March Update

Posted 8 years, 6 months ago by Maggie Waine    1 comment

 

Hello,

Please find our March Update Newsletter below.

If you are wondering why you have received this email - you have been automatically subscribed to receiving our newsletters via email due to being a client of Matley Financial Services.  If you no longer wish to receive these newsletters, please click on the unsubscribe function. 

If you have any questions about the content of this email, please do not hesitate to contact Maggie on 07 824 1084.

Kind regards

The Team at Matley Financial Services Limited

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Year End Tax Planning

As the balance date (31 March) for many taxpayers is fast approaching, we thought it an opportune time to remind you all of year end procedures and issues which need to be considered prior to or as part of year end accounts.  These are as follows:

 QCs/LAQCs

Election into the Qualifying Company (QC) regime (other than in the case of new companies) usually involves a lead in time of up to one year.  Where an election is made, it generally takes effect from the first day of the following income year.  Given the proximity to 31 March, there is currently a very short lead in time for electing into the QC regime.  Forms must be filed prior to the end of the current tax year unless this is a new company in the first year of trading.

You need to be mindful of the advantages and disadvantages of electing into the QC regime.  Disadvantages such as forfeiture of losses, shareholders having to guarantee the income tax debt of the company and the calculation and potential payment of Qualifying Company Election Tax (QCET) need careful consideration.

If it is intended that the company become a LAQC, review to ascertain whether it is appropriate for it to become one.  Check to ensure that there is only one share class, there are no existing losses on entry to the regime, and that the level of QCET would not be too high.

Where a company is already a QC, review to ensure that it is appropriate for it to continue as one.

Generally, an election out of the QC regime is effective from the first day of the income year in which that election is made, unless a later income year is specified in the notice.  There may be circumstances where it is appropriate to elect out the QC regime, for instance, where the company has struck financial difficulties during the year and may no longer be in a posiiton whereby it can meet its tax liabilities.  As the QC regime requires shareholder to guarantee the tax debt, it may be appropriate in such cases to elect out of the QC regime.

 Subvention Payments & Loss Offsets

You should ensure that prior year group loss offsets, subvention payments and subvention agreements are completed and lodged with the IRD prior to year end.  Loss offsets and subvention payments relating to the year ending 31 March 2008 are due on or before 31 March 2009.

You should also ensure that shareholding continuity has in fact been maintained in relation to the carry forward and grouping of losses.  49% continuity must be maintained in the loss company from the time the loss is incurred until the time the loss is utilised.  for grouping, commonality of 66% is required.  That is, the same group of persons must own 66% in both companies at all times during the continuity period.

 Retentions

Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them.  Therefore if retentions are outstanding at year end, they usually do not form part of your income for tax purposes for that year, and are therefore only taxed when they become due.  This can result in a significant deferral of income.

 Bad Debts

Taxpayers and business owners should be reviewing their debtor's ledger to determine which debts are bad.  These debts need to be written off prior to year end to enable a tax deduction to be claimed.  Just because a bad debt is actually written off, this does not mean taxpayers can no longer pursue recovery of that debt. 

 Repairs and Maintenance

Generally no deductions are allowed for a repairs and maintenance reserve.  It may be worthwhile undertaking repairs and maintenance prior to 31 March to obtain a full deduction.  Deciding whether expenditure on an asset is deductible as repairs and maintenance or should be captialised is often a difficult decision.  Please contact us if you require any assistance in this area.

  Fixed Assets and Depreciation

Remember to do a "stock take" of fixed assets at year end with a view to determining whether the fixed assets listed on the depreciation schedule actually exist.  Where assets are no longer being used application can be made to the IRD to write off the book value in that year.  Where assets have been disposed of or simply no longer exist, a loss on disposal can also be claimed.

  Trading Stock

Taxpayers should be undertaking a valuation of trading stock at year end.  Trading stock is generally valued at the lower of cost or market selling value (if lower).

For valuation of small amounts of trading stock, taxpayers are no longer required to value their closing stock or include any change in the value if:

  • Their turnover is $1.3 m or less for the year; and
  • They reasonably estimate their trading stock on hand at blaance date is less than $5,000.

They may simply use the same figure for closing stock as the opening stock.  This method of valuation is optional.  You should consider the accounting implications, if any, of not correctly recording closing stock in the financial statements.

If there are any general stock provisions then these are not deductible for tax purposes.  However, a line by line valuation writing down stock below cost is acceptable if market selling value is lower than cost.  General write down provisions should therefore be reviewed to determine if a deduction can be taken on a line by line basis.

  Imputation Credit Account

The imputation year finishes on 31 March for all companies irrespective of what their actual balance date is.  Review your imputation credit account (ICA) balance to ensure that it is either a nil or credit balance at year end.  If the ICA is in debit balance this will create a 10% imputation penalty, which is not treated as a "tax payment" for income tax purposes.

If there is a debit balance you will need to consider bringing forward tax payments such as terminal tax due on 7 April 2009 to 31 March 2009 or earlier.

