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This newsletter is investment and tax themed.
1. Are investors getting too greedy with fixed interest again?
2. Tax refunds, what is the risk that you owe IRD money if you do a tax return?
3. Warren Buffet Investment Quotes


 

Are investors getting too greedy with fixed interest again?

Before the Global Financial Crisis (GFC), New Zealand had it’s own meltdown with Finance Companies.  Everyone learned a lot of lessons about the relationship between risk and return.  The higher the risk, usually the higher the return.

OR – easier to remember, the higher the return, usually the higher the risk.  But things get distorted when investors forget some of these rules. 

Over the last few months, we have seen a number of corporate bond issues come to the market that have very low returns for the risk that is involved.

When looking at options for our clients to invest in, we reviewed a number of corporate bonds that were either not rated by a ratings organisation, or did not have very strong investment ratings, and were returning around 5.25%-5.30% for a 2-3 year investment. 

We then looked at what the banks are offering for that time period.  With some of the mainstream banks, with Credit Ratings of AA- an investor can get 5.00% pa for 2 years.  The question we had to ask was ‘Why would you take on the extra risk of a Not Rated or BB+ rated corporate bond to get 0.25% to 0.30% pa extra return?’

On behalf of a client who is a Trustee of a Family Trust, I reviewed the ‘re-marketed’ NZ Post Bonds.  These are perpetual bonds (that is they keep on rolling over with the interest rate ‘re-set’ every five years, and don’t come to maturity until 2039.)  The rating on these Bonds from Standard & Poors was A-.  It has just been revised and reduced by 4 notches – down to BB+.  The guidelines that we use is that anything BELOW BBB+ is not investment grade.  The interest rate on this offer was 6.35% pa.

We recommended that the Trust not take up any of the offering as the Trust’s risk profile is low risk.  In our opinion, corporate bond issuers are getting away with offering very low interest rates for the risk involved.

Unfortunately, with human nature it is easy to be seduced into higher returns without really thinking about the extra risk, or by not really paying attention to the risk of an investment offering and saying ‘is this return worth the extra risk’?

It is vital that you think about this relationship when you are making your decisions.  If Moneyworks are your adviser, we are continually thinking about this and will educate you on this and remind you about the relationship.

When I read the following excellent article by Diana Clement in a recent NZ Herald, I realised again that investors are forgetting these important principles.  Peer to Peer Lending (P2P) is the latest way to raise money.  Lets hope that investors don’t get too greedy and that there isn’t a whole new area of ‘finance company disasters’ about to happen. 

If you want to gamble with a little bit of money, these  P2P loans only require a $25 investment.  But if you are serious about keeping your money working, stick to the tried and true investments.
Diana Clement: Caution needed over peer-to-peer platform 

If you would like to meet with Moneyworks to discuss your financial planning and investment options, please contact us by sending an email to us at Carey@moneyworks.co.nz.



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arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.IMG_0944

As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.

- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf

Tax refunds, what is the risk that you owe IRD money if you do a tax return?
 

We have all heard stories about people getting into trouble with the IRD, and owing tax and penalty interest.  Some of the situations where this may happen include:

1. Setting up in business and not setting aside enough of your income to pay GST and tax.

2. Getting Working for Families paid on a regular basis, your income earns and pushes you into the next earning bracket and you end up getting paid too much.

3. Getting a pay rise and your employers PAYE system doesn’t take the right amount out of your pay.

When our clients have tax deductible expenses (income protection insurance premiums, membership fees, investment portfolio monitoring fees) we encourage them to do a tax return, in the anticipation that there will be a tax refund.  This is a mechanical exercise where you follow through the instructions from IRD on your tax return.  Many of our clients have had money returned to them on an  annual basis.

But what if you get it wrong?  There was an interesting question and answer in the recent Mary Holm column in the NZ Herald that I thought it was worth bringing to your attention (read below).  Please note that we are NOT endorsing in any way the MyTax offering, we don’t have any particular opinion on what they offer.  However, the discussion about what your obligations are in respect of filing a tax return are interesting.

