Volatility - goes up and down.
So yes goes down more often - but has greater volatility would have said it better ;-)
And I agree that the default funds are a poor choice for most users.
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"Inland Revenue is cracking down on residential property investors who have sold without paying tax on the profits."
https://www.stuff.co.nz/national/300...ng-bright-line
Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.
I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?
and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.
I don't think you can have multiple primary residences here either.
The house you brought in your name for someone else will not be your principle residence and will be covered by the brightline test.
Will mean nothing if you don't sell or if you sell after the brightline because the brightline is just a very strict interpretation of the intention test.
We don't have a CGT (exempting PPOR or not) whereas Canada probably does so the PPOR test is even more important there.
In Canada there is no test. The rule is clear - 'primary' = one
There is no exemption of tax on the gains when selling a non-principal resident home either which means, there's not point of any bright-line holding period ; it's irrelevant.
If IRD wants to be greedy, they can do what the CRA does in Canada. If a portion of the principal resident home is rented out, then THAT % portion of the home will not have tax free capital gain. So if the basement works out to be 33% of the rented area of the entire house, then the owner of the house when it comes to selling (and if the place is still being rented), will have to pay CGT on that 1/3rd of the value of the home. The rental income from the suite is taxable income too. So there are many things that the NZ gov't can do to churn in more tax revenue. It all depends on the NZ politicians willingness to pay taxes on their property investments.
As far as IRD's concern, there is a key difference when you report your 'intent'. If I said we bought the house as an "investment" (and there is a tick mark box that describes what the purpose of buying the house was), then a brightline test would be less meaningful. Even after 5 years IRD can still come back to say you 'bought the house as an investment' and therefore, there is intent for profit, and therefore, taxes should be paid. People do not make 'investments', just like investing $ into a business, without the expectation of making a profit.
How about this distinction? The individual person buying shares is expecting a gain on their investment. Then why is it, the capital gains from buying NZ shares are tax free when buying foreign shares, are not tax free? IRD uses 2 kinds of measuring sticks for the same asset class but when it comes to investing in houses, it doesn't matter if they're NZ residential homes or foreign homes.
We don't have a CGT so what Canada with theirs is moot.
We have an 'intent' test which can turn your gain into income.
We also have a more specific form of the intent with the 'brightline'.
People do invest with the expectation of making a profit but that profit could be capital or income (the intent).
A person buying shares may be expecting a 'capital' gain - or they may be expecting dividend. Capital gain isn't taxed if you are expecting dividend (which is taxed as income).
The FIF rules came in because overseas dividends are so low (mostly) that you must be expecting a capital gain - so they made a rule as such.
With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.