  Change in Company Tax Rate - Implications for Paying Out Retained Earnings

The company tax rate has now reduced from 33% to 30%.

However, due to the implementation of a transitional period, a company will be able to allocate imputation credits at a maximum tax credit ratio of 33/67 on retained earnings that have been taxed at 33%.  For retained earnings taxed at 30% the new ratio of 30/70 must be used.  If the company has 2008 retained earnings that are fully imputed at the 33% rate, these earnings must be distributed by 31 March 2010 if you wish to attach imputation credits at the rate of 33%  Otherwise from 1 April 2010 the company can only impute those reatined earnings at 30%, for non resident shareholders this may be preferred by for resident shareholder an extra tax cost will arise.

Please note that when the 33/67 tax credit ratio is used to pay a dividend to a company shareholder, the tax credit available as a credit against the taxable income of the company is limited to 30% being the company's tax rate.  The full 33% amount will however be credited to the company shareholder's ICA to enable distribution to the ultimate natural person or trust shareholders.

The transitional period will run from the beginning of a company's 2009 income year to the end of its 2010 imputation year (being 31 March 2010).

  Resident Withholding Tax (RWT) Rate

Please remember that the RWT rate on dividends has not changed - it remains at 33%.  This means that, if dividends are imputed at the new 30/70 ratio, a further 3% of RWT will need to be deducted from the dividend payment to bring the total tax component up to 33% (some exclusion apply, eg where the dividend is between a "group" of companies or the recipient holds a valid certificate of exemption).  In these case the company will need to register with the IRD to become an RWT payer.

 

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Changes to KiwiSaver from 1 April 2009

The upcoming changes to KiwiSaver you'll need to know about include:

  • The minimum employee contribution rate reduces to 2% of a members gross pay.
  • The compulsory employer contribution increases to 2% - and won't increase further in future years.
  • The employer superannuation contribution tax (ESCT) exemption is capped at the compulsory employer contribution rate of 2%.
  • The employer tax credit is removed.

More information on these changes will be sent to employers in mid to late March.  Employers will receive a letter explaining what the changes mean, a copy of the KiwiSaver Employee Information Pack (KS3) and instructions on how to order more KS3s and KiwiSaver Employer Guides (KS4).

The Inland Revenue websites www.ird.govt.nz and www.kiwisaver.govt.nz will be updated as well as all publications in time for 1 April.

If you would like to know more about the changes to KiwiSaver, please see http://www.ird.govt.nz/news-updates/like-to-know-april-2009-kiwisaver-changes.html.

 

Other Tax Changes from 1 April 2009

As well as the KiwiSaver changes, there are other tax changes being made on 1 April.

Personal income tax rates and thresholds change and an independent earner tax credit (IETC) is introduced.

  • Employers will need to use new PAYE rates from the first pay period ending on or after 1 April.
  • Employees will need to change their tax codes to receive the IETC.

Further information will be included about these tax changes when the IRD send out information in March.  As part of that information pack, you'll receive a new Tax Code Declaration (IR330) form along with instructions on how to order more.

In the meantime, go to http://www.ird.govt.nz/news-updates/like-to-know-april-2009-tax-changes.html to find out about the changes. 

 

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Figuring Accountants

 

Two accountants (David and Ben) were walking along the road when Ben said,

"Where did you get such a great bike?"

David replied,

"Well I was walking along yesterday, minding my own business when a beautiful woman rode up on this bike.  She threw the bike to the ground, took off all her clothes and said 'Take what you want'".

Ben nodded approvingly,

"Good choice, the clothes probably wouldn't have fitted".

****

An architect, an artist and an accountant were discussing whether it was better to spend time with a wife or a mistress.

The architect said he enjoyed time with his wife, building a solid foundation for an enduring relationship.

The artist said he enjoyed time with his mistress because of the passion and the mystery he found there.

The accountant (David) said,

"I like both because if you have a wife and a mistress they will each assume you are spending time with the other woman, which leaves you free to go back to the office and get some work done".

***

An accountant (David) was having trouble sleeping so went to his doctor.

"Doctor, I just can't get to sleep at night", he said.

"Have you tried counting sheep?" asked the Doctor.

"Thats the problem", said David.

"I make a mistake and then spend three hours trying to find it".

___________________________________________________________________________

 

 

 

 

David - With Hair on Head and Handlebar Moustache.  All in aid of a 60's bash. (I'm so going to get into trouble for sending this out!)
David - With Hair on Head and Handlebar Moustache. All in aid of a 60's bash. (I'm so going to get into trouble for sending this out!)


