NZ Herald 9 November 2024

ANew Zealanders can be obsessive about owning a home. You can do fine financially without ever having a home, provided you save seriously — perhaps investing the difference between your rent and what it would cost to own a home — to cover accommodation costs in your retirement. In some parts of Europe, most people rent for life.

However, there are good arguments for home ownership, particularly for families with children. While new build-to-rent properties are giving us more long-term leases, most leases are still short-term. And it can be really disruptive for kids to be moved frequently — to new neighbourhoods and schools — because their landlord wants to sell their home or put friends or family into it.

Also, in your own home, you’re free to decorate and make alternations. You have more control over your environment.

Your gripes about your current place are fair enough. But how about saving hard so you can move somewhere larger, with land around it? Or you might find a place for about the same price as your current home but further from the CBD. Sure, that would mean a move for your child, but just the one move. You could then do what you want with the yard, without a landlord selling just when you’ve developed a garden.

There’s another issue here, too. Generally, it’s best not to try to time the property market — buying when prices are low and selling when they are high. Markets are too variable and unpredictable. But still, this doesn’t feel like a great time to sell when you’re not also buying in the same market.

From January 2022 to May 2023, average NZ house prices fell 16.4%, according to QV. They’ve since fluctuated, but they are still down 15.2% from their 2022 high.

P.S. I can relate to your desire for a bath!

AGood on you for setting up the fund. Your partner is right — it might as well be taxed at her rate.

One thing worries me, though. Money in a balanced fund, which probably holds lots of shares and bonds, can lose value considerably at times. What if you need to withdraw during a downturn?

I suggest you move at least half the money to a cash fund. Or, if you put emergency spending on a credit card, a one-month bank term deposit can work well, as the money can be accessed by the time you make the card payments.

AI presume your concern is that you would own two homes for a while, and so one could be deemed an investment property. But I’m sure there would be an allowance for this common situation.

The Tax Working Group’s 2019 report — if we use that as a model for what we might do — says, “Where a person, or a person and their family living with them, purchases a new home but has not yet sold their original home, both properties should be excluded homes for up to 12 months while the original home is held for sale.”

AYour idea has merit. Trouble is, people often have to move homes after just a short period because they are promoted, lose a job, need to be near family to support someone or be supported by someone, are struck by flood, landslide or earthquake, go through a relationship breakup — or have quintuplets.

Many of these scenarios are not good news. Would it be fair to tax these people harder when they are down?

AThe big problem with taxing the family home is that it would make it difficult to move. By the time your gain was taxed, you may not be able to afford a new home of similar value, let alone a bigger home because your family has grown, or a home in a more expensive area because you’ve changed jobs.

Still, you make some good points. In your example of someone renting out their home for two years, that could be allowed for. Let’s say they owned the house for seven years before selling. They could be taxed on two sevenths of their gain. It would still be worth renting out the property. In your other scenarios, it’s not so easy.

But, as I keep saying, New Zealand can look at how other countries cope with these issues, and learn from the best.

AThem’s fightin’ words about teachers, who have huge responsibilities for the education and wellbeing of lots of kids. But I’ll leave it to a teacher to perhaps answer you next week (in less than 200 words please!).

On your first condition, see above on family homes. Collectibles? Hard to enforce, but yes in principle. Yes to inflation adjustment. Yes to improvements and losses.

But you’re not correct about GST. It was introduced in 1986 by the Fourth Labour Government. Two years later they slashed the top income tax rate from 66% to 48% and, a year later, to 33%. Meanwhile, corporate tax dropped from 48 to 28%.

If we were to introduce at CGT, I would be really surprised if the Government didn’t cut income tax rates to encourage acceptance of the new tax.

On Lotto, read on.

Okay, I’m starting to feel a bit CGTed out, and I bet many readers are too. We’ll continue the discussion in the next couple of columns with some good letters I’ve already received, but no more please.

AThat’s a fair point about tax already paid. But I’ve got a couple of quibbles with your US info. Firstly, state tax rates on winnings vary widely. Also, as Investopedia says, “There’s a bit of good news here. If you itemize your deductions, you can deduct gambling losses up to the amount that’s offset by your winnings. You must be able to prove the numbers with records of your winnings and losses.”

Another reader made a similar point to yours about the Lotteries Commission already paying tax. And, he added, “Seems to me the 25% for the Lottery Grants Board is a form of tax which is used for grants that would otherwise be funded from general taxation. For example most of Creative NZ’s funding is from this source.”

I’m not going to die in a ditch over this. It does seem to me, though, that if you win $100,000, and a chunk of tax is immediately deducted, you’ll still be happy. You’ve got a lot more than you had yesterday.