Happy New Year everyone! We hope that you had a safe and happy Christmas and New Year and are ready to launch into 2016.
There are a few important changes and updates that are going on in this newsletter, so please take a look through.
COMPANY ANNUAL RETURNS
If you have a Limited liability company which we administer for you, you will be aware that these costs are direct debited from your account as we are invoiced directly from the Ministry of Business, Innovation and Employment. This year is no different. Prior to any payment being taken from your account, we will establish the places of birth and birth dates for all Directors of the company, find out if there are any address changes and/or share changes and then file the return for another year. The cost remains the same at $100 +GST per company. This covers our cost to obtain the information and draw up current minutes to ensure that your company is compliant as per NZ law.
If you do not wish to pay by direct debit, you are more than welcome to file your annual return through the website of the Companies Office at www.business.govt.nz/companies. This is only $45 which you pay at the time of completing the return. You just need to ensure that you have minutes on file for that year.
MATLEY STAFF CHANGES 2016
There are a few staffing changes that will be happening with Matley Financial Services as mentioned last year. The first major one which will positively impact client service and contact is that we are employing a new Practice Manager. Currently Maggie has this job description, however she is more involved with the administration side of the business (added to that she will be on maternity leave from the end of May so will be preoccupied elsewhere). This new staff member that we are taking on has senior accounting experience and will be the key support person to David. Our new staff member will be starting with Matley in April 2016 and will be taking a leading role in helping to guide the company forward and improve and extend our services that we currently offer to clients. We will be able to provide more information on our new team addition once they start with us.
Maggie’s new job description will change to Practice Administrator and she will continue with her current work in the administration, payroll and accounts receivable side of things.
RESIDENTIAL LAND WITHHOLDING TAX
- IntelliConnect Tracker November 16, 2015
The introduction of the Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill (93-1) proposes a new tax named residential land withholding tax (RLWT). The objective of the RLWT is to act as a collection mechanism for the new bright-line test, which would require income tax to be paid on any gains from the disposal of residential land that is acquired and disposed of within two years, subject to some exemptions.
Proposals for the RLWT were consulted on in an officials' issues paper, "Residential land withholding tax", released in August 2015.
It is proposed that RLWT is payable from 1 July 2016, in the same circumstances as bright-line residential land income, except there is no "main home" exemption. Because the focus of RLWT is on New Zealand residential land sold by offshore persons, a main home exemption is a compliance cost of marginal use. There will be an exemption for disposals of inherited property, as well as relief for relationship property.
An "offshore person" includes all non-New Zealand Citizens and non-permanent residents. It also includes a New Zealand citizen who is living overseas if they have been overseas for the last three years. A holder of a New Zealand residence class visa may be an offshore person if they are outside New Zealand and have not been in New Zealand within the last 12 months. New Zealand trusts and companies may also be "offshore persons" if there are significant offshore interests in them.
The obligation to pay RLWT will primarily be the vendor's conveyancing agent. A conveyancing agent provides conveyancing services as defined in the Lawyers and Conveyancers At 2006. If the vendor does not have a conveyancing agent, the obligation to pay RLWT will be on the purchaser's conveyancing agent. In the absense of either, the obligation to pay RLWT will be on the purchaser themselves. If the vendor and purchaser are associated persons, the purchaser will be the person who is primarily liable for the payment of RLWT.
The amount of RLWT required to be withheld will be the lower of:
- 33% (28% if the vendor is a company) x (current purchase price - vendor's acquisition cost), and
- 10% x the current purchase price
RLWT will be paid before other disbursements are made at the time of settlement. If the vendor's conveyancing agent is required to pay RLWT, this will be paid after the amount required to discharge the vendor's mortgage obligation with a New Zealand registered bank or non-bank deposit take licensed under the Non-bank Deposit Takers Act 2013. If this would result in insufficient funds being available to pay RLWT, the amount of RLWT payable will be restricted to the difference between the current purchase price and the amount required to discharge the New Zealand mortgage.
The person required to withhold must pay the required amount to the Commissioner of Inland Revenue.
The proposed RLWT is not a final withholding tax. The vendor will be able to claim a tax credit for the amount of RLWT withheld and paid to the Commissioner against their final income tax liability in relation to the sale of the residential property. In some cases, this may result in a tax refund.
GOODS AND SERVICES TAX ON CROSS-BORDER SERVICES AND INTANGIBLES
The amendments proposed in the Bill apply GST to cross-border "remote" services and intangibles supplied by offshore suppliers (including e-books, music, videos and software purchased from offshore websites) to New Zealand-resident consumers, by requiring the offshore supplier to register and return GST on these supplies. The proposed amendments follow proposals outlined in the discussion document, "GST: Cross-border services, intangibles, and goods" released in August 2015.
Currently, GST is not collected on cross-border services and intangibles that are purchased from offshore suppliers.