Government Helps Businesses

Posted 8 years, 7 months ago by Maggie Waine    0 comments

04 February 2009

Govt announces tax measures to help businesses

The government today announced a series of tax changes aimed at making it easier for small and medium businesses to manage their cash flows and to meet tax obligations. The main changes are:

  • From 1 March 2009, use of money interest rates for underpayments of tax will be reduced from 14.24% to 9.73%. The rate for overpayments will go down from 6.66% to 4.23%. The changes were made by Order in Council earlier this week.
  • The 5% "uplift" for estimating provisional tax will be removed, reducing the size of tax payments that most businesses have to pay. The changes will be included in a bill that is expected to be introduced next week and, once enacted, will apply for the 2008-09 and 2009-10 income years.
The forthcoming bill will also include adjustments to numerous tax thresholds designed to relieve pressure on cash flows and lower compliance costs. They include raising the GST payments basis threshold from $1.3 million to $2 million, raising the PAYE once-a-month filing threshold from $100,000 to $500,000, raising the FBT annual filing threshold from $100,000 to $500,000, and raising the GST registration threshold from $40,000 to $60,000. Details of the proposed legislative changes will be published here when the bill is introduced.

For more information on today's announcements, see www.beehive.govt.nz.



New Year Update

Posted 8 years, 8 months ago by Maggie Waine    0 comments

REFERRAL WINNER

On the 31st December 2008, the team at Matley Financial Services placed the names of all clients who had made a successful referral into a hat to see who was the lucky winner of the luxury weekend away in Tauranga.

Every new client that we gained, earned another chance at the draw.  Some client's had up to 8 chances in the draw due to their exceptional abilities to refer additional client's to us.

With no further ado, the lucky winner of 2008's prize of a luxury dinner, bed and breakfast stay at Ridge Country Retreat in Welcome Bay is:

 

Colin Bowden - Colin Bowden Fencing

 

If you would like to get a chance at winning this relaxing and luxurious prize, then simply refer a person (or people) to us and if they become our client - you have a name in the draw!

To all the other clients who successfully referred client's to us - you have not missed out. 

David has been shopping and has found a lovely bottle of wine for you each and will be playing "Santa" to you over the next few weeks delivering them to you.

For all of you that were not aware of this rewards scheme we have in place - never fear - you have 12 more months to refer people to us!

 

MONTHLY ACCOUNTS

The team at Matley Financial Services is aware that cash flow is getting tight at present with the big "R" word jumping around in the media and news.  This has been reflected in the decrease of numbers in our monthly gift basket draws for paying your accounts on time.  The up side of this is that if you do pay on time - you have a pretty good chance!

If you feel that you will be short of funds to meet your accounting fee, please do not hesitate to contact us. 

It is our policy to charge interest on all accounts over 28 days to assist with our cash flow requirements.  However, if you need a little extra time we need to be told so we can put a payment plan in place that fits with your requirements and so you do not end up being charged interest.

For most clients we are able to estimate what the fee will be based on our time involvement and can set up an annual invoice to cover the year's accounting work that is paid monthly.  This assists in our cash flow as well as yourselves.

 

 

Sunset in Russell - Jan 09
Sunset in Russell - Jan 09

 

 

 

 


End of Year Update

Posted 8 years, 9 months ago by Maggie Waine    0 comments

 

MATLEY EXPANSION

 Matley Financial Services has now opened a serviced office in Glenlyon Avenue, Greerton, Tauranga.  This is to service the increasing number of clients which we have there.  Commencing Tuesday 20th January 2008 and every Tuesday after that, David will be in Tauranga all day available to meet with clients and potential clients.  If you would like to book a time to meet with David in his office in Tauranga, please call 0800 MATLEY (628 539) to set up a time.  If you would like for David to meet you at your home or business in Tauranga, this can also be arranged.

 We are also in the process of designing an office space at our home office in Vaile Road, Hamilton.  We have well and truly outgrown the office space that we built when we first built our house in 2006 and we hope to get David out of the portacabin that he is currently in and into his new spacious office sometime in 2009.  Maggie is getting sick of his complaints!!

 
 

 

INTEREST RATES DROP

 Last Thursday saw an unprecedented drop of the official cash rate to 5%.  With one of the most dramatic decreases in the OCR for a long period of time, this was a signal by the Governor of the Reserve Bank that the economy needs a dramatic kick start to keep it going.  Although Bollard did mention that technically the recession is over, what this is referring to is a recession in economic terms is defined as two periods of consecutive declining growth.  As the quarter ended June and September declined and the economic figures have indicated that it is now stabilized, that is where Bollard is referring to a technical end to the recession.  However, most people will be feeling the hurt in their back pocket and will be wondering where the Governor gets such a statement from.

 

Of course with the lowing OCR many banks have moved quite quickly to slash their short term interest rates and the floating rate for mortgages.  It has led many people to give consideration to early repayments of their mortgages, capitalizing any break fees and then re-fixing at the lower rate.

However, there are a few barbs that are attached to this type of procedure and the analysis should always be completed before consideration is given to doing a break fee.

To give an example we had a client who recently approached us to do the analysis on a potential break fee for one of their mortgages.

The detail of the mortgage was $229,000 fixed at 9.09% and had 9 months to run.  Their bank had calculated an early repayment adjustment of $2,905.66.

