Merry Christmas Everyone!  Christmas is just around the corner.  Just a reminder that the offices of Matley Financial Services are CLOSED from 19th December and reopening in the New Year on 16th January 2012.

Urgent queries ONLY will be answered if you call David's cell phone during this time.  Please don't be offended if we do not get back to you immediately - we are enjoying a family break this year.

HEIR TO THE THRONE

Our long awaited baby has arrived and he's a wee boy.  His name is Heath Francis Raynor Waine and he was born on the 28th November weighing in at 7lb 4oz.  None of our clients managed to guess the correct date, weight and sex in the sweepstakes, but an old school friend of Maggie got the prize of a dinner voucher to Onyx Restaurant in Cambridge for getting the date and sex right - and only a pound off the weight measurement!!

Mum and baby are doing very well.  Thank you all for the lovely gifts and flowers - it has made the house smell and look beautiful!!!

NEW STAFF MEMBER

The team at Matley Financial Services would like to extend a warm welcome to Janine Park who has joined our Tokoroa Office.  She has a wealth of experience and knowledge in the accounting field and is a qualified Accounting Technician.  Janine lives in Tokoroa and has two children.  Please be sure to pop in and say hello should you be passing by the Tokoroa Office.

 

SEASON'S GREETINGS - FOR THE POLITICALLY CORRECT

I wanted to send some sort of holiday greeting to my friends and colleagues, but it is difficult in today's world to know exactly what to say without offending someone.   So I met with my lawyer last week, and on advice I wish to say the following:

Please accept with no obligation, implied or otherwise, my best wishes for an enviromentally conscious, socially responsible, low stress, non addictive, gender neutral celebration of the winter solstice holiday practiced with the most enjoyable traditions of religious persuasion or secular practices of your choice, with respect for the religious/secular persuasions and/or traditions of others, or their choice not to practice religious or secular traditions at all.

I also wish you a fiscally successful, personally fulfilling and medically uncomplicated recognition of the onset of the generally accepted calendar year 2012, but not without due respect for the calendar of choice of other cultures whose contributions to society have helped make our country great (not to imply that New Zealand is necessarily greater than any other country) and without regard to the race, creed, colour, age, physical ability, religious faith or sexual preference of the wishee.

By accepting this greeting, you are accepting these terms:

This greeting is subject to clarification or withdrawal.  It is freely transferable with no alteration to the original greeting.  It implies no promise by the wisher to actually implement any of the wishes for her/him or others and is void where prohibited by law, and is revocable at the sole discretion of the wisher.  The wish is warranted to perform as expected within the usual application of good tidings for a period of one year or until the issuance of a new wish at the sole discretion of the wisher.

Best Regards (without prejudice)

Its been a while since our last newsletter.  Sorry! 

CHANGES TO GIFTING

You may have read by now that gift duty has been repealed, but like all things the Government does it may look wonderful at first however there are a few barbs that need to be considered. 

The first issue that must always be considered in relation to a sizeable gift is the issue of solvency.  Solvency definition is that your assets exceed your liabilities and that you can meet your debts as they fall due.  In the event that you are not solvent at the time of making a distribution or a gift, the receiver has the ability to claw back the transaction for up to two years of that transaction being made.  Solvency also considers contingent liability.

Rest Home care subsidies are also a matter that needs to be considered, and for gifting a bulk asset back its deemed to be excessive gifting and can still be considered an asset in your personal name that can be used in Rest Home care subsidies.  Rest Home care subsidies are very specific to individuals and for the purposes of this exercise I do not intend to go into any great depth, but if you are over 65 and you are currently looking at gifting back all of your debt to your Trust, consideration needs to be given to the excessive gifting to see if this is going to be achieved for Rest Home care subsidy. 

There is also an unproven IRD issue that has yet to be considered or tested in the courts.  Say for example we have a dry stock farm that’s worth $1.2 million.  The husband and wife team have been farming it with beef and sheep stock over the years, and have now read about being able to put their property into Trust and gift it back as gift duty has been abolished.  They decided that this is an excellent opportunity to restructure their affairs and immediately proceed in putting the $1.2 million farm into Trust.  They then decide to take a lease back between the farming partnership and the Trust and continue to farm in their own names as partners of the partnership.  If this was the case one could argue “is there an economic reality test here”, and by that its saying would you dispose of a $1.2 million farm and not accept any funds coming back to the individual partners.  So for example in our case, it may be that the farm was sold for $1.2 million and the lease that’s going to be paid across to the trust can support a debt of $500,000. Therefore the farm is sold for $1.2 million, settled by a $500,000 mortgage and $700,000 by way of gift.  The $500,000 mortgage is then paid to the individual partners, which we could suggest would be gifted back over a five year period of say a $100,000 ($50,000 each) and this could be done as any normal gifting would be done. 

