Talking Expat Taxes #6

Yeah. Now that's not without sacrifice. I think a lot of people think that this is like looking through rose colored glasses. The biggest difference here is that New Zealand is one of the most expensive countries to live in the world. So we were lucky enough to buy a house, we scraped and saved for years. And we bought a house near the beach, not on the water. I don't want to be on the water because there are tsunamis here. We got a house, we dropped a lot of money on it, like over half a million dollars and this house is 800 square feet. It's single glazed windows. We had to put in double glazing windows in half the house just for it to stay warm. There's no wall insulation on the exterior walls, but we live at a beach, so we live in a subtropical climate. The houses here are not what you see in America. And so there is a trade-off. And the other thing too is the price of everything. Gas in this country is equivalent to eight to nine dollars a gallon.

Actually, we're looking at buying our second electric vehicle. We have a lease. Right now, I'm driving a gas guzzling van. Ever since my son switched schools from daycare to his primary school, I've had to drive him and my gas bill went through the roof. I'm paying hundreds of dollars a month. So, we're looking at getting a second electric vehicle. So look there's trade-offs. I would say to your listeners, if you're interested in moving to New Zealand, I feel like we're an extreme example. Not many people move from Delaware to New Zealand, but there are plenty of options in the EU that are closer, or South America, Central America, Canada. There's all these things you have to consider.

Absolutely. Yeah, you can analyze it to death and then never do it.

Yeah, you're a tax preparer. You got to analyze every little bit. Yep. My husband's the same way. And that's okay. That's okay. Cause you think about things that maybe someone like me didn't think about.

Yeah. I heard a really good quote recently that, when I do the second edition of my book, I'm going to put it in. I will credit her, but I saw it on American on the New Zealand Facebook group. So it's Americans in New Zealand or Americans living in New Zealand Facebook groups. There's several of them. And one woman said, I'm going to get this right. She said in New Zealand compared to America, the quality of life is lower, but the lifestyle is better. Meaning... I live in a house that costs over half a million dollars and it's like a double wide trailer. That the quality of life is lower. Our cars aren't as nice. Our roads aren't as nice. We don't have Amazon dropping stuff off to us an hour after we order it. Groceries are expensive. Gas is astronomically expensive. Everything's expensive, but the lifestyle is better. We have cleaner air. We have cleaner water. I can swim in streams here and not get poisoned by forever chemicals. We have healthcare. We don't have to worry about it. We have pretty progressive laws that protect kids and women and the elderly.

We have government pensions. There are things that make life here better, but day to day it's harder, but you have to just sacrifice a lot. I will tell you we've recently experienced a net migration loss. A lot of Kiwis, Kiwi citizens, can go to Australia because we're actually technically part of Australia. No Kiwi wants to admit that, but we are. When you're a citizen of New Zealand, you can go to Australia with no visa and just start working right away. And a lot of Kiwis are leaving. We had a net migration loss of like 150,000 in the last six months. It's not good, we're having a brain drain.

...cost of living and salaries and also New Zealand.

I mean, it's expensive to live in those cities, but there are other places you can live. It's actually on par with Auckland, but your grocery bills are lower and you get paid a much higher salary. A lot of that has to do with New Zealand having engineered a recession on purpose because when inflation hit America - people are going to hate me for saying this... Yes, things are expensive in America, but, I almost feel like you're finally paying for things at the right amount in America, but now we need wages to catch up. You can fight me on that. A lot of people will say that's not true. In New Zealand, we had already been paying those high prices and now inflation on top of that. And it just got so out of hand that they actually had to jack up the interest rates to like 8%.

And that affects people's mortgages and I won't get into that, but basically we don't have 30 year fixed mortgages, our mortgages refix every couple of years. So I saw my mortgage payment go straight through the roof and now it's starting to creep back down. It was like two years of real pain and then New Zealanders were like, that's it, we're going to Australia. This is ridiculous because Australia didn't have the same interest rates and they're not in an engineered recession. I'm not saying it's all honky-dory over here.

Well, let me back up by actually saying a couple of things. Number one, I'm not a banking expert. I say this through my book. I am not an expert. I put that disclaimer in everywhere. The other thing is practical advice, real everyday stuff. Talk to your financial advisor first. But the other thing I want to say is, my book is not a licensed immigration advice book. I am not a licensed immigration advisor, so legally I cannot tell people how to get into this country. You can do that on your own, or you can hire a licensed immigration advisor or lawyer to do it with you, but I just want to clarify that. Do not pick up my book for tips on how to do your visa application. I'm not allowed to say anything about that. This is more day-to-day living as an American.