The amendments are intended to maintain the broad base of New Zealand's GST system and create a level playing field between domestic and offshore suppliers of services and intangibles.
GST is also not collected on low-value imported goods that are below the "de minimis" threshold (typically goods below the value of NZ$400). The Bill does not impact the collection of GST on these goods. Instead the measures in the Bill are intended to be the first step in the process of collecting GST on overseas purchases.
Although this is an important issue for New Zealand retailers, the Government is not willing to move unreasonable cost or inconvenience on to consumers. For this reason, Customs has been asked to work through a number of logistical issues with stakeholders and is expected to release a consultation document in April 2016 that will seek public feedback on the practical implications of options to streamline the collection of duty, including GST, on low-value imported goods.
The main features of the proposals are as follows:
- Offshore suppliers of services would be required to register and return GST on remote services purchased by New Zealand-resident consumers.
- To ensure compliance costs are minimised, offshore suppliers will not be required to return GST on supplies to New Zealand GST-registered businesses, nor will they be required to provide tax invoices.
- Offshore suppliers would be required to register and return GST if their supplies of services to New Zealand residents exceed NZ$60,000 in a 12-month period.
- A broad definition of "remote" services is proposed, which includes both digital services (such as video, music and software downloads) and more traditional services (such as legal and accounting services received remotely).
- In some situations, an electronic marketplace may be required to register instead of the principal offshore supplier.
The proposed rules will come into force on 1 October 2016.
The proposed amendments are consistent with the Organisation for Economic Cooperation and Development (OECD) International VAT/GST Guidelines, and broadly follow the rules that apply in other jurisdictions, such as Member States of the European Union, Norway, South Korea, Japan, Switzerland and South Africa. Australia has announced plans to introduce similar rules that will apply from 1 July 2017.
AN INTERESTING CASE ON TRUSTEESHIP
- IntelliConnect Tracker 22 September 2015
Trustees’ failure to act in good faith leads to removal and liability despite exemption clause, 22 September 2015
The recent case of Lee v Torrey  NZHC 2135 considers the obligations of trustees of a discretionary trust. Both of the trustees (one of whom was a beneficiary) of the PD Lee Trust (the Trust) failed to act in good faith and displayed no moral concern to provide for other beneficiaries of the trust which resulted in depletion of the Trust account funds. The exemption clause in the Trust deed did not protect the trustees from liability. The trustees were removed, replaced by the Public Trust and ordered to make good the loss to the Trust.
The Trust was originally settled by the late Ms Pamela Dawn Lee (Ms Lee), who died on 2 June 2007. The first plaintiff (Matthew Lee) is one of two of her sons both of whom lived for a significant period of their lives with their maternal grandmother. The evidence suggests that the deceased’s relationship was not good with her own mother or her other son, Brennan.
The original trustees of the Trust (settled on 16 June 2005), were the deceased herself and the first defendant, Ms Donna Torrey (now Ms Donna Folwell). On 20 June 2005, Ms Lee made her last will and named Ms Folwell together with Dianne Franich as the executors and trustees of the estate. In addition, the will gave Ms Folwell the power to appoint a new trustee or trustees to the PD Lee Trust.
On 16 January 2006, Ms Folwell retired as trustee of the Trust. This was done by way of a deed signed by Ms Folwell, the deceased and the proposed new corporate trustee, PAG Trustee Ltd, whose sole director and shareholder was the deceased’s solicitor. As noted by Faire J:
“Of some significance in this case is that upon Ms Folwell retiring as trustee, the deceased made no change to her will … the will gave Ms Folwell the power to appoint a new trustee or trustees to the PD Lee Trust. The resulting position was that at the time of the deceased’s death, Ms Folwell was not a trustee of the PD Lee Trust (and had not been for approximately 18 months) but had the power to appoint herself and anyone else as a trustee, as well as the power to remove any existing trustees .”
Apart from a vehicle and personal chattels, the estate had a value of $43,427.01. On 4 November 2007, Ms Folwell advised that she intended to retire the solicitors’ trustee company as a trustee of the Trust and appoint herself and the second defendant (William Folwell), her husband, as replacement trustees. In proceeding with this, she was exercising a power of appointment given to her under the deceased’s will. In evidence, one of the trustees of the estate, Ms Franich, said that she retired as an executrix and trustee of the estate on 7 December 2007. The balance then standing in the Trust’s bank account was $169,312.35 which by 2 January 2008 had increased to $171,082.28. It was accruing interest of approximately $860 per month.
By March 2008, the balance in the Trust account had been reduced to $533.89 due to a number of distributions the trustees had made to themselves, other beneficiaries and an investment in an Internet scam. In evidence, the defendants admitted that they did not keep accounts or make tax returns for the trust. They also did not keep a record of the distributions they made to themselves or how that money was spent.
