NZ Government Tax Review

Tax Working Group Secretariat
PO Box 3724
Wellington 6140
New Zealand

Read the paper prepared by the Tax Working Group Future of Tax: Submissions Background Paper.

Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for the Tax Working Group and the Secretariat to contact those making the submission to discuss the points raised, if required.

Submissions close 30 April 2018.

https://taxworkinggroup.govt.nz/have-your-say-future-tax?gclid=EAIaIQobChMIhcy3rJSJ2gIVzyMrCh2-HwVTEAMYASAAEgK1-fD_BwE

The Working Group will consider changes that would improve the structure, fairness and balance of the tax system,” says Grant Robertson. “This Government is committed to a fair and progressive tax system. It is important that New Zealanders have confidence in their tax system and know that everyone is paying their fair share.”

“At the moment the tax system appears unfair – for example, it doesn’t treat income from speculation in housing as it does income from work. We want to consider how we can create a better balanced system and can encourage a shift to investment in the productive economy.

“Individual wage-earners, businesses, asset owners and speculators should pay their fair share of tax. Right now we don’t think that is happening. This working group is not about increasing income tax or the rate of GST, but rather introducing more fairness across all taxpayers.

The Working Group will also consider how the tax system can contribute to positive environmental outcomes and the impact of likely changes to the economic environment, demographics, technology and employment practices over the next decade.“As former Minister of Finance from 1999 to 2008, Sir Michael’s credentials are impeccable and he will be a huge asset to the Working Group.” “Final recommendations to Ministers are expected by February 2019. As promised before the election, any significant changes legislated for from the Group’s final report will not come into force until the 2021 tax year. “It is important to ensure that all sectors of the New Zealand economy can feed into the Working Group’s processes and that all relevant perspectives are considered.”“As we promised during the election campaign, certain areas will be outside the scope of the review, including increasing any income tax rate, the rate of GST, inheritance tax and changes that would apply to the family home or land beneath it,” Grant Robertson says.

Govt’s Tax Working Group features 11 members including Auckland University’s Craig Elliffe, Business NZ’s Kirk Hope & ex-IRD Deputy Commissioner Robin Oliver

 

Finance Minister Grant Robertson and Revenue Minister Stuart Nash have announced the members of the Government’s Tax Working Group.

Tax Working Group members announced

Along with chair Sir Michael Cullen, the Working Group members being appointed are:

·Professor Craig Elliffe, University of Auckland

·Joanne Hodge, former tax partner at Bell Gully

·Kirk Hope, Chief Executive of Business New Zealand

·Nick Malarao, senior partner at Meredith Connell

https://taxworkinggroup.govt.nz/your-submissions

Deposits : Where do I go?

Mary Holm: Credit check can help lower your investment risk

24 Mar, 2018

Credit ratings are not like marks for a high school essay, where a B was pretty good. A credit rating of B means there’s a one-in-five chance the institution will default over five years.

READER QUESTION: I am constantly looking to find the best term-deposit rates when my savings, which are split between banks, mature.When I search www.depositrates.co.nz, I notice there are names unfamiliar to me included with all the banks on the list, such as Liberty, Flexi Cards, UDC and First Credit Union.How do these differ from the banks we are familiar with? Some of them offer slightly higher rates than the bank.

REPLY: The lesser known institutions are riskier. That doesn’t mean they will go out of business tomorrow, but let’s just say they are not as safe as the big banks. That’s why they usually offer higher interest. Otherwise, everyone would stick with the banks.

The best way of assessing an institution’s riskiness is to look at its credit rating. These ratings are issued by three big international agencies, S&P, Moody’s and Fitch.

S&P and Fitch’s ratings range from AAA (extremely strong), through AA, A, BBB, BB, B and so on, down to D (in default). Moody’s is similar, but it uses Aaa, Aa, A, Baa, Ba, B and so on, down to C (in default).

Sometimes a rating has a plus or minus sign after it. Look at the letters first. For example, AA- is better than A+.

As the Reserve Bank points out, credit ratings are not like marks for an essay in high school, where a B was pretty good.

