NZ Herald 19 October 2024

AObviously you are over 65, and so able to withdraw that money. And it’s great you could help a relative with a short-term loan — and that they repaid it promptly!

It’s not a good idea to wait for the unit price to drop back. It might never go that low again, and meanwhile you’re missing out on what are likely to be higher returns than in term deposits. Or, if the price does drop soon, you might find yourself waiting to see if it drops further. Nobody, not even the experts, can predict what’s going to happen next.

In these sorts of circumstances — or in the case of anyone who has a lump sum to invest — I think it’s best to use steps. Basically, you want to get back into the fund quickly, to get the probably higher growth. But if you move the lot now, and the markets and unit prices drop tomorrow, you’ll be unhappy.

So I suggest you make the move in, say, three steps — deposit a third now, a third in a month or two, and the last lot a month or two later. You could use term deposits in the meantime.

This also applies to withdrawing money from any volatile investment. If you’re not in a big rush, taking it out in steps avoids the chance of selling the lot at what turns out to be a low price.

ASome New Zealanders would indeed oppose a new CGT. And if it’s introduced, they would put lots of effort into reducing their tax. But what’s new? People do that under the current system too.

Meanwhile, others would welcome the change. While a comprehensive CGT would complicate life a bit, it would be fairer.

AThat’s a really good point. In the past, other proposals have suggested taxing only items bought after implementation day. But I suppose we should assume that, if we adopt a CGT, it will be similar to the Tax Working Group’s 2019 recommendations.

The use of a Valuation Day would prevent reluctance to sell assets people had bought earlier. As the Tax Working Group said, that reluctance “would magnify lock-in effects, reduce the revenue raised by the tax and create an unfair distinction between people who bought assets before and after the introduction of the tax.”

Under the Group’s proposal, people would have five years from Valuation Day to determine the value of their assets on that day — unless they sell sooner, in which case they would have to do the valuing by then. If they didn’t comply, there would be a default rule. Inland Revenue would be encouraged to develop tools to make this easier for everyone.

By the way, the Tax Working Group also recommended no inflation adjustment to CGT. This was partly to be consistent with the rest of the unadjusted tax system. “Inflation indexing the tax system is complex,” their report says. “This complexity creates high administration and compliance costs and is the reason why no OECD country currently comprehensively inflation indexes their tax system.”

That doesn’t stop me from wishing, though. Last week I said ideally both income tax and CGT would be adjusted for inflation. There’s nothing wrong with dreaming…

AThere are ways to cope with these issues. For example, you would probably be paying tax on managed fund sales at the end of the tax year, when you “do” your taxes. So your year-end fund statements should be available then.

On long-term assets, they would be valued on Valuation Day, and the owner would keep records of that, and any share splits and so on since then. I’m sure there would be online tools to help with that.

Still, compliance costs would indeed grow, and accountants would no doubt pick up business. As I said above, that’s a price we would pay for fairness.

ASorry to suddenly shake up your confidence in the column.

On the first issue, I think the reader meant that over 65s are legally entitled to receive NZ Super. Whether it’s fair in terms of what different generations receive or will receive is another question.

But the outlook for NZ Super is not nearly as bleak as many think. The amount may be cut a bit, and the starting age may be later, or annual increases may keep pace with inflation rather than wages, which would usually mean smaller rises. But knowledgeable government number crunchers are not predicting radical change. No government would dare!

Also, current Super recipients didn’t benefit much from KiwiSaver, with its government contributions, government-imposed employer contributions, and financial regulation making it a pretty rock solid investment. KiwiSaver will certainly help younger people retire more comfortably.

There are, of course, many other factors to take into account when looking at “generational equity”. But I don’t think this column should get into all that at this stage. We’ve got enough correspondence to and fro on CGT right now, and I want to leave room for other personal finance questions.

Furthermore, we don’t need more issues dividing New Zealanders into us and them. It seems to me that most people care not only about their own financial wellbeing but also that of their grandparents, parents, children, grandkids, friends and neighbours of all ages.

On investing in shares versus rental property, yes, they are different in many ways. But much of the money invested in shares doesn’t actually end up with the company. Sure, it does when there is an initial public offering, or IPO. But after that, when someone buys a share the money goes to the seller, not the company.

Also, if NZ shares were exempt, that would encourage overinvestment in that chunk of the market, pushing up share prices artificially. So I’m not sure this is the best way to support local companies. And it works better to keep taxes as simple as possible.

Meanwhile, I think you’re too harsh on rental property investment. Landlords do provide housing for a big chunk of the population. And while some are exploitative, others are reasonable.

AYou’re referring to a Q&A last week suggesting we tax inheritances rather than capital gains. And gosh, that sounds really rough in your childhood. Clearly a new death duty would have to allow for those sorts of situations.

On government spending, it’s always easy to say some of it is wasteful. The trouble is your waste is my essential government spending, and vice versa. Having said that, though, of course it’s always good for a government to question what it’s spending on.

AOkay! I asked Rhonda Powell, a barrister whose work includes estates. “The relative can simply disclaim the gift,” she says. “He cannot be forced to accept it.”

In anticipation of your next question, I then asked Powell, “What would then happen to the gift? Presumably if the will leaves residual assets (everything not given to somebody else) to someone, they would get it. But what if it doesn’t?”

Powell’s reply: “That’s a question I can’t answer in the abstract. Depending on the wording of the will, the gift may become part of the residue and pass in accordance with any residuary gifts, or there may be an intestacy or a partial intestacy.”

Intestacy is when someone dies without a will. So if that applied to the property, it would first go to the deceased person’s spouse or partner and/or children, and failing that to another relative. If all else fails, the property would go to the government.

P.S. I don’t write the promos for the column!