This article was published on 29 November 2014. Some information may be out of date.

Q&As

  • Do landlords take advantage of others less fortunate?
  • How KiwiSaver members are protected from losing their money
  • Inland Revenue got it wrong last week about interest deductions on family loans
  • Meaningful Christmas gifts

QAs a society, how did we allow residential property to become just another investment asset class? And, how did we come to admire people who have become wealthy through investing in multiple residential property ownership?

I hear residential property investors claiming, “We’re only saving for our retirement”. Correction — you are using people who are poorer than yourself to save for your retirement. And you are doing it by depriving a family of home ownership for every house you buy, gaining advantage from tax breaks that are not available to homebuyers who just wish to live in a property.

That is not an admirable thing to do. In fact, to take advantage of others less fortunate than yourself is a despicable thing to do. Mary, with respect, you need to grasp this ethical issue “nettle” and comment on it.

AOn behalf of all the landlords out there, ouch!

There are several counter arguments:

  • At different stages in people’s lives they either take care of their own needs or they buy products and services from others. Some own a car or bike while others use taxis or public transport. Some grow lots of their own food while others buy it all. Some entertain themselves with friends and family while others spend hundreds of dollars on nights out. Similarly, some own their own homes while others rent.

    In all these situations, someone makes money out of providing the product or service. Are they all baddies? Nobody forces anyone to buy from them.

    And while some landlords are undoubtedly exploitative, others are reasonable. It’s not uncommon to hear a tenant say they have a good landlord.

  • If we banned people from buying houses to rent out, at first glance it seems that would reduce demand for houses and push down prices, so more people could buy their own home. But how would we accommodate people who still couldn’t afford to buy? Should the government house all of them?

    If it did, it would have to buy up many houses, so total demand wouldn’t fall after all. And there would have to be a huge hike in taxes to cover the costs — which in turn would hurt people’s ability to buy their own home.

  • Not all tenants are poor. Some just expect to move elsewhere soon. And these days, an increasing number of people who could afford a home have chosen instead to rent. As long as they reach retirement with enough savings to cover their accommodation for life, this is a perfectly reasonable thing to do. They couldn’t do this without landlords.

Having said all this, accommodation is hugely important to people’s happiness and security. And if a landlord turns out to be unreasonable, or if he or she kicks out perfectly good tenants because the landlord wants to move in or sell the property, it’s often not easy for the tenants to move — especially if they have children in local schools.

Every landlord should keep in mind the power they have to affect their tenants’ lives. The disruption to tenants who have to move is far more than any other withdrawal of a service I can think of. I suppose that’s why we have the Tenancy Tribunal, which I understand gives a fair bit of protection to tenants. But still, tenants are sometimes treated shabbily.

You also make a good point about tax. It’s fair that mortgage interest, rates, insurance and so on are tax deductible for landlords. They need to be subtracted from income earned, just as in any other business. But capital gains — whether on property or shares or anything else — should be taxable.

New Zealanders had the chance to introduce a capital gains tax by voting Labour in the last election, but look what happened. I hope that’s not the end of that idea.

In the end, it’s each person’s choice as to whether they admire those who get wealthy through rental property. Clearly they’re not on your list of heroes. And I can’t say anyone makes it onto my list by being a landlord.

QWhat protection do I have from trustees or directors taking my money out of my KiwiSaver scheme for their own purpose? I would appreciate it if you could let me know.

AQuite a lot.

“There are a number of legal protections KiwiSaver investors have against managers or trustees (supervisors) taking scheme members’ money for their own personal use or benefit,” says a Financial Markets Authority (FMA) spokesman. “These are set out in the KiwiSaver Act and the trust deed governing the KiwiSaver scheme.”

The first protection concerns the trustee, which will be known as the supervisor from this coming Monday, December 1 — so we’ll use “supervisor” here. The supervisor is a separate firm from the KiwiSaver scheme. It must be licensed by the FMA and “has first responsibility for oversight and monitoring of the manager,” says the spokesman.

“A KiwiSaver scheme is also required to be audited by an independent and licensed auditor. In addition, the FMA has regulatory oversight of all KiwiSaver schemes.”

What’s more, under the Financial Markets Conduct Act, which comes fully into effect on Monday, “the accountability and duty that managers owe scheme members is increased, as well as the supervisory responsibilities of the supervisor. Both the manager and supervisor have overarching duties to act in the best interests of scheme members and to act with a professional standard of care.”

