Last week, a reader suggested this as a way a retired couple could generate some cash. But, as you point out, there can be complications.
Your comments are generally correct, tax expert Terry Baucher of Baucher Consulting says. “If the owner sells their holiday home in the course of operating the holiday home business, there may be GST payable on sale if the holiday home has been wholly or partly used for making GST-taxable supplies.”
I asked Baucher what he thought you meant by “in the same entity”. “It probably refers to the problem of having a residential property owned by an already GST-registered entity, such as a trust,” he says.
“The GST registration threshold of $60,000 applies per taxpayer (ie entity). This means that if a trust owning a commercial property, and therefore GST-registered, also owns a residential property which is then used as an Airbnb, then all the income from the Airbnb is subject to GST.
“Furthermore, as your reader notes, GST will be payable on sale on the portion of the residential property used as an Airbnb.”
Baucher adds some tips for bach landlords:
“Keeping detailed and accurate records of all income and expenses for the holiday home will help ensure compliance. “Maintaining a separate bank account for transactions associated with the holiday home is also important, as it differentiates the owner’s private use from taxable use of their property. “If the Airbnb is used by the owner, this may trigger the ‘mixed-use asset’ rules. These rules are complex and can create compliance difficulties if not carefully managed.” He refers readers to a page on Inland Revenue’s (IRD) website called “Renting out a holiday home”. See tinyurl.com/RentingHolidayHome.“When calculating if the GST $60,000 threshold has been breached, you must include the deemed market value of any private use. For example, if you charge $250 a night and your Airbnb income is $52,000, but you and friends or family have also stayed at the property for, say, 40 nights, then the deemed value of these stays will be $10,000 (40 times $250). Once combined with the other income, this means the $60,000 GST registration has been exceeded and you must register. GST is not always the simple tax people think it is!”
It sounds as if a conversation with an accountant and a reading of the IRD’s web page is advisable before renting out a bach.
There can be other problems too. You really need a Johnny or Jane on the spot to manage the place, but local property managers don’t all perform well. And my guess is that short-term holiday tenants are more likely than long-term tenants to hold parties that can leave damage.
Still, for some people, renting out a holiday home makes it viable. Given the income some beautifully placed properties can bring in over summer, it can work well.
Take care
Q: Regarding your Q&A last week about scams, what’s wrong with providing people with your bank account number? They can put money in, but they can’t take money out, right? I tell people my bank number all the time so that they can pay me.
A: Good question, which I’ll get to in a minute. But first, I probably got it somewhat wrong in that Q&A last week.
The letter you refer to was from a reader who had responded to an Instagram advertisement falsely claiming I would tell her which shares to buy. Facebook was running similar ads.
The scammers had asked for her bank account, claiming they would compensate her after one of the recommended shares lost value. This made her suspicious.
While she hadn’t given them any bank details, I said in the Q&A that anyone else who had done so should immediately contact their bank – which prompted your letter.
I then went on to say to her: “If you continued, somewhere along the line you would be sure to give the scammers way more money than they ever gave you. And that’s the last you’d see of it.”
However, a Financial Markets Authority (FMA) press release suggests the scheme was of a different, particularly sneaky type that has become common lately.
“Pump-and-dump” scams use social media ads “impersonating business leaders or financial commentators [and] encouraging investors to join a fake investor chat group”, the FMA says. “The scam is part of a global network of scams aimed at market manipulation.
“The scammers may initially recommend purchasing shares of a large, well-known company such as Nvidia or Tesla. This is a tactic to build trust before drawing potential victims into the pump-and-dump scheme.”
After a while, the scammers buy shares in a smaller overseas company. They then “use social media and online forums to create a sense of excitement about buying the company’s shares by spreading false information about the company’s prospects. This excitement and interest artificially drives the share price up as they lure investors”.
“The scammers then sell (or ‘dump’) their holdings at the inflated price. When the share price collapses, victims are left bearing the loss.”
And that’s not the end of it.
“After a victim suffers a loss, the scammers often claim, falsely, that the victim is entitled to compensation or reimbursement. The scammers then collect personal information and further payments from the victims,” the FMA says.
They may also present “opportunities to trade out” of the losses, or support to recover lost money. Don’t be sucked in.
“We have received a number of complaints, with multiple victims having lost significant amounts,” John Horner, FMA director of markets, investors and reporting, says. “These complaints are likely only the tip of the iceberg.”
If you have been caught in a pump-and-dump scam, the FMA gives advice at tinyurl.com/ScammedFMA.
Its main message: stay away from social media investment tips. I go further than that. I don’t think anyone – legitimate or not – is good at picking which shares to invest in. They may get it right for a while, but not for long. It’s far wiser to invest in a managed fund, in or out of KiwiSaver, that invests in a wide range of shares.