The bank had calculated the interest savings over 6 months at the new fixed rate of 7.35% as interest savings of $2,988.45 over a 9 month period which they believed gave a saving with the early repayment adjustment.

Furthermore the fortnightly payment went from $798.43 down to $645.60.

One of the important considerations that need to be taken into account is the time value of money.  In the instance quoted above, the bank had calculated that the early break fee was $2,905, but the savings over the 9 months at the lower rate was $2,988.45 giving a net saving of $82.79.  However there is the time cost of the value of money and at current inflation of 2% which is what is expected over the next 12 months, the savings are whittled down to $24 in current value.

Similarly when calculating the fortnightly payments, which is based on the capitalization of the break fee to the loan, $798.43 per fortnightly over 9 months calculates total payments of $14,371;  Payments of $645.60 equates to $11,620 and then you add on the break fee of $2,905 giving total payments of $14,526.46.  So therefore in the long run, you actually pay more.

While the above example is determined on a loan that only had 9 months to run, each break of the loan should be calculated on its own merits.  Furthermore to put money where our mouth is, we did the calculations for our own loans and have determined that on a 2 year fixed loan which we took in April of this year, we would not be making any savings after paying the early repayment fee until January 2010 and the rate expires in April 2010.  Therefore we have determined that with the 3 month savings, it's not worth giving up the break fee now in cash and if we were to capitalized it on top of the loan; we have eroded any equity we have gained by the repayments of the mortgage over the last 9 months.

 

  CHRISTMAS AND NEW YEAR

 This year Matley Financial Services is closing its doors for the Christmas and New Year's period on the 22nd December 2008.  We will be reopening to client appointments and phone calls on 19th January 2009.  David and Maggie will be away from the 3rd January 2009 to 12th January 2009 and will not be available by mobile.  If anything urgent crops up during our closed hours, please leave a message on David's mobile and he will return your call when able - 029 452 1985.

 

Please - stay safe over the holiday period, and we look forward to seeing you next year.

 

David Riding a Camel in Perth
David Riding a Camel in Perth


October Update

Posted 8 years, 11 months ago by Maggie Waine    0 comments

FINANCIAL CRISIS AND WHERE TO FROM HERE

Many of you will have seen in the papers commentary about the situation on the international market with the financial crisis.

Before one overreacts, there is a couple of considerations that need to be taken into account to bring it into perspective in regards to what is going on.  The first thing to take into account is the $700 billion bail out. 

To most New Zealanders, this seems significant as most of us could not even imagine what $700 billion would look like! To put it into context, the US spends 1 trillion dollars each month on the Iraq war.  So therefore the 700 billion is inconsequential taking into account the commitment they have put into for the financial markets.

Shares have also taken a plummeting as many investors seek to exit now to realize their investment and convert it into cash.  While this is not necessarily a bad thing, when it comes to shareholdings, one should always take a long term view in relation to the shares you hold as part of your portfolio.  If the underlying story of the company has not changed then this may be an ideal opportunity to invest back into companies while they are artificially deflated due to market demand.  For example infrastructure shares such as power companies, telecommunications, roading etc long term will always have a position in the market.  So therefore if these shares are artificially inflated, now may be an ideal time to invest in those shares.

One also has to take into account that in the United States, Bill Clinton under his presidency removed the centralized banking system.  What this meant that is anyone could set up a bank as a private trading bank and could accept deposits from customers and as well as lend out money on the wholesale market.  It is interesting to note that the banks that are failing in the US at the moment are the wholesale banks. 

These aren't the banks that take the deposits over the counter from Mums and Dads, rather banks that actually lend money to other banks.  While you may feel that we in NZ are immune from this wholesale market crisis in the US, it is not quite as straight forward as it first seems.

New Zealand has a significant amount of its asset class tied up in property.  In fact, 80% of New Zealand personal household assets are mortgaged or in some way indebted.  In effect, we are a nation of spender, not a nation of savers.  What this means is that our New Zealand banks cannot borrow funds from internal deposits and rather are required to borrow funds from the external market.  In fact last statistics that I had viewed suggested that for every dollar borrowed in New Zealand, $7 is sourced from overseas funds.  What this means that as the wholesale market begins to collapse and the availability of funds begins to diminish, New Zealand's banks will not be able to borrow funds so easily and therefore cannot easily distribute the money back to New Zealanders.

It's also important to note that many New Zealanders may not be aware that a mortgage document can be called up at any point in time.  What this means (if you read the small print of your document) is why you may believe that if you are paying your mortgage on a regular basis, you have not defaulted and that you are just slowly chipping away at the principal and reducing that down, if your asset class underlying it drops significantly,

i.e. your house drops by 20% and you had initially borrowed 90% of the mortgage, the bank can knock on your door and request that you deposit the funds into the mortgage to bring the equity back to a comfortable level.  While in practice we haven't seen this happen in recent years, the banks have been more flexible in lending, in some cases even up to 100% of the value of the property and now that the property bubble has burst, many banks may be calling in those very tight margins and requesting people to put the funds into it or to simply sell their properties.

