SUM - Summerset Group

[Beagle]

It amazes me that this is headed towards $5 given the outstanding results and momentum SUM have. I'll be topping up soon to make this my #1 share. Im thinking of trying to time my entry though, so will see if it heads lower in the short term.

The thing I love about SUM is there are so many tailwinds that if you're willing to hold for the long term you can't really go wrong (or at least that's what I tell myself). Plus a roughly 2% dividend yield isn't that far off the banks.

Roger we seem to be doing similar things investment wise at the moment?!

I'd like to think its great minds think alike mate

Maybe someone here can explain how that works? How they can get away with it, given the profits they make and returns to shareholders. Wouldn't want this to turn out to be a rort, or for the IRD to rule adversely, let alone back date a ruling.

Retirement companies got a binding ruling from the IRD on this many, many years ago. I'd prefer not to get into the ethics of this debate other than to say in the very long run I suppose at some stage there is some risk of a law change in this area.

[Baa_Baa]

Retirement companies got a binding ruling from the IRD on this many, many years ago. I'd prefer not to get into the ethics of this debate other than to say in the very long run I suppose at some stage there is some risk of a law change in this area.

Ok, forget the ethics then, what is it that enables a 'retirement company' to obtain a binding ruling, that exempts them from paying tax?

I wonder how many shareholders actually knew this. Maybe some/most did know, I'm just asking, as it seems a false pedestal for commercial achievement and one that can be whipped away at the behest of the IRD.

Not to mention MSD potentially changing the rules on care subsidies like they have in Australia. Seems this sector is riding the back of the taxpayer, for the advantage of shareholders, but that's just a personal perception.

Having some experience working with the IRD, it's situations like this that hit the public spotlight where the Commissioner gets a 'please explain' and suddenly there is a reversal of sentiment. The big rule in government agencies is never do anything that makes it to the front page of the newspaper and embarrasses the Commissioner, or CEO.

So now we have a headline. What next?

[trader_jackson]

I have to say, there have been so many posts I haven't been able to keep up... I think I posted about 2 days ago and in that time another 4 or 5 pages have been added... mostly not to do with SUM (I think?) Almost to do with retirement operators in general by the looks of it?
Should maybe create another thread?

[Beagle]

Ok, forget the ethics then, what is it that enables a 'retirement company' to obtain a binding ruling, that exempts them from paying tax?

I wonder how many shareholders actually knew this. Maybe some/most did know, I'm just asking, as it seems a false pedestal for commercial achievement and one that can be whipped away at the behest of the IRD.

Not to mention MSD potentially changing the rules on care subsidies like they have in Australia. Seems this sector is riding the back of the taxpayer, for the advantage of shareholders, but that's just a personal perception.

Having some experience working with the IRD, it's situations like this that hit the public spotlight where the Commissioner gets a 'please explain' and suddenly there is a reversal of sentiment. The big rule in government agencies is never do anything that makes it to the front page of the newspaper and embarrasses the Commissioner, or CEO.

So now we have a headline. What next?

You would need to go back and have a look at the "binding ruling" that binds the Commissioner. My understanding is it would take a law change to render that binding ruling ineffective but you might like to take your own specialist tax advice on that, I make that comment with due care but NO responsibility. Sorry I don't have unlimited time to research very old binding rulings, if someone else wants to the hard yards leg work please, by all means be my guest. The full behind the paywall article on NBR, (upon which the skimpy N.Z. Herald article is based), included a detailed response from Ryman Healthcare. Copyright, STMOD and the rules of this forum will not permit me to reproduce that here. Only $35 buys you one months access for those that want to see what Ryman had to say on the subject, (they were around a long time before SUM so logic suggests they were the ones that obtained the binding ruling).

[Baa_Baa]

You would need to go back and have a look at the "binding ruling" that binds the Commissioner. My understanding is it would take a law change to render that binding ruling ineffective but you might like to take your own specialist tax advice on that, I make that comment with due care but NO responsibility. Sorry I don't have unlimited time to research very old binding rulings, if someone else wants to the hard yards leg work please, by all means be my guest. The full behind the paywall article on NBR, (upon which the skimpy N.Z. Herald article is based), included a detailed response from Ryman Healthcare. Copyright, STMOD and the rules of this forum will not permit me to reproduce that here. Only $35 buys you one months access for those that want to see what Ryman had to say on the subject, (they were around a long time before SUM so logic suggests they were the ones that obtained the binding ruling).

That's a very defensive response Roger, but I can understand why, as it's not your or my responsibility to define or defend the IRD's binding rulings.