In the course of the proceedings, the Trustees acknowledged that they should be replaced, that the investment in the Internet scam was inappropriate and accepted that their performance as trustees was poor (particularly in relation to record keeping and accounts). In their defence they argued that there had been no direction by the settlor as to how they should exercise their discretion in making distributions under the Trust and that they were entitled to an exemption from liability pursuant to the exemption clause in the trust deed.
The High Court noted that:
“In this case, the deed of trust gives the trustees absolute power of discretion. It identifies three discretionary beneficiaries, and does not provide any guidance on how the trustees should exercise their power of discretion. As established above, the Court must not intervene to direct the trustees how they should exercise their discretion. This of course stems from the fact that a discretionary beneficiary only has a mere expectation but not actual interest in the trust’s property. Any intervention must be limited to an examination of the trustees’ actions. The first plaintiff, as an aggrieved discretionary beneficiary, must show that the trustees did not act honestly or in good faith … .”
In light of the above, the High Court examined the defendants distributions from the Trust, namely, the withdrawal of $80,433 for their personal use and the $26,120 of the trust’s money they spent on the Internet scam and concluded that the defendants acted in bad faith in relation to these two major distributions from the trust ,. Further, the High Court found that the nature of these breaches of trust was the breach by the defendants of the rule against self-dealing ,.
Faire J also held that the trustees could not rely on the liability exclusion provision in the trust deed and said:
“Where the trustees have breached a duty that is fundamental to the concept of trust, they cannot rely on a liability exclusion provision in the trust deed  and … it has already been found that the defendants breached their duty to act in good faith. As a result, they cannot rely on cl 16.1 to avoid their liability to the trust. ,.”
The High Court ordered that the defendants make good the loss their actions caused to the Trust, removed them as trustees and replaced them with the Public Trust.
XERO PRICING CHANGES
TAXATION BRIGHT-LINE BILL
- IntelliConnect Tracker, 22 October 2015
Taxation Bright-line Bill reported back, 22 October 2015
On 20 October 2015, the Finance and Expenditure Committee reported back to Parliament on the Taxation (Bright-line Test for Residential Land) Bill (59-2). The Bill was introduced to Parliament on 24 August 2015.
The Bill proposes amendments to the Income Tax Act 2007 and the Tax Administration Act 1994. It introduces a “bright-line” test, requiring income tax to be paid on any gains from the sale of residential land that is bought and sold within two years, with some exceptions. (A bright-line test is a term used in law for a clearly-defined rule or standard, using objective factors, which is designed to produce predictable and consistent results.)
A person’s main home would generally be exempt. There would also be exemptions for inherited property, and for property transferred under a relationship property agreement. Under some circumstances, trusts would qualify for the main home exemption. In relation to the exemption for trusts the Bill as reported from the Finance and Expenditure Committee notes and recommends as follows:
“Exemption for trusts
Clause 6 provides that a trustee of a trust could generally use the main home exclusion from the bright-line rule if the property was the main home of a trust beneficiary.
They could not do so in some situations, for example if the principal settlor of the trust (that is, the person who had put the most money into the trust) owned a different main home.
We recommend some amendments in clause 6 (new section CB 16A(1)(b) and (3)) and clause 15(11B) to clarify aspects of this ‘principal settlor’ rule.”
The bright-line test would apply only to residential land. Farmland and business premises would remain subject to existing land sale rules, which make gains from sale taxable in certain circumstances. The bright-line test would supplement the existing “intention” test in s CB 6 of the Income Tax Act 2007, which makes gains from the sale of land taxable if the land was bought with an intention to resell.
The new test will apply to sales of property acquired on or after 1 October 2015.
The Bill is the second in a three-part package of reforms to the rules for taxation of residential land. The reforms are designed to ensure that those who buy residential property with the intention of selling for capital gain, including overseas speculators, pay their fair share of tax.
Royal assent has recently been given to the first part of these reforms: the Land Transfer Amendment Act 2015 and the Tax Administration Amendment Act 2015.
Public consultation has taken place on proposals for a potential third Bill, which would impose a withholding tax on sellers of New Zealand residential property who live overseas (see the officials’ issues paper, “Residential land withholding tax” at www.taxpolicy.ird.govt.nz).
SPCA - FOR A GOOD CAUSE
A NOTE FROM OUR CONTACT AT THE INLAND REVENUE REGARDING COMPLIANCE
- 7 December 2015
"We’re continuing to focus on compliance in the construction industry, and I wanted to let you know that some of your clients in the construction industry may soon receive a letter or email from us regarding their obligations to declare all cash jobs in their GST and income tax returns.
While you may not have any clients in the construction industry it is worth noting that the messages apply to anyone that does jobs for cash.
You also have an important role to play with helping your clients meet their obligations."
If you have any questions about this, please contact us at the office and we can assist you.