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August Happenings - Interest Rates, Motor Vehicles, and Boarders

Posted 19/8/2019

In this edition we look at the changes in Interest Rates, changes to Motor Vehicle rates, and some changes to the boarder tax-free rules.

The Reserve Bank making a big change

Last Wednesday the Reserve Bank of New Zealand made a big announcement that will impact if you own your own house, have rental properties, or have money in a bank. The Reserve Bank dropped the Official Cash Rate (OCR) from 1.5% to 1%. This was a bigger drop than expected. You can read more about the announcement on this NZ Herald article.

The Reserve Bank uses the OCR to try and change the growth in New Zealand's economy. By reducing the OCR, this reduces the interest rates that the banks will charge their customers, so the customers will have more money in their pockets and will spend more. The result is that more growth happens and everyone is happy as there is more money flowing around New Zealand.

If the economy is growing too fast, then the opposite can occur - the OCR goes up, the interest rates go up, people have less to spend, so it slows the economy down.

The Reserve Bank's job is to try to keep the economy growing, but at a rate not too fast. At present though, there are some black clouds on the horizon (such as a trade war between USA and China), so the bank cut the OCR to try and get the economy growing (instead of shrinking which is a recession / depression).

What this means for you is that the banks will in the coming months come out with some very low interest rate deals on mortgages. You can currently get locked in rate for under 4%, but how low will it go? This will help if you have a mortgage on your own home, or on a rental property as the rates are expected to stay low for a while.

On the flipside - if you have money in a term deposit at a bank, expect the rate you will earn from that money to decrease. Interest Rates given by banks on investments will decrease over time until the OCR goes back up.

If you need more help with this topic - go see your financial advisor to get you sorted with your plan and goals for your financial life!



Kilometre Rates have been updated

Inland Revenue have updated their Kilometre Rates for any use of a personal motor vehicle for business use. The new rate is now 79 cents per kilometre if the vehicle travels under 14,000 km in a year. You can read the rates on the IRD website here. We will be updating the Motor Vehicle Expenses section of the Rental Coach material soon to include these new rates (and the correct way to calculate motor vehicle expenses!).

If you are finding the IRD website hard to navigate or struggling to find accurate information - don't worry, you aren't the only one. IRD updated their website in April, and even us accountants are struggling to find the right information that we know should be located there!



New standard cost rates for boarders

Inland Revenue has come up with new standard cost rate for having boarders. These rates are used to determine if you have any taxable income for the year. If the amount charged to a boarder is less than the standard cost rate (for example it was previously $270 for the first 2 boarders), then you do not need to put any income on your tax return.

The process has now changed. Instead of there being just 1 standard cost, there are now 2 that you need to consider. They are:

  • Weekly standard cost (a calculation to establish a per person running costs of the house)
  • Annual capital standard cost (a calculation to take into account the purchase cost of the house)

You only need to use the Annual capital standard cost if income from boarders is more than the weekly standard cost.

So, the process has got a little more complicated as you may need to do 2 calculations. Even so, with our estimated calculations when adding the 2 costs together, the threshold for tax-free income hasn't changed much at all. We will be updating our 'Boarders and Flatmates' information once Inland Revenue have announced the figures for the 2020 tax year.