NZ Herald 19 May 2018

AFirstly, a warning that people who trade shares tend to do worse than those who buy and hold.

In one study of US investments between 1991 and 2010, if you had put $10,000 into a share index fund and left it there, your return would have averaged 7.7 per cent and your money would have grown to $44,000. But the typical investor’s return was only 2.6 per cent. And their investment would have grown to just $16,700 — way less than half.

The difference is basically because traders make wrong calls about as often as right calls, and there are costs to trading — including tax, as you note.

If you still want to trade, the law about tax on your gains is the same as the law about tax on gains on investment property or art or anything else actually. If you buy with the intention of selling at a profit, that profit is taxed as income. And if you’re trading frequently, you would be hard pressed to argue you didn’t buy with that intention.

But I’m not surprised you’ve had trouble finding information on this. I spent some time on the Inland Revenue website and ended up asking IRD. A spokesman there confirmed what I’ve said in the last paragraph, but he couldn’t find clear language about it on the website either.

This is in contrast to good clear info about selling property — presumably because more New Zealanders are doing it, or perhaps because gains on property tend to be larger amounts.

I suspect many New Zealanders don’t pay tax on their gains on shares, but I’m certainly not saying you shouldn’t. I don’t know how vigilant Inland Revenue is in this area, and it’s not wise to be caught for not paying taxes. There are interest charges and penalties that can mount up.

This whole situation arises, I reckon, from the fact that the law is about intentions. When I first came back to New Zealand from years overseas and learnt about this, I couldn’t believe it. How do you prove people’s intentions? We end up with some people paying the tax, and perhaps feeling foolishly obedient when talking to others who don’t.

If there’s one thing I hope the Tax Working Group clears up, it’s this mess. And good luck with the trading if you insist on doing it!

AI’m always happy to run letters about KiwiSaver — even though some readers have complained in the past. There are now more than 2.85 million members out of 4.88 million New Zealanders. And many others will have adult children or parents in the scheme.

The role of employers in KiwiSaver has changed several times since their contributions were added to the scheme, 44 days before it was launched in June 2007. Employer contributions started at 1 per cent of pay, and then rose to 2 per cent, but plans for future rises to 3 and then 4 per cent were axed. Later, however, employer contributions were raised to 3 per cent.

The burden on employers was at first softened by a tax credit for them of up to $1043 per employee, but that was later cancelled.

On the government’s side, another KiwiSaver incentive that has been dropped is the $40 annual fee subsidy, which lasted less than two years. And a couple of KiwiSaver changes have boosted taxes. One is the demise of the employer tax credit, which means employers now pay more tax. The other is the taxation of employer contributions, which has increased over time.

So yes, the government is putting in less while employers are putting in more. Why? From the government’s perspective, I suppose it’s partly because far more people have joined KiwiSaver than they first expected, so incentives have seemed less and less necessary.

And we need to keep in mind that government money is taxpayer money. For KiwiSaver members, if the government puts in more, their taxes will be higher — everything else being equal — so their gain isn’t huge. And those too old or reluctant to join KiwiSaver could ask why their taxes should further subsidise members.

What about employers? Some complained when KiwiSaver started — although putting in 1 per cent of pay whilst receiving a tax credit wasn’t terribly tough for most. And since then, employers have probably tended to give smaller pay rises than they otherwise would have to compensate for the costs of KiwiSaver.

This might be wishful thinking, but I would like to think most employers are happy to see their employees building up retirement savings.

AThe winter energy payment, as it’s called, will be paid from 1 July to 30 September this year, but from next year it will start on 1 May.

Single people with no dependent children will get an extra $20.46 a week — double that in the fortnightly payment. Couples or people with dependent children will get $31.82 a week. The Ministry of Social Development says the money “isn’t considered income (for tax purposes)”.

The Ministry adds, “If you don’t want the Winter Energy Payment, you can choose not to get it. We’ll let you know how to do this closer to the time.” So I suppose you’ll hear from them in the next few weeks.

Good on you for planning not to take the money, but it might be better to accept it and give it to charity. That way you know exactly where it’s going. And you’ll get a tax credit — which of course you can also give to the charity if you wish.

AYou’re taken my quote rather out of context. I was writing generally about “capital gains on property, shares or anything else”. And for the most part, those gains just happen — not as the result of work.

Sure, there tends to be more work in property investment than share investment. But it’s hardly as much work as employees put in. If you’re working 40 hours a week on your properties, there’s something wrong — unless you own many properties, in which case you’re probably richly rewarded.

And not every landlord works on their properties. Many hire others to do that, and still make money out of their investments.

Still, if you like, I’ll change my quote to: “But the current system — with people taxed on the income they earn from work while others are not taxed on the income they earn while doing less or no work — has got to be less fair.” My point remains the same.

However, I’m certainly not wishing to see mum and pop investors pushed out of the market, just treated fairly. Despite your last sentence, I’m going to say it — most property investors have been well compensated for their efforts by capital gains.

Oh, and my bill for psychological counselling is in the mail!