Harmoney

[Monica@Harmoney]

Permutation - I have not heard that you had a query regarding this matter. If you could email the exact loans you are referring to - I can certainly look into it for you.

Funded loans - in relation to the timing between the dashboard and your loans invested list - there is sometimes a delay between these. We have to go through the entire transaction, fractionalise the amounts before we update your dashboard - so your reports will always be faster. This is because we have batch jobs that need to run first before we are able to update your dashboards. The system is not 'live' - i.e. to the second, but it certainly does update on a regular basis to ensure that all transactions have been taken into account - that means those coming from the banks (all banks), in's and out's.

[Monica@Harmoney]

Hi all, we are looking at a way in which we can get further information regarding tax. But it does depend on whether you are a 'professional' or '
incidental' lender. That is why each persons tax liabilities are their own and very personal to your own circumstances. Monica.mathis@harmoney.co.nz

[Bjauck]

Hi all, we are looking at a way in which we can get further information regarding tax. But it does depend on whether you are a 'professional' or '
incidental' lender. That is why each persons tax liabilities are their own and very personal to your own circumstances. Monica.mathis@harmoney.co.nz

I would have though that Harmoney could get guidance for both classes of investors - professional and incidental. Obviously it would then be up to the investors themelves, with accountant help, to determine to which class, professional or incidental, they belong.

Anyway thanks for you answer as it is helpful in that it indicates that guidance on the question of law from Harmoney is not imminent and not likely for the current tax year. So, as far as I am concerned, my question of Harmoney has been resolved.

[Harvey Specter]

Bjauck - I have already said the law is clear. 'professional = deductible, 'incidental' = non-deductible. The difficult bit is trying to determine which category you are in and that is fact driven, which IRD can give a ruling on and as you state in your post, you need to talk to your accountant about.

If you are a wage or salary earner, and you invest in Harmoney in your own name, my view* is you are incidental. If you invest via an entity that all it does in invest in a diversified portfolio of investments, then you are probably 'professional' but IRD may try to argue a higher standard (ie.not 'professional' or 'in the business of' unless that investment is substantial).

​* from someone anonymous on the inernet

[Bjauck]

​* from someone anonymous on the inernet

Unlike the investor in the Hanover collapse example previously mentioned, a $10,000 investment by an incidental individual (non-entity) investor in Harmoney can actually involve decisions to invest in perhaps 400 different loans in various $25 multiples with subsequent investments in loans throughout the year. Each loan is given a percentage probability of being charged off. The charge-offs together with the service charges are a contemplated expense of the investment with Harmoney. That is why I think guidance from the IRD on this new type of financial arrangement with (capital)charge-offs likely to occur on a regular basis would be welcome.

As I understand it, the total return (capital and income) from Financial arrangements even for an "incidental" or "portfolio" investor is taxable. Unless the loss in capital is due to a loss in credit-worthiness. As a certain percentage loss had been contemplated each time an investor invested in notes of certain grades (with an expected capital loss incorporated in the expected return figures supplied by Harmoney) then would an actual (contemplated) charge off actually be due to loss in credit worthiness? Also Harmoney itself has not suffered any loss in credit-worthiness and they are the ones who make the actual interest payments and deductions to the investors accounts. Your "return" from your Harmoney financial arrangement is actually your gross interest less all deductions and their credit rating is not affected by the bankruptcy of any one individual they lend your "notes" to.

Anyway I agree, until guidance is forthcoming, it would be best for an "incidental" "non-entity" investor to treat charge-offs as definitely non-deductible.
Disclaimer: These are my non-professional anonymous opinions! Definitely Do You Own Research.

[Harvey Specter]

Interesting/good points Bjauck but I dont think that is the way the legislation is drafted.The point about effort (400+ loans vs just 1 bought after recommendation from a broker) is a good one as I dont think there are many places that say an activity requires a certain $ amount before it becomes a business. A business is just using effort (labour or capital) to produce a positive return.

interesting point that the interest is paid by Harmoney. I think they may only be treated as an agent so the interest actually comes from the borrower.

[Bjauck]

interesting point that the interest is paid by Harmoney. I think they may only be treated as an agent so the interest actually comes from the borrower.

The agency aspect is interesting. I don't know much about the law of agency. However with other loans arranged by an agent I think that the principal (as opposed to the agent) actually becomes the lender and enters a contract with the borrower whereas I don't think that happens when Harmoney allots a note to an investor. The investor does not enter a contract with the borrower.

Indeed Harmoney also determines how much information is passed on to the investor in relation to the loan and the borrower. Would an investor even intend to have a contractual relationship with the borrower that was independent of Harmoney?

I think Harmoney determines when and how borrower defaults are passed on to investors and this is part of the financial arrangement contract between Harmoney and the investor.

[Knot]

A Trustee is the middleman in all Harmoney loans.

[Bjauck]

A Trustee is the middleman in all Harmoney loans.

So simply put, the way I see it, is...Harmoney enters into a financial arrangement with the Investor who then deposits their money into an account held by the trustee. Harmoney then enters into financial arrangements with the borrowers who then deposit their payments into an account held by the trustee. So the investor's financial arrangement is with Harmoney who, in the normal and solvent course of their operations and according to the contract with the investor, deduct charge-offs to the investor's account. My untrustworthy opinion only.

[Knot]

Borrower Agreement:
18. Immediately after Harmoney has provided the Loan Disclosure to you, a Loan Contract will come into existence under which the Trustee (who will be the lender of the Loan) will agree to advance the Loan Amount to you.

Investors Agreement:
11. Every Loan you fund through the Service will be made by the Trustee (acting through Harmoney as its agent). The Trustee will then hold that Loan on a bare trust for the benefit of yourself and every other Participating Investor in accordance with clause 15.

The investor agreement goes into some detail about the Trustee role; https://www.harmoney.co.nz/how-it-wo...stor-agreement

btw the Trustee has Harmoney as it's agent, so in some ways it is all smoke and mirrors (ie the trustee doesn't actually do anything)