A B credit rating means there’s a one in five chance the institution will default over five years. I wouldn’t take that on. It’s best to stick with “investment-grade” bonds or term deposits, which have a rating of BBB- or better.

The big four New Zealand banks — ANZ, ASB, BNZ and Westpac — all have an AA- rating.

Kiwi bank has A and TSB has A-.

Cooperative, Heartland and SBS all have BBB.

Some smaller institutions have no rating. Unless you know a lot about them, I suggest you give them a miss.

Posted by Alec Waugh March 24, 2018

Kiwi Saver Fee’s too high!!!

The New Zealand fee structures for both  Kiwi Saver and Managed funds  in most cases remain  too high. Comparative analysis and research constantly reiterates this, and the last decade has been a ‘golden mile’ for fund managers. Brent Shearer continues to run his campaign of criticism re high fees, and its about time Government spokespersons and key agencies also adopt this position and start talking down the fee’s extravaganza.

https://www.stuff.co.nz/business/96536135/researchers-reject-suggestion-focus-on-fees-is-wrong

 

Retirement Village issues. Article No 2

This is the second article on retirement Villages, Fortune Manning of FindLaw wrote this article  a number of years back, still relevant. The editor has been researching the topic also, and I hope to present my views in the next few weeks.

Choosing a Retirement Village – What to look for

By Fortune Manning

Retirement or Lifestyle Village, which offers you more?

Many people are attracted to a retirement form of living as it is, in most cases, a gated village with interesting well maintained community facilities, such as bowling greens, restaurants, pools and spas and other retired residents for social contact.  These are the core elements of a lifestyle village, particularly if only limited medical care is available.

In our view a true retirement village offers in addition the opportunity to move from independent living through to serviced apartments and then to rest home and hospital 24 hour care.  This type of village offers the best long term security for those wishing to make a long term decision as to their accommodation.

A move into a lifestyle or retirement village cannot be considered a financial investment, as in most cases 20 to 30 percent of the entry price will on termination be deducted (“facilities fee”) and there will be no entitlement to capital gain.  It is important therefore to ensure that the services provided by the village give you value for money.

Retirement Villages Act 2003 (“Act”) Regulatory Regime

If a property falls within the definition of a retirement village under the Act, it is required to be registered with the Registrar of Retirement Villages.  The register can be accessed through the Companies Office website under “search other registers”.  Your lawyer should make a search of the village to ascertain that the registered documents include the following:

  • Deed of Supervision between the operator of the village and the Statutory Supervisor to protect the interests of the residents;
  • Occupation Right Agreement (“ORA”) which governs the occupation of the unit/apartment;
  • Disclosure Statement which is a precis of all matters that are required to be disclosed under the regulatory regime;
  • Legal description of property;
  • Certificate of Registration;
  • Consent of Statutory Supervisor to act.

Those “villages” which are not registered, are, in the main, those which fall outside the ambit of the Act, and do not provide the services or facilities described above and are simply unit title or cross lease developments and in respect of which you do not have the protections provided under the Act.

Developer’s/operator’s Background

The economic viability of the village itself is something that must be considered very carefully.  Every operator of a village is an “issuer” pursuant to the Financial Reporting Act 1993 and required to prepare and register audited financial statements.  These can be found on the Companies Office register.  An operator has an obligation to provide intending residents and current residents with copies of the financial statements upon request.

It may be comforting for you to know with a particular village that those developing or in control of the village will have continuing key roles for the foreseeable future.  It is worthwhile meeting with existing residents, village managers and staff to assess satisfaction, compatibility and commitment.

What tenure is being offered?

It is important to know what security of tenure you are receiving for your money.  Is it in the nature of a unit title or cross lease?  The majority of units or apartments in villages are held through ORAs that do not have a registered interest in the land or buildings and where generally residents do not have control over the sales process.

What happens if the village is substantially damaged or destroyed?

