But suddenly it’s come to the forefront again. And maybe, just maybe, some day soon we’ll start taxing people whose income comes from their assets gaining value as much as we tax people whose income comes from hard work.

The last time a CGT seemed like a possibility, under the last Government, this column was full of the topic. People came up with all sorts of situations in which it would be tricky to make the tax fair. But hey, New Zealand is about the only OECD country without such a tax. We can learn from what works and doesn’t work elsewhere.

On your question, we’re a long way off knowing the details of a new CGT. But I would be really surprised if it applied to properties bought years ago. A Government proposing that would lose too many votes. I suggest you let your folks stay put.

Sell employee shares – 1

Q: I have been fortunate to work for a company that has shares as part of the package (they match my share purchase up to $250 a month). I will soon leave the company, and I don’t know what to do with the shares.

They are currently valued at an all-time high, but dividend returns sit at less than 3%. The shares are worth less than $10,000, but I feel this money would perform better long-term in a managed fund. Should I hold, or transfer?

Answer: It’s great that you took advantage of the employee share scheme. Whenever shares are offered at a discount, or the company matches your purchase, make the most of it!

Often, the company won’t let you sell the shares for a period, which is fair enough. They hope you’ll take more interest in how the company is performing, and perhaps work more efficiently or harder. And I must say it worked when I was in a newspaper’s scheme years ago.

But that’s no longer relevant for you. The question to ask yourself now is if somebody gave you $10,000, would you buy those shares with it? Almost certainly not.

A share fund is a much better idea. A single share is almost always more volatile than a well diversified fund. And the average return on one share is just as likely to be lower as higher than in a fund.

However, if you expect to spend the money within about 10 years, go for a more conservative fund, which is less likely to have lost money at the time you withdraw.

Sell employee shares – 2

Question: My wife worked for some years for one of the large Australasian companies whose shares are traded on both the Australian and New Zealand exchanges. She received shares as part of an employee scheme, and we still have them.

It only recently dawned on us that her shares were issued on the Aussie exchange, as a result of which we receive dividends with “franking credits” which are of no use in New Zealand.

If our shares were New Zealand-issued, would we get credits which we could use, and would we therefore be better to switch exchanges? If so, can you tell us how to do so? Or would it be easier just to sell our Aussie shares and buy them back via the New Zealand exchange?

Answer: Firstly, for other readers, Australian franking credits and New Zealand imputation credits are tax credits “to ensure shareholders don’t pay tax a second time on profits the company has already been taxed on”, says Mark Lister, investment director of Craigs Investment Partners.

And you’re right that, if you live outside Australia, you can’t use their franking credits.

“However, many ASX-listed companies that pay tax in both countries will attach both franking and imputation credits to their dividends, so you shouldn’t have missed out on any imputation credits that exist,” says Lister. “Check with your accountant to ensure these have been accounted for, or look on the myIR website at your past tax returns.”

He adds, though, “Not all dual-listed companies attach both Australian franking as well as NZ imputation credits to their dividends, as these tax credits are based on where the company itself has paid tax on its profits (and therefore ringfenced separately).”

If you want to switch your shares from the Australian to the New Zealand stock exchange, Lister says it’s relatively straightforward. “You do this through the share registry of the company in question, rather than the company itself. The two big share registries are Computershare and Link Market Services, and you’re looking for a ‘removal form’ or similar on their website.”

However, as noted in the above Q&A, you would probably be better off selling the shares and moving the money to a share fund.

Who needs big dividends?

Q: Just a comment, Mary, not a question, about the Q&As on investing to get the dividends… And then there’s Infratil – a minuscule (by NZ standards) dividend; nevertheless, historically a sensational investment through share price increases. Infratil investors who need cash simply sell some shares.

And I’m sure it’s not the only low-dividend company that is a great investment.

Returns on shares are made up of dividends – the investors’ share of distributed profits – and gains in the share price. Quite often the companies that pay lower dividends, because they reinvest their profits into growth, give higher total returns when their share prices grow faster.

KiwiSaver provider and fund manager Kernel recently published research on dividends. It says New Zealand companies tend to pay much higher dividends than most other countries.

Also, local companies tend to have lower growth prospects. And New Zealand investors have come to prefer getting dividends.