Yeah, totally. Now let's talk about the housing. So first of all, if you're an American moving here, I don't think you're legally allowed to buy a house until you've been in this country for a couple years.

You can't do either. You can get a car loan, you can get a personal loan for a car, because everybody might need a car loan to get a car here, unless you have the money outright. But to buy property here as an American, you have to be here for a certain number of years, and I think you have to have at least a residency visa. And that's because we had a big problem in 2014 and 2015, with speculative buyers from China, mostly, and also some other people around the world just buying properties in Auckland and in other parts of the country like Queenstown, sight unseen and just calling during auctions and jacking the prices up of houses to like millions of dollars above what they were actually worth and it completely screwed over everyone.

Because no one, like normal Kiwis living here, couldn't afford it. When Jacinda Ardern got into office, the labor department...sorry, not the labor department, the labor party of the government clamped down on that and said, if you're not a resident living here for a certain number of years, you can't buy a house. And it did cool the market a bit, but then COVID happened and it all just went crazy again. That's why, if you're an American, let's say you move here for several years, you love it. And you're like, I want to live here and buy a house here. I actually have a friend of mine who has been living here for several years. She's a nurse. She moved during the pandemic to be here with her three kids and they just bought their first house. So I'm very happy for her. Mortgages are not fixed. A lot of Americans, that scares them and it should a bit. You have a 30 year mortgage, but your mortgage rate refixes depending on how long you made that mortgage for. And it's actually super easy. I had a house in the States and the paperwork I had to fill out and try to understand was like mind boggling. I manage my mortgage on an app here. I can change whenever I want how much more I want to pay.

But maybe we're having a rough month, I don't get as many music gigs or I've been sick and I can't teach, I can actually reduce a little bit how much I pay week to week. They let me do that. So we chose a two year fixed mortgage and it's just about to renew in November. But you don't have a crystal ball. So people are like well, I bought my house in 2020 at 2.5% interest. That's so low. But then when inflation went crazy and they jacked up the interest rates overall, in two years, if you had fixed your mortgage at two years, you went from like a 2.5% interest rate, which is what we were at, up to 7.5%. And you were stuck at that until it cycles over. I saw what was going on in 2022 and went, okay, we're going to fix for two years and we're going to get the best rate we can and the best rate we could get was 5.5. We went from 2.5 to 5.5, and I was like, ugh, okay, time to take on more students and play more gigs, and no more dinners out. That's just what you have to do. They finally cut interest rates for the first time since 2020 or 2021. So now we're creeping down and I'm hoping that I won't have to pay more than 5.5 when I refix in November.

That is the biggest thing Americans are scared of. I used to own a house in America and I paid 5.5 %. I was stuck at that for 30 years, but I had a split mortgage where the 20% mortgage was stuck at 10.5 % and we bought nine months before the GFC. Our house was underwater and the banks would not let us refinance at lower rates, even after the interest rates had gone down. Because remember, after the GFC, interest rates are around the five-ish mark, five, six percent mark. And then when the GFC happened, what did they do? They lowered interest rates to try to stimulate the economy. I didn't benefit from that interest rate lowering because my banks had basically held me and my husband over a barrel. Why would they refinance us? It was unfair, so unfair. I remember that.

And when Kiwis complain about the fact that, I'm stuck at this interest rate for two years and I'm mad. I'm like, yeah, well, at least you can change it in a couple of years. You're going with the market here. We tried to refinance multiple times and the banks were like, no, no, no, no. One time they were like, no, you're self-employed, you don't have a business certificate, a business license to operate in Maryland. I'm just a kid's music teacher, do I really need a business license for that? Yeah, so, we're not going to approve you for your refinance because of that. I'm like, I'll give you all my tax paperwork. They're like, no. So it's just, there's a fairness differential.

There's a couple things. Number one, there's actually no buyers real estate agents here. You can pay outright someone to be your eyes and ears, but basically I was just tracking all of the home listings myself and it took me four months to find a house that was suitable enough for us and in our price range. So right there, that was tricky.