Okay, finally to your question about giving others your bank account number.
“That question is probably best answered by the banks,” FMA regulatory services manager Sam McGuire says. But, he adds, “Only those with authority should be able to access your funds (through account mandate or an authority like a direct debit).
“However, there are circumstances where remote access software can be loaded which will enable access, or you can be manipulated into making payments.”
He recommends taking care about who you give account info to, and to also conduct “regular reviews of your details with your provider, using strong passwords and enabling extra features such as multi-factor authentication”.
McGuire adds that further contact from scammers can happen years later.
As Sergeant Phil Esterhaus said in Hill Street Blues, “Let’s be careful out there”.
Managed, active, passive?
Q: Looking at InvestNow and their Foundation series funds, they are advertised as managed funds, but appear to be tracking an index such as the Foundation Series Hedged US 500 Fund.
They have been described as a passive managed fund. I just want a passive index fund, so does this fund meet that criteria?
A: Yes it does. Let’s start with “managed fund”. This is a broad term that covers all funds that invest in a range of shares, bonds, other investments or combinations of these.
Managed funds can be divided into active funds, whose managers decide what to invest in and when, and passive or index funds, whose managers simply buy and hold the shares or bonds in a market index.
The latter are cheaper to run and, over time, tend to perform at least as well as the average active fund, while charging lower fees.
You’ll notice I’ve lumped passive and index funds together. A few passive funds don’t use an index, but still buy and hold shares in a sector of the market in much the same way as an index fund does. Generally, though, the terms “passive” and “index” are interchangeable.
By the way, can I suggest you consider a global fund rather than a US one? You reduce risk by not depending on the performance of just one economy.
Proving who you are
Q: Thank you for your column explaining the “Know your Customer” obligations that banks have.
My wife opened an account with the Teachers Retirement Savings Scheme when Government Superannuation closed. Her account was transferred to SuperLife four years ago.
All was well until we sought to advise Superlife of our new address. My wife has neither a driver’s licence nor a current passport, but SuperLife demanded she furnish one or the other. One member of the staff would even accept a cancelled driver’s licence.
This is not a new problem. The former Teachers’ Council, however, would accept an 18+ Card (now a Kiwi Access Card), but not SuperLife. It seems from your comments that there were alternatives available to us but not known to SuperLife.
Do you think SuperLife might have been interpreting the rules rather stringently?
A: Firstly, while SuperLife is not a bank, the same rules apply, the FMA says. “Banks and providers of KiwiSaver and other managed funds, such as SuperLife, have the same customer due diligence obligations (also known as “Know Your Customer” rules).”
When we look at those rules, it seems there’s been some miscommunication between you and SuperLife.
“We do not request identity documents for address updates (as a standard process),” Simon Beattie of NZX, the owner of Smartshares which manages SuperLife, says. “In certain cases, such as when we’re unable to verify the member’s identity appropriately due to discrepancies, we may request additional documentation to ensure the request is legitimate or that we are speaking with the correct customer.”
Even if that was your wife’s situation, “We do accept the Kiwi Access Card as a valid form of ID when conducting customer due diligence for anti-money-laundering purposes.
“However, in line with our interpretation of the requirements of Anti-Money Laundering obligations, it must be supported by additional documentation (eg birth certificate or citizenship certificate) to meet requirements.”
Information from the FMA backs up what Beattie says: a Kiwi Access Card plus a birth certificate or similar should be sufficient ID.
Presumably your wife has a birth certificate. So what should she do now?
“We understand this situation may be frustrating, and we’re here to help,” Beattie says. “Given the limited information available, we recommend they contact us directly by phone. They’re welcome to escalate their concerns to one of our contact centre team leaders for further support.”
He adds: “We suggest this customer log in or sign up to our secure customer portal, where they can view their investments and change their contact details (including address details). We’re also happy to assist with setting up the secure customer portal.”
You might want to take up this offer.
A bouquet to a bank
Q: Last week’s letter about the homeless guy and the need for banks’ Know Your Customer rules was the best letter in a long time.
I have been using a PO Box for the last 15 years. I rent, and my physical location is never guaranteed. I hardly ever receive mail to my physical address.
Recently, I needed to open an ANZ bank account. I did bring in a letter with my physical address, but turns out it was older than six months, so didn’t qualify.
The ANZ were wonderful. They found a way to verify me. I won’t mention it here, just in case scammers might find a cunning way of exploiting it. The main thing was that the ANZ dealt with it there and then. It probably helped that I took in extra verification to compensate.
A: I often give the big banks a hard time in this column and ANZ has had its fair share of criticism lately. So it’s good to acknowledge when they get it right!
PS: Last week’s homeless “guy” was actually a woman. It’s funny how we leap to conclusions!
* 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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