If you have sufficient equity in your property, you should not panic in regards to this matter.

So what can we do as a nation to prevent this crisis from ever happening again?  Well the simple answer to it in round terms is to ensure that your asset class is not significantly dependent on properties.  Such dependency can be reduced by increasing amounts invested into savings, shares, term deposits, managed funds etc.  Basically what happens is when your portfolio is invested predominantly in property, is it means that usually there is an 80% to 100% mortgage on that property with the tax refunds usually helping to offset that cash commitment going into paying the mortgage.  If an investor puts money into shares, debentures, deposits etc then usually there is no debt attached to that and therefore the net savings ratio of New Zealand increases.

While I'm advocating increased savings, and this can also be done through KiwiSaver, there is also a concern that we could become a nation that is too much dependent on savings.  In the late 1990's Japan suffered a recession almost bordering on a depression, because their economy came to a grinding halt.  Japan is always seen as a nation of savers.  They have one of the highest saving ratios in the OECD.  The problem was is that when the economy needed people to start spending money to stimulate it, it was unable to happen.  So what we need to find is a nice balance between a nation of spenders and a nation of savers.   To that effect, I believe that this is where the benefit of KiwiSaver comes into it as it was a Government initiative to effectively turn around and to get people to save.  It holds two possible advantages. One is that you have superannuation funding going forward and I believe that in time there will be a need for asset assessment in respect to superannuation, and the second advantage is that it helps improve the overall savings of New Zealand.

If you are interested in evaluating your asset classifications or looking at establishing a portfolio of investments, please feel free to contact us.  While we do not have that specialist knowledge, we can direct you to the people who do have.

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PIES

There has been a lot of commentary in the newspapers and in the marketplace at the moment over PIES.   Many of you may be wondering what exactly a PIE is.  While you might think of it as something that is delectable and should be had as either a dessert or a meal, a PIE in an investment term is a Portfolio Investment Entity.  In effect what was happening was managed funds in New Zealand were being taxed on capital gains.  This meant that if they bought a share and sold a share and they made money on it, it was taxed.  That tax generally was 33%.  The purpose of the PIE is that it means that the overall entity is reflective of what the investors tax rate is, rather than what the company tax rate is.

If, for example, you have earned $38,000 ($40,000 from 1 October 2008) in the last two years, you are entitled to have a PIE rate of 19.5% applied to your investments.  In effect what this meant was if your managed fund had made money in the selling of shares you were taxed at 33%, also all distributions from those trusts attracted a tax of 33% and required to be filed in your income tax return in order to get the excess tax refunded to you.

With the introduction of PIES this enabled the companies to in effect, tax you at source correctly and to ensure that ongoing tax obligations were met.  We have a number of clients who are sending through their PIE summaries to us for us to include in their income tax returns.  This is not required if your PIE investment rate or PIR is correct because this is the rate at which the tax is deducted.  For those of you who earn more than $40,000 per year, the tax advantages are quite significant.  The maximum tax that can be deducted from a PIE is 30% being the company rate.  If your income tax rate is effectively 39% you are taxed at 30% from the PIE with no further tax liabilities to you.

If you are currently invested in any form of managed funds, you need to discuss with your fund manager whether that entity is a PIE or not.  If the entity is not a PIE then you should reconsider changing to a PIE investment and again we can give you a recommendation in regards to that.

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MID WINTER XMAS TEAM OUTING

At the end of August, the Matley Financial Services team had a mid winter xmas outing.  The team, made up of Maggie, David, Ben (the accountant in training) and John (our much valued cleaner) went Ten Pin Bowling at the Bowlevarde at Sky City in Hamilton. 

For your amusement, I have posted the results below:

Maggie - Game 1, 86 points; Game 2, 123 points

David - Game 1, 121 points; Game 2, 91 points

Benjamin - Game 1, 138 points; Game 2, 98 points

John - Game 1, 131 points; Game 2, 144 points.

Needless to say, David was most put out that Ben beat him both games! Maggie redeemed herself in the second game.  But the winner hands down was definitely John who scored outstandingly in both games. 

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 REWARDS AND RECOGNITION

Since May 2007, Matley Financial Services has been running a monthly prize draw to win a $50 gift basket from Cambridge Cuisine (www.cambridgecuisine.co.nz) for all those clients who pay prior to, or on the due date of their invoices.  This has been very successful and we are happy to continue this tradition.  Its a lovely way to reward prompt payment of your account.

In addition to this reward, we are now instigating an annual draw for referrals.  As you may be aware we are considered a "closed practice", which means that we do little or no advertising in the marketplace.  The only way that people hear about us is from word of mouth - from you, our clients. 

To reward any successful referrals that we get, we are drawing on the 31st December 2008 a luxury two day break away at Ridge Country Retreat (www.rcr.co.nz) in Welcome Bay, Tauranga.  This is to say thank you for all the support that has been given to us over the year. 