For the trusts that we currently act for, in terms of undertaking their gifting we are currently working through the system to determine what the best course of action is.  As a general rule of thumb if your debt is less the $500,000 and there is no trading risk that we are aware of, or you are under the age of 65 (at our best guess); between now and when Maggie goes on maternity leave mid November, we will be executing all the necessary documents to gift the debt back in full. 

We will however of course be contacting those clients who do fall outside of those perimeters, to discuss their individual needs to determine the best course of action. 

AUSSIE HUMOUR....

Shane and Phil were a couple of drinking buddies who worked as aircraft engineers in Melbourne, Australia.  One day the airport was fogged in and they were stuck in the hangar with nothing to do.

Phil said, "Man, I wish we had something to drink!".  Shane says "Me too.  Y'know, I've heard you can drink jet fuel and get a buzz, you wanna try it?"

So, they pour themselves a couple of glasses of high octane booze and get completely smashed.  The next morning Phil wakes up and is surprised at how good he feels.  In fact, he feels GREAT! NO hangover!  NO bad side effects.

Then the phone rings - it's Shane.  Shane says "Hey, how do you feel this morning?"  Phil says "I feel great, how about you?" Shane says, "I feel great, too.  You don't have a hangover?" Phil says, "No, that jet fuel is great stuff, no hangover, nothing.  We ought to do this more often".

"Yeah well, there's just one thing".

"What's that?"

"Have you farted yet?"

"No, why?"

"Well DON'T - 'cos I'm in New Zealand".

 

IRD vs REALISTIC SALARIES

In a recent Court of Appeal decision the IRD has recently won a case against two surgeons called Mr. Penny & Mr. Hooper.  The effect of the outcomes of the court have basically said we now need to have a commercial realistic salary paid were individual’s contract back to a services company.  So what does this actually mean?

Well Mr. Penny & Mr. Hooper did shoot them selves in the foot because they acknowledged in open court that they would never have accepted a salary of $100,000 each if it wasn’t for the fact that they were working for an associated family company and that their trust was receiving the benefit of their labour. The question that arises is “what is a commercial acceptable salary”?  In the world of professional services we could always look to say “what would we pay a locum or someone like that to step in and operate the company on an arms length basis”?

Well unfortunately case W33, a tax case involving a dentist, basically said that a locum salary wasn’t sufficient to take as an example of Market Remuneration.

So maybe you have the decision to put yourself on PAYE deducted earnings and that way you could argue a contract is in place with you contracting back to the company and taking PAYE earnings on the basis of an external Market Based Remuneration.  Well that’s a great idea until you get to the problem were you get to the end of the year and you’ve got a profit sitting in your company. Now we have to apply our mind to section RD3 of the Income Tax Act which gives us a very complicated calculation of how much of a bonus can be paid out.  Effectively for ever $10,000 you take in as PAYE you acquire another $5,000 worth of bonus income.   

And also while considering section RD3 of the Income Tax Act you might also want to be aware that regular drawings taken weekly, fortnightly or monthly is sufficient to determine that it should be subject to PAYE.  So this could affect a new business starting up who decides that they are going to pay themselves $1,000 a week. That $52,000 would be treated as income subject to PAYE. 

So going forward what does Penny & Hooper mean to us? Effectively what Penny & Hooper determines is that when setting up a company and we wish to have limited liability, it is a good idea from the outsets to have the structure set up where you have family trusts involved as shareholders and contract back to the company with as close to a market assessment of your income as you can achieve. 

For specific advice, if you are concerned, please contact us to discuss your particular situation.

Thank you to our clients who have been very patient with us over the death of Frank as we are now three months on from his sudden passing.  We are beginning to overcome the back log of files in the Tokoroa office, but are still spread quite lightly over the two practices.  This has further been compounded by Ben, who has gone back to study and is on limited hours in the company.  We have identified a new person and have just formalized their contract but due to their existing work commitments they will not be starting until the 1^st April 2012.  This has meant that we are able to service our clients coming into the next financial year and we are doing everything possible to get on top of the back log of records, and thank you for your patients in this current financial year. 

 

If you have not received your accounts, and they are required for an urgent purpose then please contact our office and give us a time frame so that we know were to prioritize that work.   All work that is currently sitting in out office is expected to be completed before Christmas, which I would remind people which is only two months away. 

 

THE GREAT LITTLE PUB

"Y'know" said the Scotsman, "I still prefer the pubs back home.  In Glasgow there's a little bar called McTavish's.  Now the landlord there goes out of his way for the locals so much that when you buy 4 drinks he will buy the 5th drink for you".

"Well", said the Englishman, "at my local, the Red Lion, the barman there will buy you your 3rd drink after you buy the first 2."

