Business

Mary Holm: Help build someone a home with your savings

OPINION:

Q: I have spare cash. Is there any way I can safely invest in a way that helps to support our country? I am not talking millions. I am talking between $20,000 and $50,000.

With people being actively dissuaded from seeing housing as a “business investment” (which is fine) there is more money people will want to invest.

Is it just best to put it in an asset fund with a good reputation, or am I missing other good opportunities to help New Zealand?

A: How about exploring the Mindful Money website? It helps you find KiwiSaver and non-KiwiSaver funds that invest in ways you like.

Among other things, you can rank the issues that matter most to you — for example, choosing to exclude fossil fuels, weapons, tobacco, gambling, pornography, alcohol, palm oil, genetically modified organisms, human rights and environmental violations, and animal testing.

And see the next Q&A which, funnily enough, concerns investing in housing, but not in the way you were referring to.

Cash for homes

Q: I’m the general manager of Community Finance, which brings together investors and providers of community housing.

We’re seeing a growing number of retail investors wanting to support the community housing sector to build more affordable homes and help to address New Zealand’s housing crisis.

Currently, the only way they can do that is through a few leading ethical KiwiSaver funds that are investing in the work community housing providers are doing around the country.
What advice do you have for people who want to do what they can to help make a difference but don’t have spare millions?

A: This is like one of those patsy questions in Parliament! And I’m happy to play along, because it seems that Community Finance is doing good work.

There are three KiwiSaver providers — which also offer non-KiwiSaver funds — that invest through Community Finance.

They are:

Generate. Small proportions of its two KiwiSaver funds that hold fixed income assets — cash and bonds — are invested in community housing, says Sam Goldwater, lead portfolio manager. “At the time of the investment it was approximately 2.3 per cent and 0.6 per cent of the respective funds.”

He adds, “we will be looking at community housing equity investments in the near future, which all three of our KiwiSaver funds would be able to invest in.”

Generate has only one non-KiwiSaver fund, and it doesn’t hold fixed income assets. But they plan to launch more non-KiwiSaver unit trusts later this year. “If future community housing bond deals stack up then yes — absolutely those funds will invest in community housing investments. The same applies for community housing equity deals,” says Goldwater.

He adds, “A lot of capital is required to address NZ’s housing crisis. By investing in community housing projects KiwiSaver members have the potential to help (typically less fortunate) Kiwis get into a safe and warm house whilst earning a satisfactory return. Generate was proud to be the first KiwiSaver provider to do this and is actively looking at other opportunities.”

Pathfinder. “About 4 per cent of our KiwiSaver plan (previously called CareSaver) is invested in financing community housing, which is likely the largest exposure of any KiwiSaver provider,” says CEO John Berry. “This is invested across each of our conservative, balanced and growth KiwiSaver funds.” Also, 4 per cent of Pathfinder’s Ethical Growth Fund, a non-KiwiSaver fund, is invested in financing community housing.

“Investors are increasingly mindful of how our investment decisions have ‘real world’ impacts. Having a positive impact cannot be achieved by just excluding harmful companies and industries,” says Berry.

“More importantly it requires actively seeking investments that generate good financial returns and at the same time help solve the world’s challenges (like social housing, renewable energy and the availability of water).”

Simplicity. “Our investment of $20 million (about 0.75 per cent of total investments) in community housing is held in our Wholesale Bond Fund, which is an investment held by all our diversified KiwiSaver and non-KiwiSaver funds,” says Sam Stubbs, managing director.

“So investing in any of our funds gets exposure to community housing, and many other ethical investments. This investment is just the start for Simplicity in affordable and community housing.”

Note to readers: while it’s great to be in funds that invest in ways that you approve of, keep in mind other aspects too. For example, you should avoid investing in a fund at the wrong risk level for you. And you might want to avoid funds with high fees.

To check on all this, see Getting a KiwiSaver WOF on the articles page of maryholm.com.

Out of the money trap

Q: Just saw your question in your last column about getting help in the money maze. We highly recommend CAP (Christians Against Poverty). Yes, they are Christian-based but don’t push this agenda at all.

They work with people who are over their heads in debt and are being constantly bullied and battered by the debt collection agencies. They do not pay their debts for them, but work with the agencies and the families to work through the debt and get them back on their feet, while teaching them over time how to manage their money.

We support them in their work. They have just been recognised by the Government and have received some funding from them.

If our PM is serious about taking care of poverty, this is the type of programme she needs to support and not just give the beneficiaries more money! (Sorry private rant there!)

A: It’s great to hear of another organisation doing this sort of crucial work. CAP, which is partly funded by the Ministry of Social Development, works alongside MoneyTalks, the organisation I wrote about last week.