All clients who have referred someone to us and that someone has become a client, has their name placed into a box.  If you refer more than one, then your name is placed in more than once!  To date we currently have 39 names in this box!  If you want to have a chance at joining this list, please feel free to refer our services to a colleague, friend, or family member who may need the services that we offer, and if they become a client you are included.

 

 

 


August Update

Posted 9 years, 1 month ago by Maggie Waine    2 comments

The Four Year Time Bar

Many clients may not be aware that there is a statutory time bar.  This prevents IRD opening a tax assessment after 4 years from the date of this.

In a case we are aware of was an accountant that represented an established Kiwi corporate taxpayer with long history of tax compliance.  The taxpayer amalgamated with a wholly owned subsidiary that was simply not performing financially, and in so doing, inadvertently triggered a possible tax liability that arose from the amalgamation during the tax year ended 31 March 2003.  The disputes process was initiated by the IRD, leading eventually to the filing of a Statement of Position ("SOP") in December 2007.  The IRD sought to increase the tax payable by the corporate taxpayer in the return.

The 4 year time bar was due to take effect from 31 March 2008.  As the taxpayer had filed its SOP however, the IRD was entitled to issue as assessment without the matter proceeding to the Adjudication Unit, and so short cut the disputes process before the Adjudication Unit could rule on the matter.

IRD issued a notice to allow further submissions to be made before the matter was sent to Adjudication, which the client did.  The effect of this was to delay the matter beyond 31 March 2008, a point apparently overlooked by the IRD.  As the 4 years had passed the matter had become time barred, albeit through inadvertence.  Fortunately, the IRD's Adjudication Unit agreed with the client and ruled that the returns of both the amalgamated company and the amalgamating company had become time barred on 31 March 2008, and thus preventing the IRD from making any adjustments to the return in question.  The end result; a very happy and relieved taxpayer, and further reason to take very careful note of the time periods in dispute work.

In essence a 31 March 2008 tax return is required to be filed on 31 March 2009.  Therefore in March 2013 the tax return cannot be opened to reassessment.  If the return is filed on the 7th July 2008, the 4 year time bar starts 7th July 2012.  However, if the 2008 tax year was filed 7th July 2009 (overdue) the 4 year time bar starts from 7th July 2013.  Therefore, it is important to file returns with the 12 months extension granted to tax agents.

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**[The following is a story that is especially of interest taking into account this year is an election year.  While Matley Financial Services does not hide from the fact that they support the National Party, we do recognise the following story is meant to entertain and is not intended to offend.]**

The Grasshopper and the Ant 

There is an 'Old Version' and a 'Modern Version' ... Two Different Versions! Two Different Morals!

OLD VERSION:
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away.

Come winter, the ant is warm and well fed. The grasshopper has no food or shelter, so he dies out in the cold.

MORAL OF THE STORY:
Be responsible for yourself!


MODERN VERSION:
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away.
Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others are cold and starving.
TV1, TV3 and Maori TV show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. New Zealand is stunned by the sharp contrast.
How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so?
Kermit the Frog appears on Good Morning with the grasshopper, and everybody cries when they sing, 'It's Not Easy Being Green.'
Sue Bradford stages a demonstration in front of the ant's house where the news stations film the group singing, 'We shall overcome.' Gordon Copeland then has the group kneel down to pray to God for the grasshopper's sake.
Michael Cullen exclaims in an interview with John Campbell that the ant has gotten rich off the back of the grasshopper, and both call for an immediate tax hike on the ant to make him pay his fair share as the ant is too much of a "Rich Prick."
Finally, the Labour Party drafts the Economic Equity & Anti-Grasshopper Act retroactive to the beginning of the summer.
The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the government.
Winston gets his old law firm to represent the grasshopper in a defamation suit against the ant, and the case is tried before a panel of judges that Helen appointed from a list of single-parent welfare recipients.
The ant loses the case.
The story ends as we see the grasshopper finishing up the last bits of the ant's food while the government house he is in, which just happens to be the ant's old house, crumbles around him because he doesn't maintain it. The ant has disappeared in the snow. The grasshopper is found dead in a drug related incident and the house, now abandoned, is taken over by a gang of spiders who terrorize the once peaceful neighbourhood.

MORAL OF THE STORY:
Be VERY careful how you vote in 2008!!

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New Way to Pay Your Bill - Credit Card

In an effort to provide a variety of ways for our clients to pay their bill, we now offer the service of paying your account by Credit Card.

We now take payments for Visa and Mastercard.  If you would like to use this service, please phone the office and speak to Maggie.  We do not have EFTPOS facilities at this stage however.

Matley Financial Services now offers the following options for paying your account:

- Annual Billing to be paid off over 12 months (terms and conditions apply)

- Cheque

- Cash

- Credit Card

- Bartercard (terms and conditions apply)

- Direct Credit

 

 


Matley's Tax Titbit - August 2008

Posted 9 years, 1 month ago by Maggie Waine    0 comments

Hello,

Please find our first installment of Tax Titbits below.