"Ahhhhh, that's nothing", said the Irishman.  "Back home in Dublin there's Ryan's Bar.  Now the moment you set foot in the place they'll buy you a drink, then another, all the drinks you like.  Then when you've had enough drinks, they'll take you upstairs and see that you get laid.  All on the house!"

The Englishman and Scotsman immediately scorn the Irishman's claims, but he swears every word is true.  "Well," said the Englishman, "did this actually happen to you?"

"Not me meself personally, no", said the Irishman, "but it did happen to me sister".

 

MANY APOLOGIES.....

Thank you to our clients who have been very patient with us over the death of Frank as we are now three months on from his sudden passing.  We are beginning to overcome the back log of files in the Tokoroa office, but are still spread quite lightly over the two practices.  This has further been compounded by Ben, who has gone back to study and is on limited hours in the company.  We have identified a new person and have just formalized their contract but due to their existing work commitments they will not be starting until the 1st April 2012.  This has meant that we are able to service our clients coming into the next financial year and we are doing everything possible to get on top of the back log of records, and thank you for your patience in this current financial year. 

All work that is currently sitting in our office is expected to be completed before Christmas, which I would remind people which is only two months away.

On that note - we would also like to remind you that Maggie and David's heir to the throne is due next month.  Maggie is now only working three days a week, and will be on full maternity leave from the 14th November to the 13th February. 

 

MAKING A BABY

The Smiths were unable to conceive children and decided to use a surrogate father to start their family.  On the day the proxy father was to arrive, Mr Smith kissed his wife goodbye and said "Well, I'm off now.  The man should be here soon".

Half an hour later, just by chance, a door-to-door baby photographer happened to ring the doorbell, hoping to make a sale.  "Good morning ma'am", he said "I've come to...."

"Oh, no need to explain," Mrs Smith cut in, embarrassed, "I've been expecting you".

"Have you really?" said the photographer.  "Well, that's good.  Did you know babies are my speciality?"

"Well that's what my husband and I had hoped.  Please come in and have a seat..."

After a moment she asked, blushing "Well, where do we start?"

"Leave everything to me.  I usually try two in the bathtub, one on the couch, and perhaps a couple on the bed.  And sometimes the living room floor is fun.  You can really spread out there."

"Bathtub, living room floor? No wonder it didn't work out for Harry and me!"

"Well, ma'am, none of us can guarantee a good one every time.  But if we try several different positions and I shoot from six or seven angles, I'm sure you'll be pleased with the results."

"My, thats a lot!", gasped Mrs Smith.

"Ma'am, in my line of work a man has to take his time.  I'd love to be in and out in five minutes, but I'm sure you'd be disappointed with that."

"Don't I know it" said Mrs Smith quietly.

The photographer opened his briefcase and pulled out a portfolio of his baby pictures.  "This was done on top of a bus" he said.

"Oh my!!" Mrs Smith exclaimed, grasping at her throat.

"And these twins turned out exceptionally well - when you consider their mother was so difficult to work with"

"She was difficult?" asked Mrs Smith

"Yes, I'm afraid so.  I finally had to take her to the park to get the job done right.  People were crowding around four and five deep to get a good look."

"Four and five deep?" said Mrs Smith, her eyes wide with amazement.

"Yes", the photographer replied. "and for more than three hours, too.  The mother was constantly squealing and yelling - I could hardly concentrate, and when darkness approached I had to rush my shots.  Finally, when the squirrels began nibbling on my equipment, I just had to pack it all in".

Mrs Smith leaned forward, "Do you mean they actually chewed on your, uh....equipment?"

"It's true ma'am, yes... Well, if you're ready, I'll set-up my tripod and we can get to work right away"

"Tripod?"

"Oh yes ma'am.  I need to use a tripod to rest my Canon on.  Its much too big to be held in the hand very long".

Mrs Smith fainted.

 

If you are wondering why you have received this email, it is because you have been automatically subscribed to our monthly (ish) newsletter.  Should you wish to not receive these emails, please click the unsubscribe function at the bottom of this email.  Similarly, if you have people who you think would like to receive these emails, please use the subscribe function at the bottom of this email.  Thank you.

 

 

CAPITAL GAINS TAX

I was once told that the sign of wealth in New Zealand was the three “B”s – the Bach, the Boat and the BMW.  Well if that’s your idea of wealth then you’ll be fine with Labour's new proposed Capital Gains Tax (CGT). 

I have never hidden from the fact that there is more blue blood in my veins than anything else, but to be frank even I roll my eyes at the new CGT.  It is supposed to stop speculation in property – well CB 6 of the Income Tax Act also does this as property purchased for the intention of resale is taxed.  So no need to stick a CGT on that, just tell IRD to enforce the law.