“MoneyTalks refers clients who have severe money management concerns to work with CAP, i.e. clients who may have addiction, spending every cent, and desperately need oversight to ensure rent and power is paid, or families with many debts who need intensive help renegotiating lending terms and meeting repayments,” says Clare Wilson of MoneyTalks.

Tax & Super

Q: Last week you gave advice on NZ Super income vs working income being taxed. When I became eligible for NZ Super, a friend from IRD told me to use the NZ Super as my primary income and get the secondary tax rate on my wages.

I did this, and each end-of-year IRD return saw me with a lot of refund money to spend as I wished. I realise secondary tax is a burden being taken from expected wages, but it pays off in the long run. And the extra refund was always welcomed into my bank account with a big smile on my face.

A: There are various ways people set things up so they pay too much tax and therefore get a refund each year.

I don’t really get it, to be honest. You would be better off setting up an automatic transfer of, say, $20 or $100 each payday into a savings account. That money is accessible if you should suddenly need it, and it will earn interest — even if it’s pathetic these days.
But hey, if you got some big smiles out of it, good on you!

Helping home buyers

Q: My question is in relation to last week’s letter headed “Help for home buyers”. I really like what this couple did, buying a house for their daughter and son-in-law to live in and later buy.

But I’m worried that the money the young couple paid into the bank account for mortgage payments would be seen as income for the parents, and that it would be treated as if the house was rented to a non-family member and therefore subject to tax? I’d be delighted to hear that I’m wrong.

A: I’m afraid you’re right.

Says Inland Revenue, “The payments by the children to occupy the house would be taxable as rental income in the hands of the parents, less any deductible expenditure.

“If you rent your property out for less than its true rental value, for example, to a relative or friend at mates’ rates, and you still make a profit from it, the profit is taxable as part of your income.

“But if you make a loss in this situation, because the expenses of the property are more than the reduced rental income, you generally won’t be able to deduct expenses more than the amount of income you received.”

What’s more, says the Inland Revenue spokesperson, “This type of arrangement has bright-line implications if the property is sold or transferred to the children within the bright-line period.

“This is because the property is legally owned by the parents, and as they are not living in the home, they are unable to claim the main home exemption.

“If the intent was always to sell the property to the children, then CB6 may also apply, meaning it could be taxable regardless of when it is sold.” Clause CB6 in the Income Tax Act 2007 says “an amount that a person derives from disposing of land is income” if they bought the land with the intention of disposing of it.

A chartered accountant wrote to make some similar points. “Sorry but buying a house in the parents’ name and then selling to kids is subject to the bright-line rules.

“Any change in title of the property must have the IRD number of the seller and purchaser. IRD is monitoring all transactions and have written to clients advising them it appears a property has been sold within a bright-line period and they are expecting the gain declared in your tax return.

“It is my understanding parents in this situation have already had unexpected tax bills from IRD.”

On the CB6 possibility, he says, “If you tell your bank or solicitor of your intention then it will be on their files and IRD can request this information. It’s also important to have no documents of any nature recording your intention to dispose of the property.

“There is no easy solution for parents to help children in houses as the tax rules just made it a lot harder. Thanks Labour.”

But wait. There’s more tax-flavoured cold water to pour on last week’s letters about parents helping the young ones buy homes.

IRD says no

Q: I am a registered IRD tax agent. Your answer to the Q&A headlined “Tax and the house” last weekend needs correction.

The Q&A is about parents renting a house to their son and his partner, and later selling to them, and sharing the capital gain with them.

Your answer stating, “If you are sharing the gain with the young couple, presumably that means you will sell to them at below market price, making your gain smaller,” is not appropriate.

This is a clear violation of IRD tax rules. It is considered as taking an unacceptable tax position and will attract fines, penalties and prosecution. If I’m wrong please advise me.

A: Again, you’re not wrong — sadly. It’s perfectly legal to sell a property for less than its market value. However, says Inland Revenue, “Under the current tax rules, gifts of land are treated as if they are transferred at market value, i.e. any gain taxed under bright-line would be calculated using the market value.

The department adds, “Because of the complexities involved in property and tax we always recommend consulting a tax professional before entering into any arrangement.” That seems wise.

What's 'work'?

Q: I felt moved to write because of mentions of “work” and “not working” in your most recent column.

As we know from Marilyn Waring and others, most unpaid work is performed by women and is essential for a functioning society. Can I suggest you preface the word “work” with “paid/unpaid” to clarify roles but not diminish the value of unpaid work.

Retired grandmother, caregiver and volunteer!

A: I appreciate where you’re coming from. And I have at times sung the praises of volunteers in this column, and never belittled homemakers.

But I’m afraid I don’t feel happy committing to a change like that. It could lead to all sorts of other similar requests. Let’s stick with simple communication.

– Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions 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 mary@maryholm.com. 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.

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