I'm looking at growing a passive income through share trading, albeit with a bit of learning in front of me.

One thing I'm struggling with is getting a clear picture of my tax obligations. Dividends seem to be quite clear, but things get very vague on returns from selling at a profit ... or dare I say it, capital gains tax?

I know they've tried to simplify it across the board, but I don't understand how everyday New Zealanders can aspire to make a better life for themselves by investing and growing wealth if things are so unclear.

I even spoke to an accountant who gave me an equally vague and non-commital response (they obviously didn't know either). I would love your thoughts.

First, a warning that people who trade shares tend to do worse than those who buy and hold.

In one study of US investments between 1991 and 2010, if you had put $10,000 into a share index fund and left it there, your return would have averaged 7.7 per cent and your money would have grown to $44,000. But the typical investor's return was only 2.6 per cent.

And their investment would have grown to just $16,700 — way less than half. The difference is basically because traders make wrong calls about as often as right calls, and there are costs to trading — including tax, as you note.

If you still want to trade, the law about tax on your gains is the same as the law about tax on gains on investment property or art or anything else, actually.

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If you buy with the intention of selling at a profit, that profit is taxed as income. And if you're trading frequently, you would be hard pressed to argue you didn't buy with that intention.

But I'm not surprised you've had trouble finding information on this. I spent some time on the Inland Revenue website and ended up asking IRD. A spokesman there confirmed what I've said in the last paragraph, but he couldn't find clear language about it on the website either.

I suspect many New Zealanders don't pay tax on their gains on shares, but I'm certainly not saying you shouldn't. I don't know how vigilant Inland Revenue is in this area, and it's not wise to be caught for not paying taxes. There are interest charges and penalties that can mount up.

This whole situation arises, I reckon, from the fact that the law is about intentions. When I first came back to New Zealand from years overseas and learned about this, I couldn't believe it. How do you prove people's intentions? We end up with some people paying the tax, and perhaps feeling foolishly obedient when talking to others who don't.

If there's one thing I hope the Tax Working Group clears up, it's this mess. And good luck with the trading if you insist on doing it!

Unfair KiwiSaver?

I know you get a bit tired of all the KiwiSaver letters, but I have a question I would like you to answer.

Why is it that the Government, in its wisdom, decided that New Zealanders needed to save for their retirement but made the employers shoulder a reasonable proportion of that responsibility too?

The Government didn't take too long to renege on its end of the bargain by halving the tax credit and then defaulting on the $1000 kick-start, but the poor old employer didn't receive any concessions at the same time.

Keep up the good work, Mary, and please don't stop "talking" about KiwiSaver — it affects so many New Zealanders.

I'm always happy to run letters about KiwiSaver — even though some readers have complained in the past. There are now more than 2.85 million members out of 4.88m New Zealanders. And others will have adult children or parents in the scheme.

The role of employers in KiwiSaver has changed several times since their contributions were added to the scheme, 44 days before it was launched in June 2007.

Employer contributions started at 1 per cent of pay, and then rose to 2 per cent, but plans for future rises to 3 and then 4 per cent were axed. Later, however, employer contributions were raised to 3 per cent.

The burden on employers was at first softened by a tax credit for them of up to $1043 per employee, but that was later cancelled.

On the Government's side, another KiwiSaver incentive that has been dropped is the $40 annual fee subsidy, which lasted less than two years.

And a couple of KiwiSaver changes have boosted taxes. One is the demise of the employer tax credit, which means employers now pay more tax. The other is the taxation of employer contributions, which has increased over time.

So, yes, the Government is putting in less while employers are putting in more. Why? From the Government's perspective, I suppose it's partly because far more people have joined KiwiSaver than was first expected, so incentives have seemed less and less necessary.

And we need to keep in mind that Government money is taxpayer money. For KiwiSaver members, if the Government puts in more, their taxes will be higher — everything else being equal — so their gain isn't huge.

And those too old or reluctant to join KiwiSaver could ask why their taxes should further subsidise members.

What about employers?

Some complained when KiwiSaver started — although putting in 1 per cent of pay while receiving a tax credit wasn't terribly tough for most.

And since then, employers have probably tended to give smaller pay rises than they otherwise would have to compensate for the costs of KiwiSaver.

This might be wishful thinking, but I would like to think most employers are happy to see their employees building up retirement savings.

Heating up

I believe the heating supplement will be added to superannuitants' fortnightly payments in the near future. Like many others, I am not in great financial need and would prefer the funding to go to those who really need help with heating their homes and surviving.

I believe it will be simple to decline the extra payments.

All credit to the Government for establishing this option.

My concern is whether to take the opting out possibility, or to accept the funding and pass it on to one of the charities I support.

The greater good is my goal.

The winter energy payment, as it's called, will be paid from July 1 to September 30 this year but, from next year, it will start on May 1.

Single people with no dependent children will get an extra $20.46 a week — double that in the fortnightly payment. Couples or people with dependent children will get $31.82 a week.

The Ministry of Social Development says the money "isn't considered income (for tax purposes)". The ministry adds, "If you don't want the Winter Energy Payment, you can choose not to get it. We'll let you know how to do this closer to the time."

So I suppose you'll hear from it in the next few weeks.

Good on you for planning not to take the money, but it might be better to accept it and give it to charity. That way you know exactly where it goes.

And you'll get a tax credit — which of course you can also give to the charity if you wish.

Nothing passive

As a residential property investor for 35 years, I take issue with a recent paragraph you wrote (and it's really hard to get me agitated enough to sit in front of the keyboard!).

You said, "Whatever we do, it won't be totally fair to everyone. That's an impossible dream with taxes. But the current system — with people taxed on the income they earn from work while others are not taxed on the income they earn sitting around doing nothing — has got to be less fair."

Mary, residential property investment is NOT passive. If it was, I would have a lot more houses. Your comment contributes to the illusion of easy money in residential property investment, and it's a bit frustrating when such sentiment comes from "educated" commentators.

I am not debating the need to address the cost of housing. The residential property market is broken to the detriment of first-home buyers and tenants.

I always viewed myself as part of the solution, providing — at as low a cost as possible — adequate residential amenity. But, alas, society views me as part of the problem.

I just want to say be careful what you wish for, as when "mom and pop" investors are forced from the market, society will need sophisticated systems to house the most challenged 20 per cent of the citizenry.

Thanks for letting me rant, Mary. It's a frustrating time for small-time investors — spiralling costs and seemingly being constantly vilified in the press.

If you point out that capital gains may have compensated for my efforts, I am well ready and would enjoy debate.

You've taken my quote rather out of context. I was writing generally about "capital gains on property, shares or anything else". And for the most part, those gains just happen — not as the result of work.

Sure, there tends to be more work in property investment than share investment.

But it's hardly as much work as employees put in. If you're working 40 hours a week on your properties, there's something wrong — unless you own many properties, in which case you're probably richly rewarded.

And not every landlord works on their properties. Many hire others to do that, and still make money.

Still, if you like, I'll change my quote to: "But the current system — with people taxed on the income they earn from work while others are not taxed on the income they earn while doing less or no work — has got to be less fair." My point remains the same.

However, I'm certainly not wishing to see mum and dad investors pushed out of the market, just treated fairly. Despite your last sentence, I'm going to say it — most property investors have been well compensated for their efforts by capital gains.

Oh, and my bill for psychological counselling is in the mail!

- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.