Basically, the process is if you were to buy a house, the first thing I recommend that you do is go to a mortgage broker. They're free and they will pre-qualify you with a couple banks for up to how much you can afford based on your income. That's what we did. We got pre-qualified, which I know they do in America too, and that gives you a three month window to find something. And that was helpful to us. So we know how much we can afford now. And this is how much our repayments would be if we got a house for this much money. Then I found a lawyer. You would think that the lawyer is the opposite. In America, you would go find a real estate agent to show you around. They don't have those here, buyer's agents, unless you pay for them. I found a lawyer, then I did all of the paperwork upfront and I didn't have to pay her. She gets paid when we settle. So, I was careful about how much time I was taking of hers. And so whenever I found one place, we didn't end up buying it, but I sent her the paperwork. It was an apartment and she found some problems with the body corp and some issues with the certificate of compliance on the building. And she goes, you cannot live here. It's not safe. You're going to end up tens of thousands of dollars to fix their leaky basement if you buy this place. And I was like, thank you for catching that, okay, won't buy that. Found this house. She looked over all the paperwork and then she said, okay, everything's good. She handled all the paperwork for us, found a couple of hiccups, and fixed them for us. And then we went to settlement with the seller's agent and with our lawyer.

And then there was a lot of midnight emailing between our mortgage broker, making sure the bank would approve us for this amount, and the lawyer. It was very much a DIY and I'm very proud of myself. I feel like I did a lot of adulting those four months. It was intense, but I had also bought a house pre-GFC in the States and that was also intense and we got screwed over by our mortgage broker. So I've seen both sides of this and I'm not saying that it's better here. I've heard of bad things happening in this country, people buying houses that actually ended up having secret issues that the seller's agent knew about and didn't divulge. You need to get a pretty iron-clad home inspection here. So that was a lot of information, but it's a big topic.

I saw that, I have no clue what's gonna happen, but that's very fascinating to us.

Oh, yes, my favorite five letter word!

I want to be careful about how I talk about this. I came at the end of 2013, beginning of 2014, and I think that was right around the time FATCA got initiated.

Yes, so when we went to sign up for our bank accounts, they didn't ask us for anything. They asked are you living here and do you have visas? And we said yes. Do you have a job? Because we need to make sure that they can pay you into your bank account. My husband says, yeah, I got a job. Okay, here's the paperwork. Now it's changed. I cannot personally talk about how it's changed on the New Zealand side because I haven't opened a bank account here. I got a mortgage. We actually had to open a bank account because we needed to open a checking and a savings account for the mortgage lender because then we just put money in that savings account, and then it goes to pay off our mortgage loan. And they didn't ask us for anything there either. But, I will tell you that at the time we were permanent residents of New Zealand and then we became soon after that citizens. It could be that because we weren't on visas, it didn't matter. They didn't care because we were technically Kiwis at the time. And we are now. What I can tell you is, that I've heard through the grapevine Americans having trouble, but I've actually had more problems personally as an American living abroad with the US banking system.

It has been a nightmare. I don't want to go into all the problems I've had because I could go on for days about just how angry I am and how many times we have been screwed over as second class citizens. I'm still a citizen of the United States. I still file my taxes because I have to and I have to adhere to all banking laws. I don't understand, don't know what it is, man. If you are a United States citizen and you're gonna move abroad, I'm not advocating that you break any laws, break any rules. Just don't change your address. Don't change your address to overseas. In my opinion, I'm just here for an extended vacation. This has repercussions for IRAs, 401Ks, 403Bs, savings accounts, everything. Just be careful what you do. I'm not advocating for breaking any laws, but actually I don't think there is a law saying that you can't live abroad while having a bank account.

State Department Federal Credit Union. So the State Department Federal Credit Union existed already for people who worked for the State Department and people who worked in the federal government overseas. People like civil servants who worked for the ambassadors, they go overseas and they're doing diplomacy or they're sent overseas for national security reasons or things like that. And those Americans worked for the government and they created this credit union for them. Then what happened was the American Citizens Abroad, a nonprofit organization, the ACA, coupled with the state department federal credit union, few years ago to open up opportunities for banking and IRAs to American citizens living abroad who did not work for the government or just normal people.

And when I found this out, I was like, yay, this is great. Now I have to say something. I have been going through their website. I've been going through their IRA opening process. I've been going through trying to tie my external bank account to my State Department Federal Union account so that I can send money, with a cross-bank transfer. It's kind of antiquated, you know, it's run by the federal government. So I would say that they're not the most cutting-edge credit union or bank, but what I will tell you is that when I call them, they're very nice and I get a human, even if they don't give me the answer right away. I can at least email them. It was a long drawn out process it's a good option.

It's a good option. And you can have an IRA and thanks to you Alex, you helped us with figuring out like we have to file foreign tax credit on our taxes, not foreign earned income exclusion in order to put money toward an IRA. Is that correct?

