Kiwis are a funny lot

OPINION: We’re a funny lot us Kiwis. I wrote a few weeks ago about family trusts in “Is an investment trust the devil incarnate?” on 31 August.

Since then, coincidentally Trusts, and particularly those of certain MPs, have been in the headlines a lot as people struggle with both the trust and the "allowances" concept in the context of Parliamentary "privileges".

Let's get a few things straight about Trusts:

1. Trusts are a legal way in which to hold assets on behalf of beneficiaries. It is these beneficiaries who have the beneficial ownership, not the Trustees.

2. The legal owners of the assets are the Trustees, but in their capacity as Trustees, not in their personal capacity.

3.  So, for example when Mr and Mrs MP are Trustees of a Trust, they own assets in their capacity as Trustees of the Trust not actually as Mr and Mrs MP.

4. Of course when you search the title of the property that is owned by a trust you get the names of the Trustees. This does not mean that the assets belong to these people as individuals.

Now onto allowances.

First, it's important to acknowledge that the concept of allowances is not perfect:

1.  If a person owns a family home in a particular city or town and needs to move to Wellington for their employment, whilst their family lives in their own home back in their home town, then it is usual for the employer to pay the extra cost and this is usually free of tax.

2.  Where the whole family chooses to move town and rents the old home out, then that rent is usually taxable.

3.  When the family has two homes, by virtue of their job, and occupies both because of the demands of the job, then you can see the logic of the employer paying for that second home.

As you can see, this system, as with many is not perfect. Yet the public still demands perfection.

It's fair enough that we judge our MP's by a higher standard, but, and truly, when compared to the free market, if we want the best in parliament we need to pay them fairly when compared with "ordinary" employees.

As it is we don't even go close to paying them enough if they were to hold a similar level of position in a private company.

Because we don't pay them enough, we end up with candidates and appointees who are under qualified, or simply there for reasons of power or ego, or because they actually want to make a difference but are happy to do so at personal monetary cost.

We expect our MP's to be honest and to be seen to be honest. I have no problem with that but I do wonder where the true political agendas lie when stories such as those recent ones around allowances hit the headlines.

In general, and certainly from a practical and taxation perspective, there is nothing wrong with either trusts or allowances; as long as they are not abused. The same could be said of any system or process.

Adam Davy is Managing Partner of BDO in Wellington