NZ Herald 16 August 2014

AHave you really got a Rembrandt? I’m impressed. Anyway, rest easy. Personal assets and collectables would be exempt from Labour’s proposed capital gains tax.

The party’s website gives the following broad outline:

“Labour will introduce a capital gains tax, excluding the family home, so that people who make money speculating on the housing market and other assets have to pay tax on that income, just as people who work for their income do.

“The parameters of this policy are as follows:

• Rate: The CGT will be set at a simple low flat rate of 15 per cent with no indexation for inflation.
• Gain: The tax will be applied to net gains.
• Exemptions: The family home, personal assets, collectables, small business assets sold for retirement and payouts from retirement savings schemes, including KiwiSaver, will be exempt.
• Scope: The CGT is broad based and comprehensive.
• Implementation: The CGT will be forwarding-looking and only apply to gains accrued after implementation. Past gains will not be affected.
• Point of Taxation: The tax will be applied on realisation. In most cases this will be the point of sale.
• Treatment of Gains at Death: Capital gains on inheritance passed on after death will be rolled over to the heir, and not payable until the gain on the asset is realised.
• Trusts: We will ensure trusts are not used as a means of avoiding a CGT.
• Capital Losses: Losses can be carried forward and offset against future capital gains.
• Treatment of traders: Assets currently taxed at the individual’s marginal or at the business tax rate will continue to fall under the existing regime.
• Expert Panel: An Expert Panel will be established to deal with issues that are technical in nature and involve areas where a high degree of specialised knowledge is required before a final decision can be reached.”

I’m sure you’re right that a capital gains tax would boost the demand for accountants and valuers. David Parker has said people would be able to establish the value of their taxable property on the starting date of the tax by choosing one of:

• The most recent government valuation for rating purposes.
• The purchase price in a recent arms-length purchase.
• A private valuation done at the owner’s expense.

If you’ve owned a property for a while and its value has risen since the last government valuation, you’d probably choose the third option.

I also agree that capital gains taxes in other countries are often complex. If we get such a tax, here’s hoping New Zealand will learn from other countries’ mistakes.

There were quite a few Q&As about Labour’s proposed capital gains tax in this column in August through November last year, after the policy was announced. You can find them by searching for “capital gains” on www.maryholm.com.

AHmmm — not good provider communication. A Grosvenor spokesperson apologises and answers your questions. Firstly, why did they need to know where you’ve lived for the last three months?

“KiwiSaver providers are subject to strict identity verification rules, in line with anti-money laundering legislation. However any members who joined the Grosvenor KiwiSaver Scheme prior to these rules taking effect may not have had their identity verified to the new standard,” he said.

“In those cases, we take steps to verify members’ identities when they apply to withdraw their funds, and confirming their residential address is part of this identity verification process. To do this, we ask for a certified copy of a bank statement, utility bill, rates bill or IRD statement showing their address, and this document must be less than three months old.”

Fair enough. But why does it take 30 days to process your claim?

A withdrawal of all your money may take up to 30 days, he says. “In practice it typically does not take this long.”

One reason for the delay is that Grosvenor sends a request to Inland Revenue to pay you any outstanding tax credits. This can take up to 15 working days. “Once these funds have been received from Inland Revenue, we complete the closure of the member’s KiwiSaver scheme account, and the final balance is usually paid into the member’s nominated bank account that same day.”

The spokesperson adds that they can’t start the process until you become eligible to withdraw your money.

Your final balance is calculated on the day Grosvenor closes your account, and includes any interest or other returns earned in the meantime.

A final comment on your saying that by the time you can withdraw the money, it’s yours not the provider’s. It’s always yours!

AIt does seem unfair that you could have received the UK pension if you had made a different choice — something you couldn’t be expected to have realized at the time.

Still, I suppose the line has to be drawn somewhere, and there’ll always be people just over the line who are unhappy.

Maybe you can take comfort from the fact that your UK pension applied to only three years, so it probably isn’t a huge amount of money.

And — if it helps — I’m in a similar position. I won’t benefit from the US Social Security payments I made for more than ten years. We can both cry, or we can both get over it, or… read on.

AYou make a good point. Perhaps where another country — such as Canada — has two schemes and one is more like KiwiSaver than NZ Super, that money shouldn’t be clawed back. That might apply to the previous correspondent too.

Hey, it’s election time. Start lobbying!

ACome now. Rock star economies — and even ones that aren’t quite rocking — don’t sink beneath the waves. Money can be moved around without shipwrecks.

On your point about term deposits, Peter Neilson of the Financial Services Council — one of the drivers of the Fair Tax for Savers campaign — says, “Yes, term deposits do earn compound returns, so they are overtaxed by both high effective tax rates on the compound returns and from paying income tax on the part of interest which compensates for inflation and is not economic income but a return of capital.”

“However, for term deposits the effective tax rate on compound returns caused by overtaxation is of far less significance.

“The two drivers of effective tax rates are:

• “The tax rate being paid on investment earnings, which reduces the after-tax earnings that can be reinvested each year.
• “The length of time the compounding (earning interest on interest) goes on for.

“For KiwiSaver the period of compounding to age 65 can be up to 40–45 years. For term deposits the term is typically 90 days to 5 years,” says Neilson.

Because of the much shorter terms, the campaign proposes that only the return above inflation on term deposits should be taxed.

On whether the choice of KiwiSaver fund is more important than tax, Neilson agrees that it is.

“The work the Financial Services Council commissioned with Infometrics showed that investment style was the biggest driver of KiwiSaver retirement nest egg balances, followed by KiwiSaver fund taxation rates and a distant third management fees.”

But still, he says, “For most New Zealanders on low to middle incomes to get to a comfortable retirement in an affordable way, it will be necessary for KiwiSaver fund tax rates to be cut, and for most of their time saving to be in growth or balanced fund.”