Also from Monday, the manager will be licensed by the FMA.

The spokesman adds, “Custody of the scheme assets must also be held by a party independent of the manager (which can either be the supervisor or an appointed custodian) who will hold the assets in a trust.”

Finally, “If there is any misuse or misappropriation of scheme members’ funds by managers or supervisors, this can be pursued under the law.”

In other words, it’s the job of quite a few different people — coming from different angles — to keep a close watch on your KiwiSaver money and the people handling it. There are no guarantees, but lots would have to go wrong for your savings to end up in South America.

QI’m a tax accountant with PricewaterhouseCoopers. The Inland Revenue’s response in your column last week may not have been based on the correct set of facts.

Where the parent lent the money to the children and charges them interest, then the private limitation is not applicable as far as the parent is concerned, as charging the children interest takes it outside of the private limitation.

Maybe the Inland Revenue was thinking of the son in their response, as I will agree that the son will not get a deduction for any interest paid on a loan taken out to fund their university studies.

AThanks for writing — to you and another reader. You’re quite right.

We’re talking here about a parent adding to their mortgage in order to lend to their student child, and charging the child interest.

It’s not disputed that the parent should declare the interest they receive from their child as income. The issue is whether the parent can then deduct the interest they pay on the addition to their mortgage.

Last week Inland Revenue said that usually “interest on money borrowed in deriving assessable income is deductible”. But you can’t deduct it “if the money is borrowed for private purposes,” which would include lending to a child.

This week, though, an Inland Revenue spokeswoman apologises and says that was not correct. “Even if the money is lent to a family member or friend, the interest will generally be deductible if it is incurred in deriving income from that loan. The private limitation will usually not apply if the money is lent at interest.”

She adds that “there will be some circumstances with such loans where the interest will not be deductible.” One consideration “may be the level of interest rates on the funds borrowed and lent”.

Then there’s the usual comment: “We strongly recommend that a person should seek professional tax advice if they are unsure whether a deduction for expenditure is allowed in their circumstances, as each individual’s case is different.”

MEANINGFUL CHRISTMAS GIFTS

Many charities offer Christmas gift programmes. You buy items for people in need that are given on behalf of your family or friends. For example, you might donate money for school equipment for children in developing countries. You receive an acknowledgement to give to your relative or friend to show what they have “donated” to the children.

It makes a great Christmas gift — more meaningful than buying stuff for one another that is often not wanted.

Each year, this column runs a list of charities that take part in these programmes. I’ve asked each one to describe their programme in 20 words or less:

  • Caritas Aotearoa New Zealand: 0800 22 10 22 or www.caritasgifts.org.nz. “Caritas Gifts of hope, life, peace and learning enable our life-changing work around the world and in Aotearoa New Zealand.”
  • ChildFund New Zealand: 0800 223 111 or childfund.org.nz/catalogue. “From blankets to bikes to buffaloes — give families the opportunity to break free from poverty with a gift that grows.”
  • Christian World Service: 0800 747 372 or www.gift.org.nz. “Double Your Giving: once to a friend or loved one and once to a family in need of a hand.”
  • Leprosy Mission New Zealand: 0800 862 873 or www.reallygoodgifts.org.nz. “Delight loved ones with Really Good Gifts this Christmas, bring the light of God’s love into lives affected by leprosy.”
  • MEND: Mobility Equipment for Needs of Disabled. [email protected] or www.mend.org.nz. “Help MEND give life-changing help to disabled people in developing countries through surgery, mobility and hearing aids!”
  • Save the Children New Zealand: 0800 167 168 or http://shop.savethechildren.org.nz. “You can help families earn a living, or ensure children receive education, healthcare, toys, food or clean water.”
  • TEAR Fund: 0800 800 777 or www.giftforlife.co.nz. “TEAR Fund’s Gift for Life; an exciting range of unique charity gifts including goats, seeds and storybooks.”
  • The Fred Hollows Foundation NZ: 0800 227 229 or https://www.hollows.org.nz/gift-of-sight. “Give your loved one a Gift of Sight card and help restore sight to someone for $25.”
  • UNICEF New Zealand 0800 537 739 or www.unicef.org.nz/survivalgifts. “UNICEF Survival Gifts are real lifesaving gifts, starting at $9. Join thousands of kiwis and give the gift of life!”
  • World Vision: 0800 24 5000 or www.worldvision.org.nz/smiles. “This Christmas choose a life-changing gift to make everyone Smile.”

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.