Now we all know farmers only pay $1,500 tax and they should pay their fair share (my tongue is so far in my cheek it makes me look like I have mumps).  So let’s say you purchased a farm today for $2.5million.  In 25 years time you sell that farm for $5million.  I think many people would be happy with that growth.  The sale price would generate a $375,000 Capital Gain Tax, but then you sold it for $5million so you’ve got the cash.

Property is considered an inflationary asset which means it should always go up at the rate of inflation to protect the erosion of the original capital.  Using long-run average inflation of 3% means in order to stop the erosion effect of inflation, the farm should be worth $5.23million in 25 years time.  So I have actually lost $230,000 in value and I’m paying a $375,000 tax – so my overall position has gone down by $605,000.

In June 2004 the average price of a Hamilton home was $197,000.  The average house is sold every 7 years.  Applying a 3% inflationary adjustment over the last 7 years means that same property should now be worth $242,000.  According to the Real Estate Institute of New Zealand, in July 2011 the average house price was $325,000. 

From June 2004 to June 2006, the average house price in Hamilton went from $197,000 to $290,000; however, in the last 3 years of the National Government property values in Hamilton have decreased by $19,000, in Rotorua a decrease of $8,250 and in Tauranga a decrease of $35,000.

So actually Mr Goff, unaffordable house prices came under your Government.  With tightening lending criteria of the banks and the limitation of losses on property introduced in the last budget, it appears housing is more affordable now than 3 years ago.  With no CGT.  Long may it Last. 

 

 

WHAT ARE YOU AFRAID TO LOSE? 

Are you slow to make changes when it comes to your debtors? Do you wait months and months before asking for help? Everytime we change, we lose something. It's not the change we resist, it's the losses. So I propose the question - what are you afraid of losing?

Is it the relationship you have built with a client? Is it your sense of competency - that you should have seen the writing on the wall earlier? Perhaps you can't get past the fact that it might cost you to chase money that is rightfully yours?

We are all more sensitive to possible loss than to possible gain. We need to work through these fears and in order to move forward we need to have hope. To look on the bright side of possible gains (ie. getting paid sooner) rather than focusing on the possible losses.  

So ask yourself those hard questions - is this relationship worth preserving? Can I be firmer with my clients, get paid on time and still preserve the relationship? Do I actually know how much it will cost me or is my reality a friends story? 

So again, what are you afraid of losing and is that fear real? Perhaps the possible gains outweigh the losses?

If you have outstanding money don't leave it any longer! Contact CollectIT on 07 834 9111 or info@collectit.co.nz and ask us about our results – they are fantastic and we’d love to discuss your situation and help you get paid.

 - Catherine Clark & Melanie O'Neill, Directors. www.collectit.co.nz

 

GETTING TO HEAVEN

Frank Lally gave me this joke a few weeks back.  He may be gone, but definitely not forgotten - perfectly devilish sense of humour!

God visited a man and told him must give up smoking, drinking and sex if he wants to get into heaven...

The man said he will try....

God visited the man a week later to see how he was getting on..... "Not bad" said the man, "I've given up smoking and drinking but when the wife bent over the lounge suite and I caught sight of her long slender legs, I pull her skirt up, pulled her knickers to one side and gave her one right there!". 

"Oh, they don't like that in heaven", replied God.

The man said "They're not too happy about it in Harvey Norman either!!".

 

 MINI MATLEY UPDATE

Quite a few people have been asking after Maggie (Thank you all) and how her pregnancy is progressing.  She is keeping very well, and is now in her sixth month.  All scans have shown the baby with its legs crossed and adamantly determined to keep its gender a secret!  Only about 14 weeks to go to find out!

It is with deep regret and sadness that we advise the passing of Frank Lally, who was the retiring practitioner from our Tokoroa Office.  His passing has been quite sudden after taking a turn yesterday morning, and we appreciate if you will bear with us as we move through a transitional period over the next couple of weeks as we adjust for Frank's passing. 

Thank You.

The Team at Matley Financial Services

Land and Lifestyle  

Many readers may remember the programme called “The Good Life” where an over stressed, over worked marketing executive based in the UK decided to leave his job and set up a self-sufficient lifestyle based in his back garden.  Many readers may remember the humorous tales of home made potato wine and the number of chickens and pigs that used to run wild through the house.  Is there much difference between the good life and what some lifestyle farmers are undertaking?

At a recent dinner I had this discussion with a colleague of mine over whether the increase of lifestyle blocks that is coming apparent was an actual fact a number of city dwellers leaving the big smoke to head to the country side in order to enjoy the lifestyle that is attributed to such blocks.  The question that arose at this dinner party was over whether that was a hobby or an actual fact an economic activity.