If you are wondering why you have received this email - you have been automatically subscribed to receiving our newsletters via email due to being a client of Matley Financial Services.  If you no longer wish to receive these newsletters (which will occur every 3 months or so), please click on the unsubscribe function. 

If you have any questions about the content of this email, please do not hesitate to contact Maggie on 07 824 1084.

Kind regards

The Team at Matley Financial Services Limited

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LAND SALES AND ASSOCIATED PERSONS - NEW LEGISLATION IN PLACE

 

Many clients may not be aware that there has been a proposal to change the definition of Associated Persons which will have a significant effect on those who are looking at developing or dealing in land but also wish to hold long term passive rental holdings.

Section CB and CB11 consider that any tax payer or person associated with the tax payer who is in the business of erecting buildings must return all sales of land and buildings as taxable income if sold within 10 years.  The interesting question of course is what is the business of erecting buildings and that refers to anyone who constructs or erects a building.  It does not include someone who is a handyman or someone for example who may work on labour only contracts.  However, it is important to note that it is 10 years from the date or acquisition or the date of improvement.

To illustrate the point, Mr T purchased bare land in 2000.  At the time of purchasing Mr T was a student.  Mr T commenced the business in 2007 as a builder under a company structure.  In 2008 he decided to build a storage shed on the section of land he purchased in 2000 to store and hold on to all his plant and equipment and materials.  In 2009 he sold the section and shed.

The issue to consider in the above illustration is that in the 1994 Act it was that the individual must be in the business of building and erecting at the time the land was acquired.  In the above illustration this would be in the year 2000 when Mr T was a student and not in the business of building or erecting.  Therefore if he sold it in 2009 there was no income tax payable.

However, under the 2004 and 2007 Acts it is now tested on when you are in business at the time of improvements or acquisition.  Therefore in 2008 when Mr T effectively erected the storage shed and subsequently sold it in 2009 he was in the business of building or erecting buildings as he had commenced that business in 2007.  Therefore the sale of the section and shed would be taxable.

However, it is not all bad as there is the ability to have a business premise exemption.  In this case one could argue that the storage shed was used to store the plant and equipment of the business along with any raw material.  Therefore by selling it off, it is effectively selling a capital item of the business.

The new bill that has been put before parliament and received over 800 submissions has changed significantly the definition of associated persons.  Under the proposed bill and it should be noted that this has not yet been passed into legislation, however as it is passed through the consultation process there is no indication at this stage to indicate that it would not be passed and enshrined into law.  It may be done under the current government or it could be done under any new subsequent government after the election.

The new amendment of the Income Tax Act would affect all land acquired after the 1st April 2009.  However, it is important to note that the 1st April 2009 is a relevant date and is applicable regardless of the balance date of the entity.  It seems to be based on information we have reviewed that IRD are attempting to introduce the 1973 Act which intended to capture all gains of property that are made within 10 years.  In fact, IRD have gone further to say that one of the major weaknesses of the current Act is to allow builders, developers and dealers in land to effectively escape tax by operating through closely connected entities.

Regardless of whether it was the intention of parliament to introduce a capital gains tax or whether it is its intention to capture gains made on the sale of passive investment properties after 10 years, the net effect of it that its detrimental for developers who wish to hold rental properties on capital account.

With all income tax legislation it is very difficult on case specifics to individual clients to give any clear and concise direction.  However, suffice to say, the old rule used to be that no two trusts could ever be associated, and commonly we would establish a development trust and we would establish an investment trust.  The investment trust would be a beneficiary of the development trust and the development trust would be settled by tax payer A and have charities and the investment trust or family trust as the beneficiaries.  Under this basis that the property held by the investment trust would not be tainted and the property held by the development trust would not taint the family trust.  However, this is no longer the case.

Under Section YB7 that is proposed to be introduced trusts who have the commonality of settlor will now be considered associated with each other in respect to income tax.

Section YB7 relies on the Settlor definition which is contained in Section HC27 of the exisiting Act.  A settlor basically is someone who includes a transfer of value to trust which is either directly or indirectly involved by one or a number of transactions connected to or otherwise.  What this gobblygook effectively means that if I was to establish a trust for you as the settlor, I am acting on your instructions and therefore I am indirectly acting for you and as such you are the settlor of the trust.  It also includes a settlor of the head trust would become the settlor of any sub trust and there is an overriding rule in Section HC28 (2 )of the Act that says that any action or refraining from any action to defeat an intent and application of the trust tax rules would in effect be seen as tax avoidance and undo the arrangement.  Under Section YB8 which is intended to be introduced into the legislation, it will define further what that settlor is in respect to trusts.  It is also important to note that from the 1st April 2009 it is proposed that a new definition of Section YB11 will bring into account those who hold the power of appointment of both trusts would be deemed to associate those trusts.