Right, right. And this is why y 'all need a tax accountant like Alex and expat tax professionals because it's so important. Because if you get it wrong, you can really get it wrong. I wanna mention one other thing about pseudo banking in New Zealand. I mentioned this in the book and I know you have talked about it with lots of your clients. KiwiSaver is not great for Americans. I would be very careful about KiwiSaver if you move to New Zealand or if you're already in New Zealand watching this. Americans, listen to me, if you're in New Zealand and you're watching this and you have a KiwiSaver, you need to figure that out. You need to really look at that. That's, that is like a minefield.

Uhhh... Always.

Right. Depends on your personal... We looked at doing KiwiSaver and doing the compliance and the paperwork and all that. And at the end of the day, my husband and I just don't make enough money to warrant it. So we opted out of KiwiSaver before we even got it. And that actually saved us. But I cannot say the same for other Americans who had no clue when they got a job that when they were offered KiwiSaver that they should have done their own homework and decided whether or not they wanted to do it. They just said, yes. I know a couple Americans opened it for their kids. And like they're on the hook for thousands of dollars of compliance filing a year because they have to do it through an accountant. And it's like, wow, but you know, there are options for retirement. On the US side, now with the State Department Federal Credit Union and their IRAs, you just got to make sure again that you're filing federal, no, sorry, foreign tax credit.

Yeah. Yeah, it's true. It's absolutely true. And you got to do your homework. And you know, if you pick up my book, I go into some of this stuff, like on the surface, just to try to warn people. Another thing that's really big on the tax side is a lot of self-employed people in New Zealand. If you're a sole trader, it's basically a sole proprietor, you still have to pay 15% social security tax. I met a girl who had been running her own business as a sole trader for like almost 10 years here and I broke that news to her at an American's dinner and she looked like she had seen a ghost. She was like, wait a minute, I've had to file my taxes the whole time? Yeah. And I owe 15% social security tax? Yeah. And I was like, you need to call an expat accountant stat. You need to do it now and she had to do the streamline process. You just don't know what you don't know. And this pertains to whether or not you live in New Zealand or some other country as an expat.

Yeah, and this comes up more often than you think for people who you wouldn't think of as entrepreneurs. For instance, I have a friend who works in the medical field and she's been asked to do once a week for some pediatric work because they're really short staffed and she's qualified and they say, okay, and she goes, what do need to do for taxes? And I said, US taxes. And I said, well, are they paying you in full and then you have to pay the IRD your tax, or are they setting you up in their payroll system and they're paying the IRD, which is the New Zealand version of the IRS. Are they paying the IRD your taxes? If they do the former, which is they're paying you in full, you're an entrepreneur at that point. Now you owe 15% of social security tax. And she's like, I don't know if they're withholding my New Zealand taxes. I said, you need to become a contractor. Go ask them to withhold your taxes for New Zealand and then you do a much easier form for America. And you don't have to pay the Social Security tax. I said be careful. She doesn't see herself as an entrepreneur, but she could have accidentally become one just by accident.

Come by anytime. We are like Australia but with all the things that can't kill you like snakes, spiders, white sharks. We're starting to get a couple of the great white sharks but there are not that many. We don't have oppressive heat.

Yeah, I'm not interested at all. I haven't been to Australia yet and I've been living with a three hour flight from it for the last ten years. I want to go. I have friends that live over there so we could go over there and visit. I have a friend who just went and I said, did you see anything scary? She's like, I was just walking down the street and there were just bats. Huge, humongous bats over my head and I'm like, no thank you.

No, she thought it was, first she thought it was a seagull, then she looked up and screamed. It's like, okay. But yeah, but as far as doing your homework and like you said, being prepared, there are a lot of really good resources out there. First of all, this podcast is great, and other podcasts like it. Reddit has a lot of really great threads. There's also a lot of really good Facebook groups. There's this really good group called "Two Fat Expats". I don't know why they call themselves that.

I think they started as a podcast and then they added on a Facebook group where you can ask questions and you can use the search. What's really good about these groups is you can use a search function, just a magnifying glass icon to just search keywords. So if you're curious about KiwiSaver, just go into any of these Facebook groups and just type in KiwiSaver or type in, you know, like self-employment tax or social security, or just use that search function. And then you don't have to ask the question again, because it's probably already been asked. You want to make sure that it's timely. You don't want to take a post from like 2015 because the laws may have changed. But, you know, and you can talk to people. So I find that to be very, very helpful, as well as the reason why I wrote my book, because I feel it's a very specific need. For at least my country.