While the argument may seem comparatively academic it does have increased ramifications for those individuals who are determined to undertake some type of activity on their 10 acre block and wish to seek a tax deduction for it.  The interesting thing is is that the GST Act makes no distinction between an economic activity and a hobby.  All that the GST Act examines is whether that there is an undertaking of an economic activity.  This can simply be the matter of growing grass to turn into hay to sell, or it can be having a number of head that are grazing on the paddocks.  The interesting thing that comes about though is to seek for a tax deduction for the activities which are undertaken.  Take for example a client – let’s call him Farmer Joe.  Joe and his family live in town.  Joe is a sales executive for a medium sized exporting company based in Hamilton.  He has above average income and is seeking to enjoy a different lifestyle in the countryside.

Joe and his family settle upon bare 10 acre block.  The real estate agent tells him it’s in a good prime location and that it will be a marketable property sometime in the future.  Joe and his family decide to build a substantial home on the property and retaining 8 acres of grass.  

Joe goes to see his accountant and explains to him his idea of running about 20 head of cattle on the property and seeking that for a tax deduction.  He asks what the benefits may be to him from a tax position.

 With a lot of 10 acre blocks the most significant expense for the landowner is the interest bill attached to the property.

This is where it becomes important for Joe, and his accountant and other advisors to sit down and determine some kind of cashflow proposition to show that the 10 acres is sustainable as well as turning a profit back to the individuals so that they can live off it.

For example, I have one client of mine who rears calves.  They own a 10 acre block, they buy the calves in when they are only just born, they raise them and then sell them onto local farmers when they are about 6 months old.  This type of activity is extremely intense for 6 months of the year, but generates sufficient income for one party of the relationship to actually live off.  Therefore, this proves that this is an economic activity if any questions were asked by Her Majesty’s Revenue.  The matter is also amplified by the fact that the partnership has no debt incumbent on the 10 acre block.

For example, let us consider the sale of 20 head cattle with an average price of $600 with a debt encumbrance compared to a sale of 20 head cattle at $600 with 100% finance on the $300,000 purchase of the land.

 

	Without Debt	With Debt
Quantity	20	20
Sales	600	600
Total Sales	$12,000	$12,000
Debt	Nil	$24,000
Net Surplus to Distribute	$12,000	- $12,000

While this table is quite simple in its nature and makes no allowance for any input costs, it can show the effect of debt on the net return.  $12,000 a year in the simplest form for a family who is not reliant on the income due to Joe’s activities would be sufficient to support one partner leaving their occupation to work on the 10 acre block.  Furthermore if it can be shown that by the use of feed supplements, the 20 head of cattle could actually be increased to 30-35 head of cattle with more intensive grazing, then the income proposition increase is higher.  This of course has a number of factors that are dependant on it and would depend upon individual circumstances.

Of course the 10 acre argument is determined upon the fact the individual are only growing heads of cattle. There are other economic activities that can be done on a 10 acre block which can produce quite significant economic results for the partners.  For example Joe’s wife might be an orchid grower, therefore they determine that they are going to build two sizeable glass houses to grow these orchids in as well as possibly putting on the property a small café with a garden attached to it to allow people to come and purchase orchids as well as enjoy a cup of coffee and ramble through a garden.  Again this will prove that this goes beyond a hobby to an economic activity.

Similarly, strawberry and asparagus farming and possibly other cash crops such as potatoes and watermelon, are sufficient to prove that the land can be used for an economic activity which goes beyond just the simple hobby classification.

The complication comes back to where we are talking beef and sheep.  I have given advice to a number of clients who have purchased 10 acre blocks who wish to seek some type of taxable activity on the land in order to get deductions in the short term but also looking to receive some kind of tax relief due to the legitimate write offs that an economic enterprise can allow.  In these circumstances my advice has always been be wary.  Unless you have some plan of action that shows the property can become self sufficient also providing a return to the individuals, then it may probably be considered a hobby to the individuals. 

However, I have also given the advice of looking to undertake some type of breeding programme.  I have a number of clients who have implemented a genetic programme of trying to grow bigger and more economic Suffolk sheep as well as cattle.

If I consider one client of mine who has been undertaking for some time a breeding programme in relation to their Suffolk sheep, they now have on their 10 acre block a number of sheep who are purebred Suffolk and they are recognised with their lambs throughout the Suffolk breeding association as having some of the top lambs and there is constant demand and a higher premium paid for those.  This will result in higher income to the farm as well as we can show through breeding records that the ewes held on hand are most probably higher in value than what has been valued in the books through the NSC and herd values.