This begs the question of asking that what happens if I were to hold the power of appointment or removal of trustees on behalf of my client?  The question is, am I holding this power of appointment as an agent on behalf of my client, or am I holding this power of appointment in my own capacity?  If I am holding it as agent then I am in effect acting as the settlor who has given me that power of appointment and as such I would therefore be associated with any other trusts that that individual holds the power of appointment to. 

While on the face of it it doesn't seem too positive for those who wish to hold capital account land and buildings and those who wish to deal or develop in the land and buildings, we are working with some tax people at this point in time to try and develop a strategy which will allow going forward some strength in continuity in the application of the new rules.

At this stage however there is one potential avenue that can be explored and that is under the new associated parties rules there is no consideration of grandparents or parents.

Therefore, one aspect that we have given consideration to those who wish to develop land or to be builders dealing with the erection of buildings, if ones parents are not in similar businesses, then they can establish for the benefit of their children and grandchildren a family trust which can hold long term property.  However it is important to note that if power of appointment and removal of the trustees rests with the settlors children and they are also the settlors and hold the power of appointment for their development trust, these two trusts will be associated.  So there are some rules that we are looking at this stage and will report back once we have discovered or are aware of a firm structure that can be adopted.

  

GST AND RULES OF ASSOCIATION

In the buoyant market that we have had and with the market that currently exists a number of clients have been looking at purchasing property with the intention of doing it up and then on selling it to make some money.  The matter to note is that when often buying a property or "the bargain of the century" arrives many clients will quite happily put on the sale and purchase agreement, their name and or nominee.

You may have heard of a Deed of Nomination and a Deed of Novation.  But many clients don't quite understand what the two mean and also the implications of what those two mean.

A Deed of Nomination is effectively executed at the time of sale and what the Deed of Nomination basically says is the party that appears on the sale and purchase agreement nominates another party under the Deed of Nomination to effectively purchase that property.

A Deed of Novation is in effect the person mentioned on the sale and purchase agreement actually steps aside and the second party to the Deed of Novation steps in to their shoes and has to contract with the vendor directly under the same terms and conditions that was to the original sale and purchase agreement and then complete the transaction.

While this might seem minor and pedantic, it does have some significant consequences where it comes to GST.  Under a Deed of Nomination, in effect the Nominator and the Nominee are generally the associated parties.  For the purposes of association there is a lenghtly test that I do not need to go into at this point in time, but suffice to say the Deed of Nomination includes everyone

including your grandmothers second cousin twice removed dog! 

Under the association one of the problems that arises that the cost to the nominee for the purposes of GST input is the lesser of market value or cost.  While it may appear on the face of it that the cost to the purchaser has been the price on the sale and purchase agreement for the purposes of GST the cost to the Nominated party is actually nil.  The reason for this is because the purchaser (the original party to the sale and purchase agreement) is not GST registered so therefore the GST is zero.  The nominated party is therefore restricted to the lesser of cost being zero, or market value being the price on the sale and purchase agreement.  This in effect means under GST rules there is no cost of input claim for the purchase of the property.

However, under a Deed of Novation as the original sale and purchase agreement is basically over turned and a new sale and purchase agreement is executed, the associated parties rules mean that the cost is exactly the same as the market value and a GST claim can be made for the purchase of the property.

However, be cautioned because one of the risks you run under the Deed of Novation is that the original sale and purchase agreement is put aside and a new one is entered into between the intended purchaser and the vendor.  If the vendor has a change of heart and decides that they do not wish to enter into a contract under the same terms and conditions this means that the new party may not have such a favourable agreement.

In effect, what this means is if you are purchasing a property for the intention of doing it up and you wish to do it in another entity, ensure that you have your structures in place first before doing it because it is a lot to easier to settle on the name that is registered on the sale and purchase agreement rather than having to go through the Deed of Nominations and Deed of Novations and be potentially overturned when coming to an IRD audit.

We know of an instance where we have been involved in a consulting role for another accounting firm where a sale and purchase agreement was Nominated to a development trust and as the original sale and purchase agreement (or in this case was an auction) was in the name of a company the registration process went through under the company name and the association rules meant that they could not claim effectively $53,000 worth of GST back, but would be subject to GST on the full sale price of the lots.  It is therefore important to have your structures right and if you are considering such deals, contact us immediately and we can ensure structures are put in place before sale and purchase agreements are signed. 

 


Matley Communique - July 2008

Posted 9 years, 2 months ago by Maggie Waine    0 comments

Hello,

Please find our newsletter for July 2008 below.

If you are wondering why you have received this email - you have been automatically subscribed to receiving our newsletter via email due to being a client of Matley Financial Services.  If you no longer wish to receive these newsletters (which will occur every 3 months or so), please click on the unsubscribe function. 

 

Matley Communique - July 2008.pdf

If you have any questions about the content of this email, please do not hesitate to contact Maggie on 07 824 1084.

Kind regards

The Team at Matley Financial Services Limited



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