You need to know what happens in the event of significant damage to the village as a whole.  What are the obligations on the part of the owner in such cases?  The ORA should ideally provide that in the event of substantial destruction of the village such that you are unable to continue to live in your unit you will get back the money you paid without the facilities fee being deducted.  You may still be left without sufficient money to purchase another unit in another village if you have not had the benefit of any capital growth during the time you have been resident in the village that has been destroyed.

Where your village is part of a group of villages run by the same operator there may be greater opportunity to transfer to another village without significant extra cost in the event that your existing village is substantially damaged or destroyed.

What are the maintenance obligations?

Intending residents need to know who is responsible for undertaking repairs and maintenance to the village, in the units and the chattels supplied by the operator in the unit.  Who is responsible for paying the costs of those repairs and maintenance?  In some cases residents are responsible for internal repairs and maintenance of units and operators for the exterior of the units.  However, some villages/operators are now taking a different approach and carrying out repairs and maintenance to both the interior and exterior and charging the actual cost to the particular resident.  You need to know who is responsible for the replacement of a chattel in your unit once its useful life has expired.

Does the village have a sinking fund to which residents are required to contribute an amount as part of their periodic charges?  If a village has a sinking fund, details will appear in the disclosure statement.

What are the charges?

In the main, charges will be made up of what is often referred to as the entry deposit (which is actually the full purchase price and includes the facilities fee) and a weekly charge to cover community facilities and charges and individual services provided to particular residents (such as hairdressing, cleaning, laundry or meals).

The facilities fee and is generally up to 30% of the entry deposit and is an amount which is aggregated back to the village over a period of time, usually between four and six years, and will be deducted from the entry deposit when repayment of the entry deposit is made on termination of the ORA.   An administration fee, usually 2%, for conducting the sale of the unit may also be deducted on termination of the ORA and of course any monies owing for arrears of weekly fees and costs for additional services such as  hairdressing, cleaning, laundry or meals.

By way of example:

  • Entry deposit                                                                                      $400,000
  • Less facilities fee after 5 years                                                             $120,000
  • Administration fee                                                                               $    8,000
  • Balance returned to you on termination (“termination payment”)              $272,000

Under modern forms of ORA costs will also be deducted for refurbishment considered to be other than fair wear and tear.  On termination of an ORA, an indicative termination payment needs to be obtained from the village operator, so that you or your lawyer can check what is being charged against what is allowed for in the ORA.

Intending purchasers and their next of kin need to clearly understand what they will receive on termination of a licence to occupy.  The termination payment is usually not paid out until such time as a new licensee has been found for the unit.

The “sale” process

There are now strict rules governing the efforts of operators to secure a replacement licensee.  Most ORAs provide that the weekly charge will continue until a new ORA has  been entered into by a new resident.  In most cases the weekly charge will be reduced by 50% should a replacement licensee not be found within six months of the termination date under your ORA.

On termination of an existing ORA the operator must promptly start the process of entering into a new ORA.  The outgoing resident should be advised what marketing is to take place and should be informed on a monthly basis about the progress being made.  Reports to the outgoing resident must be in writing after three months from the termination date.

If a new ORA has not been entered into within six months of the termination date a valuation must be obtained by the operator and if agreement cannot be reached as to value the resident can obtain a second valuation.  The resident usually has an ability to introduce a potential new resident to the operator but in practice this does not often occur.  The operator can also buy back the unit at any time.

The market for resale of village units and apartments can at times be quite limited especially where the village does not have staged care facilities including rest home and hospital facilities.  Our experience is that some village units and apartments may take many months to sell.  Intending village residents need to consider this aspect very carefully.  Your ability to move out of a village may therefore be delayed for many months – and this may also impact on your beneficiaries in the event of your death.

Cooling off period

Under the Act a resident has 15 working days to cancel the ORA after the date the resident signs the ORA.  For units to be built or completed the period is extended to six months from the proposed date of completion.

The 15 working day cooling off period effectively means that there can be no quick settlement under an ORA.  Operators cannot access the settlement monies received from the incoming resident in order to pay out an out-going resident until the cooling off period has expired.