The issues surrounding lifestyle deductibility need to be considered and it will also determine on what the underlying motivation is for the individual.  Generally I have worked on the principal that if a client turns up at my desk and says that they are sick and tired of the rat race of the city and want to escape to the countryside, any activity they look at undertaking will primarily be driven as a hobby rather than as an economic activity.  However if a client arrives at my office and says that they wish to consider going into a business venture and they have found a 10 acre block that will give them that ability to do so, from the outset I believe that the economic activity test is satisfied and that anything leading from that is to primarily motivate the individual to increase productivity of the land they have purchased.  This does not however eliminate any type of economic activity on a 10 acre block that might have started off as a hobby.

My ultimate advice that I can give to any reader is that before considering what you may or may not be entitled to from a 10 acre block do seek professional advice on what your options are and what considerations can be given from the outset.  It is often easier to have a plan in place first before commencing, rather than trying to retrospectively prove your actions were intended to be economic activity from the outset.  Professional advice in this area can prove invaluable down the track.

 

 Gift Duty Update

The draft legislation has gone before the select committee with the recommendation from officials not to delay the abolishment of gift duty as put forward by the NZ Law Society and NZ Institute of Charterered Accountants.  The reason is that the gift duty has not impacted on the issues raised by these two professional bodies, so should not be delayed as there is no perceived benefit.

 

Radio Gaga

You may have heard on the radio and other media that Income Tax returns are due 7th July.  This is ONLY if you are not linked with a tax agent.  As you are a client of Matley Financial Services, you have an extension of time which means they need to be filed NO LATER than 31st March 2012.  Although, getting your paperwork in much prior to this due date is advisable!!

 

Are you feeling IGNORED?

We have just had an update of our email system and it has come to our attention that a few of your emails may not have made it through our SPAM filter.  If you haven't recevied a response to your email, please do not think that we have ignored you, and please call the office to follow up.

 

Mini Matley

For those of you who aren't aware, Maggie and David are expecting their first child at the end of November.  Maggie's last day of work will most likely be around mid November, but until then she is still working full time.

We are running a sweepstake to guess the weight, date and sex of the baby, and if you would like to take part in this, please contact the office with your guesses.  The winner (who gets closest with all three items) wins a dinner out in their town or city.

 

2011 Budget Highlights

Last week the Honourable Bill English, Minister of Finance, released the 2011 budget statement with the intention to reduce the deficit of $16.7 billion by the end of the 2011 financial year to surpluses in 2014 – 2015.  Many of the reforms that will affect individuals are commented on as follows:

Kiwi Saver Reforms

The intention of the Government is to reduce the input from the Government coffers and to increase the amount of savings coming from individuals and their employers.  Therefore the employer contributions will increase from 2% to 3% and the tax creditors halved to 50cents per dollar of contribution.  From the 1^st April 2012 there will be no exemption from the Employer Superannuation Contribution Tax (ESCT) which in fact means that employees will be taxed on the employer contribution being paid into the scheme.  What this means for an employee earning $60,000 per annum the minimum employer contribution will increase from $1,200 per year to $1,800 per year; but only $1,260 of this will make it to the employer’s kiwisaver fund as the Employee Superannuation Contribution Tax will be deducted.  This move is designed to save the Government $2.6 billion over the next four years. 

Working for Families

There have been some substantial changes to the definition of income for Working for Families which took effect from the 1 April 2011.  There are some minor adjustments in relation to thresholds with a gradual alignment of the over 16 rate to come into alignment with the 13 – 15 year old rate. 

The cost of Working for Families has increased from 2005 – 2006 year of $1.5 billion to $2.8 billion in the 2008 – 2010 year.  The changes that are expected to take place with the thresholds changing adjusting to the increasing inflationary effect by 2018 will save $448 million.  The Government had indicated that the changes to Working for Families will affect the “well-off” and not the lower to middle income tax bracket. 

Student Loan Scheme

In a statement to the house Bill English advised that the Crown will lend almost $1.6 billion to assist students and there are currently more then $12 billion of loans outstanding.  At present for every dollar lent to help the Government only receives about 55cents back and the intention of tightening the lending criteria is to better focus on those who really need assistance.

The key initiatives for the student loan changes are:

1. Restricting student loan eligibility for those with an overdue student loan repayment obligation of $500.
2. Restricting borrowing for people ages 55 and over to tuition fees only.
3. Removing the entitlement for part time / full time students to borrow for course related costs.
4. Holding the student loan repayment threshold to $19,084 until 1 April 2015 rather then inflation indexing this amount.
5. Shortening the repayment holiday for overseas based borrowers from three years to one year and requiring borrowers to apply after the repayment holiday and provide a New Zealand based contact person before they go overseas. 

There has been no indication in the budgetary comments to indicate that the interest free component of the student loan has been removed.  The changes signalled by the Minister will result in savings of $277 million over 5 years and capital savings of $170 million. 

One of the key signals which could interest investors is the partial state asset sell off.

