Harmoney

[Beagle]

Disc - As most of you know I'm an accountant. I am extremely reluctant to give an answer to this deductibility question as I am fairly sure this is something that will be subject to litigation with the IRD in due course. This isn't clear-cut and its an entirely new investment product. In my opinion much will depend upon the circumstances of each investors case. If you're clearly a professional investor and the size of your investment in Harmoney is substantial and spread over a substantial number of loans AND the level of proven bad debtors was significantly more than the expected delinquency rate as modelled by Harmoney I think there's a reasonably good arguable case that those losses are deducible under the general provisions of a necessarily incurred business expense. For smaller investors it could be possible to make a case that delinquent debtors are an ordinary and expected cost in making this sort of investment i.e. just like the commission that Harmoney take out.

[Harvey Specter]

Disc - As most of you know I'm an accountant. I am extremely reluctant to give an answer to this deductibility question as I am fairly sure this is something that will be subject to litigation with the IRD in due course.
I recommend you discuss this with your accountant.

Not worth a binding ruling (unless Harmoney did a product ruling) but maybe someone should submit a question for a QWBA (is there a formal way to do that or do they just answer what they want?).

For those wanting more info, I think this is the relevant section: http://www.legislation.govt.nz/act/p...LM1513650.html

Most punters would fall under subsection (2) (deduction limited to accessible income) but a deduction can be claimed for capital loss if you fall under subsection (3). The question being does holding hundreds of loan notes make you a person who "carries on a business for the purpose of deriving assessable income that includes dealing in or holding financial arrangements that are the same as, or similar to, the financial arrangement"

[Beagle]

Not worth a binding ruling (unless Harmoney did a product ruling) but maybe someone should submit a question for a QWBA (is there a formal way to do that or do they just answer what they want?).

For those wanting more info, I think this is the relevant section: http://www.legislation.govt.nz/act/p...LM1513650.html

Most punters would fall under subsection (2) (deduction limited to accessible income) but a deduction can be claimed for capital loss if you fall under subsection (3). The question being does holding hundreds of loan notes make you a person who "carries on a business for the purpose of deriving assessable income that includes dealing in or holding financial arrangements that are the same as, or similar to, the financial arrangement"

The bigger your investment in Harmoney the stronger your case that you are in business IMO.
Not sure Harvey. Lots of TIB's, (Technical Information Bulletin's) with questions we've been asked and answers...one wonders how many questions they've been asked that they haven't answered ???
There's so many variables. Anything from a single individual investing say $500 to a professional investor (company / individual, joint investor / trust) with a multi million dollar portfolio investing a six figure sum I'm not sure they would know the answer to a generic question of loss deductibility on this new investment product. Case law will surely develop over time.

[Harvey Specter]

. Case law will surely develop over time.

Not sure about that. hardly worth going to court for unless you are big (which means less likely to be disputed as in business).

[Beagle]

Not sure about that. hardly worth going to court for unless you are big (which means less likely to be disputed as in business).

There's always the prospect of Taxation Review Authority decisions in due course and the prospect that if they're challenged in court the Judge may give a ruling that gives a view on general deductibility criteria notwithstanding the specific aspects of the case.

For my money it's a lot easier, (more time efficient and potentially far more rewarding as well as probably far less problematic), to invest in HNZ shares and let them take care of all the administration. Just sit back and allow the fully imputed dividends to increase my investment via shares in lieu of dividend and watch the share price increase over time

Harmoney could be a name that's suggestive of an investment experience that could prove to be anything but that for some investors...just saying.

Remember Geneva finance that was such a sweet name that was suggestive of a Swiss financial institutional banking experience ?...an Omen for Harmoney ?
Post #53 sum's up my concerns in a nutshell. Who needs the potential aggravation ????

[winner69]

The time to avoid Harmony will they get a big name on TV telling us great they are .... both as a lender as well as somewhere to invest

Somehow I feel I had God on my side when I failed who I am test and got rejected out of hand

[emveha]

Post #53 sum's up my concerns in a nutshell.

Where you're comparing borrowers with monkeys?

[Harvey Specter]

For my money it's a lot easier, to invest in HNZ shares

Evena TRA case is likely to cost more than the forgone deduction for capital loss unless you have 100k's invested.

Dont worry, I have a lot more invested in HNZ than I do in Harmoney.

[Harvey Specter]

Depends on the extent of the loss.

Say $100k with Harmoney (which would be alot!) and say 25% default (higher than they predict) so $25k loss in a year. But part of that can be offset against interest income so say $20k capital loss. Tax on that is under $7k. Unless this is multiple years (4 years x $7k) or there was a total market collapse (losses greater than $25k) then the cost to go to court would exceed the tax in question. And that is someone with a big holding who is more likely to claim they are in the business so less likely to be pursued by Inland Revenue.