The report suggests that share investors who want regular income are probably better off setting up regular withdrawals from a PIE fund than directly owning shares and using the dividends as income. All managed funds, in and out of KiwiSaver, are PIEs, which come with tax advantages.

“Dividends aren’t free money – the share price typically drops by roughly the value of the dividend,” says Kernel CEO Dean Anderson. “Some investors hesitate at the idea of ‘selling’ shares or units, but with PIE funds, there’s no capital gains tax, so there’s no real downside to this strategy.

“Automated withdrawals can help investors overcome that mental block. The result – a steady income source, greater diversification, and simple tax structuring that doesn’t require IRD filings.”

As mentioned above, it’s best to hold the money you plan to withdraw soon in a conservative or cash fund, with longer-term money in higher-risk funds.

“Absolutely disgusted”

Q: I refer to last week’s letter regarding the young woman exploiting a loophole in the student loan scheme. I was absolutely disgusted, as no doubt will be many other parents who have really struggled to help their children achieve a higher education. No doubt she was encouraged to borrow the money by her parents.

I believe the purpose of the scheme was to help young people to further their education, not to put a deposit on a house.

My son and his wife worked fulltime to help fund both their daughters’ university studies. The daughters also worked in their very limited spare time. They both also have student loans which are being paid off. Both are now qualified and struggling financially. Neither is being paid their true worth.

Both have applied to banks for a home loan recently and they were told they would need to reduce their student debt before being considered for a loan.

There are a lot of needy young people in New Zealand who unfortunately will never have a higher education or own their own home and who could make far better use of an interest-free loan.

I can only hope that the banks turn down a home loan application from this young woman, because of student loan debt, as were my granddaughters. “Because everybody else is doing it” is no excuse to do it as well.

A: It’s been a long time since I’ve heard as many comments about a Q&A as last week’s lead one. And so far, nobody has said, “Good on her for borrowing the money and putting it in savings”.

I’m not sure how we fix this issue. It would cost plenty for the Government to check if students need the money. And anyway, people would find clever ways around it.

At the risk of stirring up a hornet’s nest, I could argue that people who apply for New Zealand Superannuation when they don’t need it are in a similar situation. That money probably often ends up in their children’s inheritances.

There are counterarguments though. One is that nobody can be sure they won’t end up spending time in expensive aged care, and it’s good if they can fund that themselves. Also, some people leave large amounts to charities, many of which really need support.

Still write a will

Q: Your recent discussion about wills has galvanised me to write for advice about my rather unusual situation. In my mid-seventies, I’m without relatives or really close friends who would be interested in my modest and mostly old possessions. I have not made a will because I’ve no idea whom I should leave anything to.

I’m a long-tern renter with negligible cash assets. My 2018 car is financed. I have a vintage car that’s currently in the midst of a years-long complete rebuild (therefore worth little), so my most valuable possessions are the associated tools and workshop equipment acquired over my lifetime. Those friends I have are all around my age – and that includes a few who are close, but they, ironically, are all overseas. Possibly I should stop worrying about it, because when (if) I croak it won’t be my problem!

Answer: Sorry to tell you, but there’s no “if” about it! And despite the fact your estate won’t be your worry, it would still be good to write a simple will. If you die intestate – without a will – your assets could end up with the Government. Do you really want that?

The fact that friends are overseas shouldn’t stop them from inheriting. Put info on how to contact them with your will. Or surely you know of a charity who would benefit from the proceeds of the sale of your assets. Another idea: donate your tools to a nearby technical school or similar.

PS That vintage car sounds fun. Hope you can finish it soon.

Shop around

Q: If the Public Trust charges around 5% of the value of an estate’s assets to administer a will, I would have thought that a good lawyer may charge a little less to administer a simple estate. Most lawyers seem to charge around $200 to $300 per hour, and their assistants would be charged out to clients at a rate which is a good deal less. However, the client can hardly complain at the service provided. My own mother’s estate was administered by the Public Trust and they gave a good service.

Answer: Public Trust says it charges up to 5% of the estate, so in some cases it will be less. Still, a lawyer may well be cheaper, although I’m told their fee is likely to range up to $400 an hour. There’s no reason you shouldn’t ask both Public Trust and several lawyers for quotes.

Another reader asks: “If you die without a will, can any lawyer handle probate or do you have to use the Public Trust?” The answer is that any lawyer can do this.

* 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.