Money: Fair go - you can't have your money and invest it too!

By Mary Holm

Money Matters


Q. I've been invested in the NZ Guardian Trust Property Fund for about five years and I now want to take the money out to buy property.

I've been told I cannot take the money out until September 2001 because Guardian Trust has exercised its discretion not to allow early withdrawal.

I'm told that the money is invested for two-year terms and I had the term extended in September 1999 when I didn't reply to the "notice" I got last year. I was overseas at the time.

Apparently the notice said the funds had matured and would be reinvested for a term of two years unless I elected to withdraw.

My financial adviser, who has dealt with Guardian Trust on my behalf, tells me that this has also happened to other clients with money in the Guardian Trust Mortgage Fund.

Apparently the prospectus says an early withdrawal penalty fee of 1 per cent can apply, but the trust says it will not allow any early withdrawal even if I pay the 1 per cent.

How do I get my money back? I feel that it's unfair and unprofessional that because I didn't answer Guardian Trust's letter it automatically locked my money away for another two years.

Are they so desperate for fees that they have to resort to this sort of thing? What can I do?


A. Have you considered you might be the one who is being unfair and unprofessional?

When you went into the investment, you were given the choice of getting your money back after your first two years, or of having it reinvested on maturity. You chose the latter.

You've since changed your mind and want your money out.

If you made that decision before last September, you should have kept track of when the investment matures and taken your money then.

Being overseas is no excuse. You could have notified Guardian Trust before you left, or written to them from overseas.

Perhaps you did not want to bother with such matters while on holiday. But that's your choice and you have to accept the consequences.

If your decision to get out of the fund was made since September, you may have to live with the fact that you tied up the money for another two years.

When you commit money like that, you tend to get a higher return than in short-term or on-call investments. The disadvantage is that you lose flexibility.

Your financial adviser should have made this clear to you when you went into the fund. Maybe she or he deserves some of the blame.

There is hope, though. Tony Morgan of Guardian Trust says you can transfer your units to someone else "by using the standard securities transfer form. There is no brokerage, duty or other cost."

The only trouble is you have to find a buyer. Perhaps, Mr Morgan suggests, you could ask your adviser if she or he has another client who would like to buy your investment.

As far as Guardian Trust is concerned, I don't think it has been unfair. The fund invests in property. It's not easy to sell a bit of a property when an investor wants out.

Mr Morgan says the firm has redeemed early "on occasion" - mostly on the grounds of hardship. In those cases Guardian charged a fee of 1 per cent, which was credited to the fund.

At the moment, though, the fund is a little under its target level of liquid assets - non-property investments that can be sold easily when people want their money back at the end of their two-year terms.

Because of that, says Mr Morgan, "the only early redemptions we will consider are those which we have undertaken [to meet] in our offering documentation. They are on the death of an investor or on the death of the life tenant of an investing estate.

"We have not, in our prospectuses or investment statements, undertaken to meet early investment requests in any other situation."

Those are the conditions under which you made your investment.

Incidentally, Mr Morgan says Guardian Trust recently looked into listing the property fund on the stock exchange, but it decided the move would not be in the best interests of investors.

It would, though, have made it much easier for you to get your money out. That is one advantage of listed investments.

Q. For the past two years I've owned a house that has been rented out. Last tax year I claimed the usual depreciation on the house and chattels.

I've recently sold the house and, even allowing for the depreciation claimed, I'm still faced with a considerable loss.

My question is, can I claim a tax rebate on the difference between the net purchase price (including depreciation) and the selling price? If so, can I deduct the estate agent's fee from the selling price?

I have never lived in the house and I bought it purely as an investment.


A. Sorry, no. When you bought the house, presumably you expected to sell it at a profit?

If you had done so, I doubt if you would have been lining up to pay tax on the capital gain you made. So you can't really expect to deduct the loss.

In fact, buildings are specifically excluded in the law that generally allows you to deduct a loss on the sale of an asset, says KPMG tax partner Craig Elliffe.

The exception to this is if you are a trader in real estate. But if you are a trader intending to sell a property soon after buying it, you can't depreciate the property.

You did claim depreciation, so you cannot turn around now and say you are a trader. Even for those who do not claim depreciation, Inland Revenue requires evidence that the purchaser planned, from the start, to flick off the property quickly, says Mr Elliffe.

He gives as an example of such evidence: "You might have told the bank you only wanted a loan for six months, and then you were going to sell because you had other commitments."

Not many investors in rental property would qualify.

Getting back to your situation, at least you can be glad you claimed depreciation last year.

Some tax experts advise against claiming depreciation on a rental property because, if you later sell at a profit, the depreciation is clawed back.

As it has turned out for you, though, part of your loss - the amount you depreciated - helped to cut your taxes last year.

And don't forget to claim depreciation in the year of the sale. If you sold five months into the tax year, you claim five twelfths of the annual amount.

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