NZ Herald 14 May 2011

AIt’s not just my moral side that’s wary. The promotion materials you sent remind me of investment warning lists.

There’s: pressure to sign up fast; promises of receiving “insider knowledge”; and a $1000-plus ticket price — but it’s free if you sign up now.

We’re told this is not “just another ‘Hyped-Up’ seminar”. But the following hardly qualifies as soft selling:

• This will be “an international feeding frenzy for smart New Zealand investors!”
• “Here are 10 hefty reasons why you should crawl over broken glass on bare hands and knees to be in this room — no matter what.”
• People who attend will be given information that “will explode their personal fortune off the charts!”

And on the way, you get a few giggles:

• The seminar will enable you to “SAFELY Enter This RED-HOT Time-Sensitive Market Right Now — And laugh all the way to the bank!!!”
• And all you need is a “small micro-deposit that’ll probably make you laugh when you hear it.”

You’re quite right to worry about hands-off investment of this type. Everyone who works on your behalf will want their piece of the action. And you’re unlikely to be in a position to judge how well they perform.

Good on you for researching the people on the internet. That’s a good start. But the fact you found nothing proves nothing.

Ask yourself, “If the deal is that good, why are they sharing it with strangers?”

If any reader has ever gone to a seminar run by an unfamiliar organisation that led them into an investment they are happy with, please tell us about it. Let’s expand it to anyone who has been approached by a stranger — via phone, internet, mail or whatever — who led them into a good investment. I’ve asked this before, and never had a response. Funny, that.

The promo says, “This knowledge could dramatically shift your personal wealth enormously.” In which direction? I, for one, wouldn’t want to find out.

AThe government’s proposed changes won’t affect contributions you make before this June 30. The changes won’t happen until after the November election — if National is re-elected.

The issue for you now is how much you have already contributed since July 1 2010. Aim to get a total of at least $1043 into your account before June 30, because the government will match that with its tax credit — probably between July and October.

If you contribute more than $1043 in the KiwiSaver year, that’s fine. But you don’t get any incentives for that extra money, and it’s usually tied up until you reach NZ Super age — although if you lack savings discipline that might be an advantage.

Next week’s Budget will affect whether you should keep contributing in the 2011–12 KiwiSaver year. We’ll see.

ANot being a banking expert, I turned once again to David Tripe, director of the Centre of Banking Studies at Massey University.

Here’s his response: “Westpac cover the funding shortfall from deposits by raising or issuing other liabilities, such as commercial paper, borrowing from the parent, etc. Your correspondent does not seem to be aware that funding for loans can be obtained from liabilities other than those designated as deposits.”

In other words, banks get the money they lend from deposits and also by borrowing from elsewhere.

Adds Tripe, “The comment about the OCR is completely untrue. The OCR relates to the rate at which banks lend to or borrow from the Reserve Bank and has nothing to do with the creation of new money.”

New Zealand political history is full of claims and counterclaims about banks and the creation of money. We could probably fill this column with letters about it — I’ve already received several. But something tells me most readers would find this less than captivating. I’m content to give David Tripe the last word on it.

APerpetuation of myths! Brainwashing! Hang on a minute, this is just a column.

To be sure of my ground — especially after such charges — I went back to our trust expert, John Bassett of Bell Gully.

He says the alignment of the top individual and trust tax rates at 33 per cent “reduced the scope to achieve tax savings through the use of trusts.” It had been easier when trusts were taxed at 33 per cent and people at up to 38 per cent or 39 per cent.

But that’s not the end of the story. “Income may still be taxed at a lower rate if there is a trust beneficiary aged over 15 years who is not on the top 33 per cent tax rate. In that scenario income under $48,000, for example, need not necessarily be taxed at the 33 per cent trustee rate.”

This can apply in various types of investments, including rental property and PIEs, says Bassett. “The whole area of tax rates on income is one coloured more in shades of grey rather than black and white.”

On your second and third points, the government is clamping down on the use of trusts to qualify for Working For Families, rest home subsidies and so on. But — in the case of rest homes in particular — such use definitely still goes on.

When my friend’s mother recently moved into a rest home, the manager expressed surprise that the mother didn’t have a family trust — and therefore qualify for a subsidy. “Just about everyone else here has one,” she said.

On your point about builders and the like, Bassett says, “The comments concerning the use of trusts to avoid third party claims should recognise the developments which have occurred over time.

“There previously was general optimism that trusts could be successfully deployed as a defence to the inquiries of Government agencies and creditors. In more recent times attitudes have hardened. Law changes have been made and closer scrutiny is being applied by Government departments, creditors and the courts.

“Where these trends will end up remains to be seen, so it is a case of ‘watch this space’.”

In conclusion, trusts are indeed still used in the ways I described last week — albeit probably not as much as in the past. And trusts are also still being used by people such as the builders you describe — but again, not as much as in the past. More on trusts in next week’s column.

AAnd good on you for writing. We don’t know how lucky we are. Hey — that might make a good song.