SUM - Summerset Group

[couta1]

Hoop, I think you will find that anyone in the Business of share trading such as yourself would continue to pay tax at your marginal tax rate (Or company tax rate) rather than the lower, say 15% CGT rate. Only investors would pay the lower rate upon sale of their shares. Your losses would continue to be claimed against your income whereas any losses an investor occurs would more than likely only be able to be offset against future capital gains.

[Beagle]

Direct Impact
Purely speculative but here's how I see it.
The taxation of retirement villages falls under the financial arrangements provisions of the Income Tax Act.
Incoming residents buy an Occupation right agreement and never own the unit itself.
The thrust of the ruling that retirement villages have is that the incoming resident outlays a sum of money which is loaned interest free to the retirement company and they get about 75% of that back when they vacate the unit.
The retirement company pays tax on the portion on the ~ 25% they keep, less any allowable deductions.
The retirement company although involved in extensive development activities is not classified as a developer as it never actually sells the units. Sometimes a village in its entirety is owned in one title, usually by a subsidiary company of the main holding company, in this case Summerset Holdings Limited.
As a result of the retirement never selling the units, i.e. the right to occupy is simply a financial arrangement between the occupier and the retirement company its is highly unlikely that general capital gains tax would have any impact on a retirement company unless an entire village was sold.

Okay so that's how I see it at present however one cannot rule out the possibility of Taxcinda Marx ordering a re-write of the financial arrangements section of the income tax act to include specific provision for these types of arrangements to fall within a new CGT regime.

If this were to happen one needs to consider a couple of further things.
1. The likely duration of this new tax, would a future National Govt reverse it ?
2. The impact on the forward PE currently at 12.2 based on my estimate of $85m. My estimate is this moves the forward PE up to 12.2 / (1-0.28) = 16.9

In a worst case scenario the question I asked myself yesterday was can I find any other company on the NZX which has a 5 year compound average growth rate of 48% in underlying earnings trading on a forward PE of less than 17. I cannot think of one in any industry let alone an industry which has strong demographic tailwinds for the next 20-25 years.

Indirect Effect
Effect on house prices and sale ability. Behind the paywall article on NBR suggested that there is no credible evidence in any overseas country where a CGT was implemented that it had any material impact on house prices. I'm going to accept that at face value as I simply don't have the time to research this thoroughly.

Conclusions:
1. I'm assuming the chances of a Labor government is pretty high.
2. I'm also assuming the chances of a specific CGT as being very high.
3. We cannot know the odds that Taxcinda's "stacked left leaning working group of tax professionals", does anyone really imagine these people will be objective, (please excuse my cynicism) will target the retirement sector specifically as a supplement to a specific capital gains tax, but I would rate this chance as moderate
4. We cannot estimate the chances of a future National Government overturning Taxcinda's CGT or its possible provisions in regard to the financial arrangements section fo the Income Tax Act but I am anticipating her new tax if implemented to be extremely unpopular and the chances of it being durable as being only quite moderate.
5. In a worst case scenario where Retirement companies have to pay full tax permanently I still consider SUM shares to be outstanding value on a forward PE of 17 fully taxed relative to the market overall at a forward PE of 20.
6. Given 5 and that a permanent full tax on retirement companies on the balance of probabilities is probably unlikely does the present Taxinda Marx hysteria present a buying opportunity ?
I think you all know what I think the answer to question 6 is.

The above is simply a hound chewing the fat and should not be considered to be professional advice.

[janner]

I must say that I was unable to follow the weeks and weeks of expectations from so many .. When all the signals were showing a negative..
Don't believe me ???

Long term ... Maybe... I think too many climbed aboard looking for a rapid rise..

Question 6. ????.. Do your own research..

[percy]

Direct Impact
Purely speculative but here's how I see it.
The taxation of retirement villages falls under the financial arrangements provisions of the Income Tax Act.
Incoming residents buy an Occupation right agreement and never own the unit itself.
The thrust of the ruling that retirement villages have is that the incoming resident outlays a sum of money which is loaned interest free to the retirement company and they get about 75% of that back when they vacate the unit.
The retirement company pays tax on the portion on the ~ 25% they keep, less any allowable deductions.
The retirement company although involved in extensive development activities is not classified as a developer as it never actually sells the units. Sometimes a village in its entirety is owned in one title, usually by a subsidiary company of the main holding company, in this case Summerset Holdings Limited.
As a result of the retirement never selling the units, i.e. the right to occupy is simply a financial arrangement between the occupier and the retirement company its is highly unlikely that general capital gains tax would have any impact on a retirement company unless an entire village was sold.