To free up the Crown Capital the Government proposes that from 2012 a Mixed Ownership Model (MOM) will be applied to the power companies Mighty River Power, Genesis Energy, Solid Energy and Meridian Energy as well as the Government’s stake in Air New Zealand being reduced.  There are certain criteria that will be need to be met around the MOM model and the savings designed from offering minority stakes in the five power companies and Air New Zealand will generate between $5 billion to $7 billion.  The state owned assets are significant infrastructure assets and if the proposals go through, financial advice should be sort before investing in them.           

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ITS THE LEVEL OF STRESS

You pick up a hitchhiker, a beautiful girl.  Suddenly she faints inside your car and you take her to hospital...Now thats stressful.

But at the hospital, they say she is pregnant and congratulate you that you are going to be a father.  You say that you are not the father, but the girl says you are....This is getting very stressful

So then... you request a DNA test to prove that you are not the father.  After the tests are completed, the doctor says that you are infertile, and probably have been since birth...You are extremely stressed but relieved

On your way back home, you think about your three kids at home...NOW THAT'S STRESS!!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 

CAB DRIVER

A businessman flew to Vegas for the weekend to gamble.  He lost the shirt off his back, and had nothing left but a quarter and the second half of his round-trip ticket -- If he could just get to the airport he could get himself home.

So he went out to the front of the casino where there was a cab waiting.  He got in and explained his situation to the cabbie.  He promised to send the driver money from home, he offered him his credit card numbers, his drivers license number, his address, etc. but to no avail.

The cabbie said, "If you don't have fifteen dollars, get the hell out of my cab!"  So the businessman was forced to hitch-hike to the airport and was barely in time to catch his flight.

One year later the businessman, having worked long and hard to regain his financial success, returned to Vegas and this time he won big.  Feeling pretty good about himself, he went out to the front of the casino to get a cab ride back to the airport.  Well who should he see out there, at the end of a long line of cabs, but his old buddy who had refused to give him a ride when he was down on his luck.  The businessman thought for a moment about how he could make the guy pay for his lack of charity, and he hit on a plan.

The businessman got in the first cab in the line, "How much for a ride to the airport?" he asked "Fifteen bucks," came the reply.  "And how much for you to give me oral sex on the way?"

"WHAT?!!! Get the hell out of my cab!."

The businessman got into the back of each cab in the long line and asked the same questions, with the same result.  When he got to his old friend at the back of the line, he got in and asked "How much for a ride to the airport?"  The cabbie replied "Fifteen bucks."

The businessman said "OK" and off they went.

Then, as they drove slowly past the long line of cabs, the businessman gave a big smile and thumbs up sign to each driver.

Christchurch Relief

If you want to donate money and want it to go directly in full with no administration charges to the people that need it, we can help with this.

David is the Chairman of the Hamilton CBD Lions Charitable Trust.  Currently this Trust is donating large amounts of cash through Brick 4 Life for the Lions Cancer Lodge in Hamilton.

If you wish to donate money for Christchurch earthquake relief, you can donate money to the Matley Financial Services Trust account throughout the month of March.  At the end of March the money collected will be forwarded to the Hamilton CBD Lions Charitable Trust to be forwarded in bulk to Christchurch Lions Clubs which will be distributed in full to those who need it.

All monies received will be recorded and a receipt will be issued by the Hamilton CBD Lions Charitable Trust which is a registered donee organisation.

Matley Financial Services Trust account details are:

BNZ

020-316-0250137-02

Please clearly label your donation and if you are not a client of Matley Financial Services Ltd please email info@matley.co.nz with your address to send the receipt - no address, no receipt sorry.

As of 3rd March we have already collected $250.  If we keep up this rate, we could have $10,000 to donate to the Christchurch Lions - how fantastic would that be!!  Please, every little bit counts.

 

LAQC Changes

As from 1 April 2011 LAQC's will no longer exist.  On the 22nd and 23rd February Matley Financial ran two seminars in Tokoroa and Hamilton for the clients that this will affect.  Those people who attended the seminars were given the following "Decision Tree".  To open the picture - double click on the icon at the end of this article.

If you need to discuss your LAQC further with what decisions you need to make, please contact the office to arrange a meeting with David.

 

 

CHANGES TO GIFTING

As you would have read in the paper there has been a move towards the abolishment of gift duties.  It should be noted that this legislation has not passed through the House so it is not yet law and until such time we treat the gifting programme as under the current regime of $27,000 per year.  The abolishment of gifting duty is on the basis that for the year ended 2009/2010, the IRD collected $1.62 million of gift duty and this was projected to cost the private sector (which includes all the client's doing the gifting) of $70 million per year.