Buy my book! Buy my book! No, just kidding. Just kidding. One piece of advice for someone who's interested in moving to New Zealand?

It's like a two pronged, try to visit first. Try to visit first.

Tall Poppy Syndrome. I go into this in my book, toward the end of the book. Tall Poppy Syndrome is a phenomenon that doesn't just exist in New Zealand, but it exists here, the UK, a bit in Australia, Ireland. It's a British-ism kind of thing, because we are still part of the commonwealth, like the Crown. Like we're still part of England and Great Britain, which a lot of people don't know. Tall Poppy Syndrome is like the Americans kryptonite. Okay. So what it is, there is this tall poppy. So think of a field of poppies. They're all uniform and height, right? So think of that famous scene from "The Wizard of Oz". It's just a field of poppies and all of them are the same height. And then if there's one tall poppy, you can see it more. And Tall Poppy Syndrome is a real phenomenon that has been studied in sociology where they cut you down to size. Now, the reason why that is, is because the UK, Australia, New Zealand, like all of these like different places that are a part of the British crown are very egalitarian. We have universal healthcare for everyone. We believe more in fairness. We believe more in, rather than pull up yourself by your bootstraps and work your ass off and work 80 hours a week, we prioritize work-life balance. So, you know, like I'm gonna work hard, but ask me for too much and that's gonna cut into my fishing time. I'm not gonna do it. Don't ask me, okay? I go to the beach, okay? Like this kind of concept of like everybody is treated fairly, everybody gets all this. But the minute that you as an American come in and say, I can do this better or hey, look at me, I'm awesome, it ends up like you will actually be told off in person or you'll be cut out of circles and blacklisted. In a country of 5 million people, that is death to your career. Like it's too small. People know everybody else. Like Jacinda Ardern, the former prime minister, I'm like one degree of separation from her. I know her kid, I know her nieces. It's like, it doesn't work like that here. So what does that mean? You just gotta be careful when you get here. Americans have this American exceptionalism baked into our psyche.

America is the best and everything we do is the best and yeah, okay, sure. We landed on the moon. We conquered the Nazis. But look, y 'all haven't even figured out how to offer maternity leave. Y'all need to just take yourselves down a notch and maybe listen more than talk. It's taken me a long time to assimilate in this country and my American-ness comes out more around my American friends who I have the majority of my friends here are American. When I'm around Kiwis, I turn into a completely different person. I'm quieter. I listen more. I don't pat myself on the back. I don't even pat others on the back. It's weird. It's like if you give too many accolades to people, they think that you're tall poppy-ing the other person. It's weird. Now I'm not saying that across the board because you can stereotype and you can like generalize. So I don't want to do that, but I have seen Americans here do that and it can harm you, but it also harms Kiwis.

So you know Lord, the singer, she's from Auckland, she's a Kiwi. And she won Grammys and got uber famous, and then when she got back here to stay with her family after her world tour, people started shitting all over her. Part of it's sexism, part of it's sexism, part of it's, you know, like ageism because she was young. New Zealand, in a way, they celebrated her for a while and then they like, a little bit turned on her and that's just like, because she kinda, she exuded this I'm hot stuff kind of thing, but I don't think that she was drinking her own Kool-Aid. I don't think that she thought that she was amazing, but at the same time, girl, you worked your butt off to get where you are, so you should be proud of yourself and that's sort of like, a cultural difference that think Americans do not understand.

And look, my husband works for a company that was started by Kiwis that has the CEO as a Kiwi and has a lot of Kiwis working for it. But, also have a lot of immigrants working for it. So it just depends on where you work and where you live. But, you know, I would say like the sooner you can assimilate the better. Like they say, when in Rome... If you're here and you complain about how you can't get a decent iced coffee. Cause you can't. Just clarifying, you cannot get a decent iced coffee here. Don't complain, you're in New Zealand. Just, you know, go have a flat white and be happy with it. I don't know. But at the same time, I will say I'm a go-getter. I'm a type A personality, I'm a go-getter, and I'm an entrepreneur. I work hard, I have an American work ethic in me. And I will tell you that there is a reason why I am one of the longest tenure music teachers at my private music school because I stick it out and they value the fact that I work and go the extra mile. So I wouldn't say that they're cutting me down because they love my work ethic. So Americans have that to bring. You just have to be careful that it doesn't seem like you think you're all that while doing it. You don't want to be patronizing while doing it.

Yep. Yep. Thank you.

That would be great! Yeah, absolutely. And come visit me anytime and bring your family. We have hobbits here. We'll show them to you. Thank you.