Okay so that's how I see it at present however one cannot rule out the possibility of Taxcinda Marx ordering a re-write of the financial arrangements section of the income tax act to include specific provision for these types of arrangements to fall within a new CGT regime.

If this were to happen one needs to consider a couple of further things.
1. The likely duration of this new tax, would a future National Govt reverse it ?
2. The impact on the forward PE currently at 12.2 based on my estimate of $85m. My estimate is this moves the forward PE up to 12.2 / (1-0.28) = 16.9

In a worst case scenario the question I asked myself yesterday was can I find any other company on the NZX which has a 5 year compound average growth rate of 48% in underlying earnings trading on a forward PE of less than 17. I cannot think of one in any industry let alone an industry which has strong demographic tailwinds for the next 20-25 years.

Indirect Effect
Effect on house prices and sale ability. Behind the paywall article on NBR suggested that there is no credible evidence in any overseas country where a CGT was implemented that it had any material impact on house prices. I'm going to accept that at face value as I simply don't have the time to research this thoroughly.

Conclusions:
1. I'm assuming the chances of a Labor government is pretty high.
2. I'm also assuming the chances of a specific CGT as being very high.
3. We cannot know the odds that Taxcinda's "stacked left leaning working group of tax professionals", does anyone really imagine these people will be objective, (please excuse my cynicism) will target the retirement sector specifically as a supplement to a specific capital gains tax, but I would rate this chance as moderate
4. We cannot estimate the chances of a future National Government overturning Taxcinda's CGT or its possible provisions in regard to the financial arrangements section fo the Income Tax Act but I am anticipating her new tax if implemented to be extremely unpopular and the chances of it being durable as being only quite moderate.
5. In a worst case scenario where Retirement companies have to pay full tax permanently I still consider SUM shares to be outstanding value on a forward PE of 17 fully taxed relative to the market overall at a forward PE of 20.
6. Given 5 and that a permanent full tax on retirement companies on the balance of probabilities is probably unlikely does the present Taxinda Marx hysteria present a buying opportunity ?
I think you all know what I think the answer to question 6 is.

The above is simply a hound chewing the fat and should not be considered to be professional advice.

Thanks for sharing your thoughts.

[Jay]

Yes thanks Mr Beagle
Generally successive governments don't reverse things - especially taxes, so I wouldn't be holding my breath, may tinker but not reverse.

[allfromacell]

I imagine a land tax is just as likely as a capital gains tax. My thinking is a land tax would have a greater negative affect on retirement villages?

[Beagle]

I imagine a land tax is just as likely as a capital gains tax. My thinking is a land tax would have a greater negative affect on retirement villages?

No I don't think so as the land is intensively developed. One cannot rule out a reintroduction of death duties or a national superannuation surtax either. Anything that favors the young and penalizes the establishment is on the cards for a leader so young who is making up policy "on the fly"

[percy]

Young and "on the fly"?
Received a Labour mailer today with very much the "old pro" old fashioned bribe.
Labour will provide support for keeping warm in winter.
If Labour are elected to government those receiving superannuation or a main benefit will receive a Winter Energy Payment,which will be $700 for couples and $450 for single people.I know that many older Kiwis simply do not heat homes in winter because of a lack of money,this payment will help those people keep warm during the winter months.
Warm Regards.'Megan Woods.MP for Wigram.

Maybe Steven Joyce's figures are correct.?

[fish]

Young and "on the fly"?
Received a Labour mailer today with very much the "old pro" old fashioned bribe.
Labour will provide support for keeping warm in winter.
If Labour are elected to government those receiving superannuation or a main benefit will receive a Winter Energy Payment,which will be $700 for couples and $450 for single people.I know that many older Kiwis simply do not heat homes in winter because of a lack of money,this payment will help those people keep warm during the winter months.
Warm Regards.'Megan Woods.MP for Wigram.

Maybe Steven Joyce's figures are correct.?

Clearly a bribe for votes without much thought or costing.
Superannuation will not be sustainable at present levels in the future without even adding $700 to couples.
I would be receiving this next year but hope to be spending the worst of the winter overseas in a warmer climate.
Why pay me?
Why pay couples more-its the singles who are cold!
So easy to give away taxpayers money under labour/green

[Joshuatree]

Shame you've bought politics into this thread. Oh well rebuttal time.National are being more left right and all over the place throwing so many tainted carrots around; so i think you're being a bit blinkered there fish Stephen Joyce has been proved to be an out and out liar and he has dragged his party down the gurgles this week including his leader and bennett as well.

"The National Government was handed a strong economic foundation by the prior Labour government. Helen Clark produced nine budget surpluses" then bill raised tax 18 times!!!!
.