of earning taxable [interest] income so deduction is allowed.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
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    [email protected] for more information.

  8. #8
    Join Date
    Sep 2004
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    Hastings
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    Default

    All gummints just adore multiple tax collections. Petrol would be a shining example. As I dimly recall there's a tax on an added tax on an added tax, in that case. (Called excise and/or duty and/or some other name, just to keep people confused)
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  9. #9
    Join Date
    May 2007
    Location
    Hamilton
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    3,594

    Default

    Quote Originally Posted by Rosco View Post

    If revolving credit on your personal house, then different!

    Ross
    To clarify(you could look at this several ways, but below is how I looked at it)

    If you have 100k cash. The option 1 I showed above is if the revolving credit was used to buy a rental.

    If the revolving credit was used to buy your personal home. Then no tax deduction.

    So if the 100k cash was put into the revolving credit, it would save say $4500 in interest and you would lose no tax deduction as the interest wasn't deductible to start with.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.


 

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