Accordingly operators will be reluctant to allow an incoming resident into occupation of the unit until the cooling off period has expired.A few village operators will also allow a resident to vacate the unit and have all the deposit payment returned to them without deduction within 3 months of the date of the ORA if the resident has a change of mind after moving into the unit.  This option can be very beneficial where an intending resident still has some misgivings when the cooling off period expires.  This option needs to be written into both the agreement to enter into the ORA and the ORA document itself.

How are complaints and disputes settled?

In the main, few complaints escalate to disputes and most complaints are dealt with satisfactorily between the operator and residents.There will be a procedure set up within the village for the hearing of disputes and those that cannot be resolved will go to a disputes panel under a process proscribed by the Act and its regulations.  In some cases costs have been awarded against residents in circumstances where the disputes panel was of the view the complaint should have been resolved informally and/or where a resident has been clearly unreasonable in pursuing a dispute.

Transition between one licence and another

Where staged care is available in the particular village it is usually possible for a resident to go from independent living through to serviced apartment, and then when required, 24 hour care.  Careful scrutiny of the ORA as to the process in this regard should be undertaken especially to ensure that a second facilities fee is not deducted in whole or in part when the ORA for a serviced apartment terminates following the earlier termination of an ORA for an independent living unit.

Other matters

Other matters you should consider include:

  • How far will I be from my family, friends, shops and community of interests?
  • Is there adequate parking and storage?
  • Will I be able to commute easily from my unit to the lounge and restaurant and other community facilities within the village?
  • What is the gradient of the paths within the village – will I be able to manage these going forward?
  • Should there be no 24 hour care available will my spouse or I be able to get to see whichever one of us is in care should such care have to be provided away from the village?
  • Does the weekly charge increase from time to time?
  • Is it tied to the Consumer Price Index? A few villages guarantee that the weekly charge will not increase during the term of your ORA.

What should I do at the beginning?

If a positive decision is made to go into a village you will normally be asked to sign an agreement to place a small deposit to show earnest.  That agreement may be conditional upon you selling your home or other matters and may state that the vendor is to carry out certain works before you take occupation of the unit.  You would be well advised at the outset to make the agreement conditional upon your lawyer’s approval.

You should receive a copy of the Code of Practice (dealing with practical aspects of running a retirement village) and Code of Resident’s Rights while an ORA and Disclosure Statement is usually sent to your lawyer for perusal and/or signing.

Before entering into the village you will be asked to lodge certified copies of enduring powers of attorney in respect of property and personal care and welfare and you may well be asked to sign an authority to allow the operator to have access to medical information held by your medical practitioner.

Last but by no means least!

A decision to purchase a unit in a retirement village is quite different from the purchase of a usual suburban home.  The law recognises that to a lay person the transaction can be complex.  It is a requirement of the law that a lawyer advise the intending resident in respect of the ORA and complete a certificate to the effect that the lawyer has explained the general effect of the ORA and its implications before it was signed and gave the explanation in a manner and in language that was appropriate to the age and understanding of the intended applicant.

At the time that the ORA is signed, it may be useful to also have a member of your family or a close friend with you.

For assistance and/or more information please contact Fortune Manning on (+64 9) 915 2401 or use the Contact Us form on our website.

 

Retirement Commissioner 3 yearly Review: Next one is due 2019

The Retirement Commission has reported to Government in 2013 and 2016  with its 3 yearly review of Government issues. The 2016 approach was different and received mixed reviews.  With a change of Government, the question is What is coming up for next time?

Michael Littlewood in 2017 had this to say about the last review

http://www.nzcpr.com/retirement-income-policies-what-we-know-and-what-we-dont

 

Posted by Alec Waugh

 

 

 

 

Living Longer

Life expectancy and/or  How long will I live is always a topical but sensitive issue. Here is an article on the New Zealand situation. Be wary of commentators making assumptions about people living to 100, and working  through to the  mid 70’s. Some will, many won’t, and a number of articles are appearing on the issue of significant illness at senior years, being the key issue, not the actual date of death

http://www.newshub.co.nz/home/new-zealand/2017/01/how-long-do-new-zealanders-live-for.html

 

Posted by Alec Waugh