Taxing situation
The proliferation of online tax refund companies has a sting in the tail. They state that 90 per cent of people get a tax refund. However, conversely, 10 per cent don’t.

Two years ago I registered with MyTax.co.nz. I didn’t receive a refund, instead I received a bill online and a demand from the IRD, which I paid.
I emailed MyTax.co.nz and requested to be removed from its database.

Unfortunately, it ignored this and meddled with my tax again.

Recently, I received from the IRD an overdue tax bill for $506.44 because I had not paid it by the deadline. I had no idea that I had another tax bill to pay as I had not received a statement from the IRD or MyTax.co.nz.

I rang the IRD which said this was happening more and more. They unlinked me to this company on the spot.

I have paid the full amount again and hope for a refund of the penalty charges. I have no understanding of why I owed the IRD anyway as I am just a regular PAYE employee.

Beware – it is difficult to untangle yourself from MyTax.co.nz once registered with it. It meddles when requested to stop and you may end up owing money. I wish I had never heard of MyTax.co.nz.

All is apparently not as it seems here.

“The people that don’t get a refund through us do not end up having to pay tax to IRD,” says Lester Binns, chief executive of MyTax.

“To create a tax bill at IRD two things must happen. First you must underpay tax for the financial year. Second a personal tax summary (PTS) needs to be requested or selected for that year to turn that underpaid tax into an actual bill. A tax agency such as MyTax.co.nz will only request a PTS for years where tax is overpaid and therefore a refund is due,” he says.

So how come you got a tax bill? To clarify that, you gave me permission to give your name to Binns. Here’s his response:

“In this person’s case she was part of a yearly function that IRD runs called the ‘Select’. With this function IRD automatically selects 400,000 to 500,000 taxpayers each year and requests a PTS for them.”

People who are automatically selected include those who received Working for Families tax credits or used the wrong tax code or a special tax code. For more on this, go to tinyurl.com/nzptsinfo

Adds Binns: “Unfortunately in this case her employer hadn’t deducted enough PAYE over the year and the IRD sent her a bill.

“Being part of the Select is something a tax agent cannot influence, and it is distressing for anyone to receive a bill from IRD out of the blue. The client can confirm this directly with IRD if she wishes, so she knows what has taken place.”

Binns adds that he’s “really sorry we let this client down. While MyTax didn’t create the debt in question, it is clear she didn’t receive sufficient information about why IRD created the debt. We did inform the client about the debt promptly but we should have followed up at the due date to remind the client of the payment deadline.”

He denies that it’s hard to get off MyTax.co.nz’s database. “Anyone who asks to withdraw from us is done so immediately and is now also automatically delinked. If you are worried your tax agent has not delinked you on your request, a call to IRD will be able to confirm the delinking or action it for you.”

An Inland Revenue spokesperson confirms this.

Inland Revenue adds that it offers a free do-it-yourself online alternative to services such as MyTax.co.nz “where you can quickly work out for yourself if you qualify for a tax refund”.

You need to register with myIR to do this, on the top right side of the homepage of ird.govt.nz.

“If your calculation shows you are due a refund you can request a personal tax summary (PTS), and once confirmed you’ll receive your full tax refund within five working days,” says the spokesperson.

If, instead, your calculation shows that you owe tax, you don’t have to pay unless you request a PTS or are selected for a PTS. Inland Revenue says it doesn’t “capture the information the customer enters into the calculator”.

Another option is to check that your employer is deducting the correct amount of PAYE from each pay. You can do this by using the PAYE/KiwiSaver deductions calculator at tinyurl.com/payecalculator
 

C


arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.IMG_0944

As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.

- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf

Warren Buffet Investment Quotes

To see the infographic in full size (easier to ready), click here.
 

C


arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.IMG_0944

As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.

- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf
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