Money: Rent for odd jobs no threat to Super

By Mary Holm

Money matters


Q. I am a 70-year-old who lives rent-free in a basement flat in return for looking after my landlord's lawns, garden, etc.

I am not paid any money and my super does not include an accommodation allowance.

Must I report the circumstances to the National Superannuation department, and is my pension then reduced?

I have a feeling that thousands of senior citizens, whose only income is the superannuation, would appreciate an answer to that question.


A. Rest easy. You're entitled to everything you get - and possibly even more.

You and other senior citizens are not the only ones confused about this. More than half of all New Zealanders think NZ Superannuation is still means tested, according to the Super 2000 Taskforce.

The fact is that these days NZ Super is available to everyone more than 64 years and three months old. The age gradually rises to 65 in 2001.

It doesn't matter what your income is, how many assets you have, or whether you get any other deals, like your rent-free flat. You still get the full amount.

There are no plans afoot to change this - although I wouldn't be surprised if the wealthier retired get reduced Super in years to come.

The accommodation supplement is available to those who pay more than a certain amount in rent, board or mortgage payments, so of course you don't qualify for that.

You might, though, qualify to receive the single living alone rate, which is $255.27 a week before tax ($212.69 a week after tax for all but those on high incomes), says Work & Income NZ.

If you're getting the lower rate for singles sharing accommodation, of $233.80 a week ($195.84 after tax), check at your local WINZ Super Centre to see if you can go on the higher rate.

You might be eligible if your flat is self-contained and you don't share meals and so on with your landlord.


Q. I don't have a finance background so may well have missed the point that you were making in last week's article "Rental property v share funds".

I feel that you were not explicit about the fact that the original investment of $40,000 paid for the $90,000 rental property will have increased in equity by the end of the 10-year period, by which time the property will be freehold.

Effectively rent has been paid in to the family property and thus the capital gain (shared) is complemented by a gain of $50,000.

Bearing in mind that there is an incentive for the son to maintain the property in a caring fashion, and there is always the risk that plans could alter, overall I feel that property in this case is a better option.


A. You are right that I wasn't explicit about the $50,000 mortgage being paid off. But it was implicitly included when I wrote about the returns on property versus a share fund. I'll explain.

In both cases, the returns are made up of an income flow - rent or dividends - and, hopefully, a capital gain.

In New Zealand, dividend and rental flows are often similar, percentagewise - at perhaps around 5 to 7 per cent. That means you can compare the gains on shares and property on an equal basis.

But on shares in other countries (except Australia), dividends tend to be lower, maybe around 2 per cent.

Overseas companies, instead, reinvest more of their earnings into the business, so the capital gains tend to be higher.

If the couple in last week's column invests in the rental property, they'll get rental income. Part of that will be used to cover expenses, including mortgage interest, and part will repay the mortgage principal.

Over the 10 years, they'll be better off by the $50,000 they pay off the mortgage.

They will also get their share of the capital gain on the property (split with their son's family).

If, instead, they put their money in the suggested alternatives, Tower TORTIS International or AMP's WiNZ, they won't get much in the way of dividends. But they might get such a superior capital gain, with dividends reinvested, that it more than makes up for that.

Is that likely?

From the time TORTIS International was started, in February 1997, to the end of November 1999, it has returned 30.8 per cent a year, including dividends.

From the start of WiNZ, in August 1997, to the end of November, it has returned 32.4 per cent a year, including dividends. These are phenomenal numbers.

If those returns continued for 10 years, our couple's $40,000 would grow to around $587,000 or $662,000.

I can't quite see the property value growing that much - even before the gain is split with the son, and even after adding the $50,000 in repaid mortgage.

Of course this isn't really fair. We're looking at too short a period for the share funds. It's extremely unlikely they would grow that fast for 10 years.

Still, when Tower looked back five years, at how well TORTIS International would have performed if it had been running for that long, it came up with 21.15 per cent a year.

At that rate, the $40,000 would grow to $272,000 over 10 years. It's still hard to imagine the property gain and repaid mortgage matching that, in these times of low inflation.

Admittedly, growth in share funds over the next decade is expected to be quite a lot slower than growth in the last few years. Even so, I stand by my conclusion that the share funds might have the edge over the property.

Q. I have always read your column with interest. In last week's article on rental income, there is an error. You advise, "You won't be able to deduct the mortgage interest on your tax return, because when you originally borrowed the money, it was not for investment purposes."

This is not correct, as the Income Tax Act specifically allows a deduction for costs incurred in the production of assessable income. On this basis a deduction would be allowed for the interest.


A. You're absolutely right. I got my tax rules muddled, and should have checked more thoroughly.

Your correction means that if last week's reader rents out his house while he's overseas, he'll get a tax break - which might, or might not, affect his decision. There are still lots of other factors to consider.

* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@journalist.com. Letters should not exceed 200 words. We won't publish your name, but please provide it and a phone number in case we need more information.