Savings scheme change

Press, 26 September 1980, Page 15

Savings scheme change

The recent passing by Parliament of the Farm Ownership Savings Amendment Act ’is designed to make it easier for young people to save for their first farm or to go sharefarming. Since the introduction of farm ownership savings accounts und: ■ the jurisdiction of the Rural Bank in 1974, many young people have been helped to obtain a farm by the two schemes operated by the bank. One scheme is the “ordinary” one. under which the depositor is eligible for tax free purchase grants from the bank. The other is the “special” account, where the depositor can qualify for a tax rebate of up to 45 cents for each $1 of savings. Under the new legislation, the limit for eligible savings in one year has been raised. The time needed to save from the qualifying date to obtain any benefit from the schemes has also been reduced, and all authorised savings institutions • can now approve the opening of accounts.

These are the post office savings bank, trustee savings banks, approved building societies and an addition now is the saving banks of trading banks. , Under-the schemes,” the day a depositor has at least $250 in his account is the “qualifying date.” This is the start of the qualifying saving period. To use savings to buy stock and/or plan to go sharefarming for the first time or to buy a first farm, the depositor will need to save for a minimum of three years from the qualifying date. A- depositor may with-

draw savings and receive benefits for an approved sharefarming venture after three years and provided $250 is left in the account can continue to save towards the purchase of a first farm. In this event those additional savings may qualify for- a further purchase grant or tax rebate. ' The limit of savings that can be deposited in any . one year is increased from $3OOO to $5OOO and from $.30,250 to $60,000 in total for the “ordinary" account.

The limits on the “special” account have been raised from $4OOO to $5OOO a year and from $50,000 to $60,000 in total. This means that the maximum tax rebate that nfay be received in one vear is increased from $lBOO to $2250. However, it must be pointed out that if a depositor’s tax liability in any year is. less than the apparent rebate, the maximum rebate is limited to that amount of tax payable. .

This is an important point, which intending depositors must' consider, if they are to obtain the maximum return for their investment.

Interest earned .on an "ordinary” account —

three per cent per year — can now qualify as* part of the savings for a purchase grant. This brings this account into line with the "special” account, where interest earned has ■ always qualified for a tax . rebate, provided interest and savings for the year do not exceed the maximum allowable savings of $5OOO.

The change, under which all authorised sav-*

in.gs institutions can approve the opening of accounts without the prior written consent of the Rural Bank, will streamline application procedures and enable the depositor to make an initial deposit earlier than was previously the case. However, approval to open an account does not automatically mean that, a depositor will be entitled to a purchase grant or to retain any tax rebate received.

Before this is possible they must save at least three years and comply with the conditions of the scheme.

Basically, the three major conditions are that to qualify for a benefit, a person must be a New Zealand citizen, not have a substantial interest in land, and since the opening of the account have had practical farming experience of at least three years. The reduced savings period means ■ that if depositors are purchasing a first farm they only have to save for three years instead of the previous five. As a result of “ the changes to the farm ownership savings accounts scheme, many depositors will be now able to withdraw funds to- purchase their first farm. ’ Such depositors are urged to call on their savings institution or the Rural Bank to discuss requirements of the scheme before entering any binding agreements. Those intending to open an account are also urged to discuss the type of account and conditions of the scheme with either their savings institution or the Rural Bank.