In a recent court case Regal Casting vs. Light Body [2009] 2NZLR433 the gifting was seen to take place when the individual concerned was insolvent including the fact that he couldn’t pay his guaranteed debts, thereby creating an arrangement for the purposes of defrauding his creditors.  The arrangement was unwound by the courts and the assets were subject to attack by creditors.

Therefore while we do not know the specifics of the new change to the gift duty, we will have to take into account a number of transactions to ensure that there is solvency in the name of the individual at the time of disposing their assets.  Such an example will be John owning a house worth $500,000 and a debt of $400,000.  John decides to transfer the house into Trust and accordingly the transfer is completed and a $27,000 gift is done.  If we assume under the existing rules this would mean that John has assets of $473,000 for the corresponding debt of $400,000.  However if we assume the new rules this means John would gift the entire house back at $500,000.  John is now in an insolvent position.

There is some argument over solvency with some legal practitioners suggesting that insolvency is the inability to put ones hands on cash for which one is indebted for at the time. However insolvency has two perspectives; one is balance sheet solvency and the other is cash flow solvency.  If we looked at the Companies Act definition of insolvency, it consists of the inability to pay the debts as the debts fall due.  Therefore having a balance sheet insolvency does not necessarily mean you are primarily insolvent.  Therefore John would not need to show that he can pay the entire $400,000 back to the bank, rather that he can make the mortgage repayments to the bank.

Therefore while it may seem far easier to gift all of ones assets to a trust we also need to make sure that evidence of cash flow solvency is documented at the time with certifications possibly being required by chartered accountants advising the client is solvent at the time the asset is put into the Trust. 

In terms of individuals gifting assets to their Trust where they are not in business one can argue solvency at the time as it is based entirely on their employment situation.  The purpose of a solvency cash flow test would only be for those who are self employed or in business.

While gift duty is an archaic form of tax harking back to 1885 in New Zealand, one of the major challenges facing us going forward is the risks that a gift may be set aside under the Insolvency Act on the basis that at the time of the gift ones financial position results in insolvency.  Therefore to ensure that you do it once and you do it right we would suggest that a solvency certificate is signed by the Settlor when the assets is disposed into the Trust.

 

MATLEY EXPANSION

Matley Financial Services now has two offices!  One in Hamilton and one in Tokoroa.  Matley Financial Services has purchased an existing firm McCulloch & Lally Ltd on Bridge Street. 

We will be completing a rebranding in Tokoroa as of 1 April.

With us acquiring the new office, we also acquire two new team members.

Jenny Joynt - Office Manager.  She has worked at McCulloch and Lally for 10 years and is an invaluable font of knowledge!

Frank Lally - Partner.  Frank is staying with the team at Matley for the next year or so as the hand over is completed for McCulloch and Lally.  He is looking forward to retirement (well, his wife is!).

As we now have two offices, our team is spread over a wider range.  David is still down in the office every Wednesday, but Maggie is in Tokoroa every Tuesday afternoon, and Jo is in Tokoroa every Thursday afternoon taking care of the admin side of things.

You can still get hold of the Team at Matley on the same numbers, but there are a few more should you need them:

0800 MATLEY (628539)

Hamilton - 07 8297084

Fax - 07 8297086

Tokoroa - 07 886 8179

Fax - 07 886 8178

email: info@matley.co.nz

Office Addresses:

Hamilton Office

758A Horotiu Road

RD 8

Hamilton 3288

~~~~~

Tokoroa Office

Level 1

32-34 Bridge Street

Tokoroa

Devastation in Christchurch...

Everyone knows the situation.

Everyone wants to help and the team at Matley are no different...

If you want to donate money and want it to go directly in full with no administration charges to the people that need it, we can help with this.

David is the Chairman of the Hamilton CBD Lions Charitable Trust.  Currently this Trust is donating large amounts of cash through Brick 4 Life for the Lions Cancer Lodge in Hamilton.

If you wish to donate money for Christchurch earthquake relief, you can donate money to the Matley Financial Services Trust account throughout the month of March.  At the end of March the money collected will be forwarded to the Hamilton CBD Lions Charitable Trust to be forwarded in bulk to Christchurch Lions Clubs which will be distributed in full to those who need it.

All monies received will be recorded and a receipt will be issued by the Hamilton CBD Lions Charitable Trust which is a registered donee organisation.

Matley Financial Services Trust account details are:

BNZ

020-316-0250137-02

Please clearly label your donation and if you are not a client of Matley Financial Services Ltd please email info@matley.co.nz with your address to send the receipt - no address, no receipt sorry.

Please, forward this email on to as many people as possible who might be interested in helping in this way.

Thank you

The Team at Matley

Maggie Waine, Practice Manager

David Waine, Managing Director

Frank Lally, Partner, Tokoroa

Jenny Joynt, Office Manager, Tokoroa

Ben Anderson, Accounting Clerk

Jo Reading, Administration