I am only interested in why the 'retirement companies' enjoy such a ruling and whether it is vulnerable. In my experience the IRD can unbind a binding ruling just as easily as they can create the binding ruling. They are a very short step away from making legislation.

It still seems that the 'retirement sector' might be propped up by MSD's residential care subsidies that could be revoked or amended at any time, and we are now informed about the no-tax prop that the sector enjoys.

What comes around goes around, it seems prudent to examine what is actually making this sector so profitable for shareholders, and what could be taken away at the swipe of the IRD Commissioner's and/or the MSD's CEO's pen.

[couta1]

That's a very defensive response Roger, but I can understand why, as it's not your or my responsibility to define or defend the IRD's binding rulings.

I am only interested in why the 'retirement companies' enjoy such a ruling and whether it is vulnerable. In my experience the IRD can unbind a binding ruling just as easily as they can create the binding ruling. They are a very short step away from making legislation.

It still seems that the 'retirement sector' might be propped up by MSD's residential care subsidies that could be revoked or amended at any time, and we are now informed about the no-tax prop that the sector enjoys.

What comes around goes around, it seems prudent to examine what is actually making this sector so profitable for shareholders, and what could be taken away at the swipe of the IRD Commissioner's and/or the MSD's CEO's pen.

These companies are doing the Govt and country a huge service, sure they make good profits but that's the aim of every good business. If not for the likes of Sum and co the Govt and taxpayer would be subject to a massive expensive problem to accommodate and care for the people currently residing in these villages. The chance of the ruling being reversed is miniscule IMO. Reducing the residential care subsidy would also create massive problems in itself, once again where would you put all the people that would then be unable to afford to stay in the facility as private payers. Huge demographic tailwind set to fuel the demand for many years to come, it would be a completely dumb move by any authority to change a system which works incredible well for all parties involved.

[Snow Leopard]

Are you sitting comfortably?
Then I shall begin...

There is a straight forward principal in the New Zealand Tax System that items which are held with the primary intention of deriving income from, are themselves exempt from taxation on the change in their 'capital' value.

Essentially the binding ruling defines a retirement village operators apartments etc as falling into this category and thus exempt from 'capital gains tax'.

The main activities of the retirement village operators, to provide accommodation and care etc are very taxable.

While some operators shamelessly make a profit doing so (i.e. Arvida) others such as Ryman and Summerset just about break even, practically charities .

So there you have it:
They build properties to provide services to the elderly, they keep said properties, making only unrealised capital gains on, which is not taxable;
and if they make a profit on the services themselves then tax is paid.

I can foresee a few 'wait, but' and similar objections but I do not care for I have my black coffee and it came with a little caramelised biscuit.

Best Wishes
Paper Tiger

PS: see this post to understand the coffee reference. I thought it worthwhile associating the two threads .

[Bjauck]

Are you sitting comfortably?
Then I shall begin...

There is a straight forward principal in the New Zealand Tax System that items which are held with the primary intention of deriving income from, are themselves exempt from taxation on the change in their 'capital' value.....

A principal defined by its exceptions? One of these exceptions being the Fair dividend rate applied to Foreign Investment Funds (this can apply a tax on unrealised capital gains). Another is the taxation of unrealised increase in market value of fixed interest securities for taxpayers subject to accrual rules. DYOR. Plus there are other situations when an investor's realised capital gains, regardless of intent, are subject to income tax etc.

[couta1]

Plenty of tax paid from the existence of these companies whose shareholders pay tax at the rate of 33% on unimputed dividends. I know Ryman distribute 50% of underlying profit as divvies, not sure about the % for Sum or Met. Not to mention the mass of tax paid by the thousands of employees of these companies as well as all the contractors and suppliers, and let's not forget all those ACC Levy's. Overall this sector is a great contributor to the NZ tax base.

[Beagle]

These companies are doing the Govt and country a huge service, sure they make good profits but that's the aim of every good business. If not for the likes of Sum and co the Govt and taxpayer would be subject to a massive expensive problem to accommodate and care for the people currently residing in these villages. The chance of the ruling being reversed is miniscule IMO. Reducing the residential care subsidy would also create massive problems in itself, once again where would you put all the people that would then be unable to afford to stay in the facility as private payers. Huge demographic tailwind set to fuel the demand for many years to come, it would be a completely dumb move by any authority to change a system which works incredible well for all parties involved.

I agree 100%. One of the other things RYM said in response was that over the years 50% of their underlying profit has been paid out as unimputed dividends which are taxable in shareholders hands.
I believe how our learned friend Paper Tiger has summed it up above, summarizes the situation quite well.