March - End of Financial Year :-)

Posted 4 years, 8 months ago by Maggie Waine    1 comment

TRUSTEES OF FAMILY TRUST GOING TO AUSTRALIA

Be sure to change trustees to NZ resident trustees before the client departs from NZ.  In Australia, a trust is subject to its tax laws based on where the trustees are living.

Therefore, if you wish to avoid Australian taxes on the trust, including capital gains taxes, you need to make sure that the trustees of the trust are not at any time Australian residents.

 

LTCS AND FBT - CLARITY AT LAST

From 2 November 2012, fringe benefits provided to working shareholders are distributions of profits.  They are no longer fringe benefits, because the company is a sole trader or partnership for tax purposes.  Thereofre, if a working owner has the use of a company car, he/she will need to keep a log book to calculate the non-deductible share of car running costs.  Add the value of this to the income of the shareholder at year end.  It's a pity the new rules couldn't have commenced from 1 April 2013.  About the best you can do to cover the period 2 November to year end is to start keeping a  log ASAP.

 

TRUST LAW REVIEW

The law commission is currently undertaking a review on trusts which is the most significant piece of legislation that is likely to come before the house in respect to trust legislation since 1837.  The effect of the new act is that it will look at codifying a lot of equitable law and enshrine it within the existing legislation.  This includes what beneficiaries are and the obligations that trustees will have on beneficiaries.

 There are a number of changes that are proposed within the review and many lawyers are suggesting that this is going to be a fait de compli, however is still going through the submission process before anything is put before the select committees and drafted into a bill. 

 The make up of the review has placed a lot of emphasis on trustee disclosures and the rights and obligations of trustees towards the beneficiaries.  While in theory I do not have a problem with many of the proposals that have been put forward; most notably, the fact that trustees must act to the benefit of the beneficiaries and ensure that sufficient disclosure and information to the beneficiaries of their entitlement is given; ultimately I do have a concern that this could cause some fractious behaviour between the beneficiaries and the trustees (most notably mum and dad and the kids).  Imagine if a child had $70,000 of income allocated to them, turns 18 and is given a copy of the trust accounts and they ask for the $70,000 cash?

 There are some implications to us as professional advisors and trustees.  While this may not concern you at the outset, this may incur a rise in our premiums for Professional Indemnity, and as such we will be monitoring these and try to keep them to a minimum, but there may be a cost to you as the client for our professional services.  Under the current Professional Indemnity Insurance that I hold, any trust that I charge for as a trustee (this is your annual review process) is covered under my existing PI insurance.

 Some significant movement in the professional trustee area has been in a landmark case of Newmarket Trustees Ltd where a trustee company was wound up while shown to be insolvent and some of the comments passed by the Judiciary, has found its way into the new submissions.  Most notably the fact that if a trust company is incorporated and intends to be insolvent, there is an ability to “pierce the corporate veil” and look through to the individual trustees.  This will have a more significant impact on trading trusts than it will do on the “normal” asset owning trusts.

 The most significant area of reform which you would need to be conscious of is the fact that good administration is going to become an essential requirement of the new trust Act.  Good administration has never been a problem and is something that I have advocated for a number of years, however in recent times, the court has swung more towards intent than it has on administration.  The effect of legislation in its proposed form would incorporate intent as well as administration and this may be something that we need to address with some trusts as we go through the annual review process for this year.

 The other change which may or may not be beneficial to many trusts is the extension of the Perpetuity Act from the existing 80 years to 150 years.  While this sounds agreeable in principal, the reality is that most trusts would not extend beyond their natural life of the settlors with most of the beneficiaries agreeing to have the trust wound up and distributed through to the beneficiaries upon the death of the settlors (most notably mum and dad).  Of course, this changes when you are setting up a trust in your twenties as we begin to live longer when after 80 years you reach 100 years you may actually still be alive in which case extending to 150 years would show an indication of transferring wealth to the next generation.

 We of course will continue to monitor the proposals as they move through the legislative process but at this point in time it is our recommendation that all trusts ensure that their trustees are brought up to date with the prospective changes in legislation.

 

GRANDPA'S AUDIT

IRS decides to audit Grandpa, and summons him to the IRS office. The IRS auditor was not surprised when Grandpa showed up with his attorney.
The auditor said, 'Well, sir, you have an extravagant lifestyle and no full-time employment, which you explain by saying that you win money gambling.
I'm not sure the IRS finds ...that believable.'
I'm a great gambler, and I can prove it,' says
Grandpa. 'How ...about a demonstration?'
... The auditor thinks for a moment and said, 'Okay. Go ahead.'
Grandpa says, 'I'll bet you a thousand dollars that I can bite my own eye.'
The auditor thinks a moment and says, 'It's a bet.'
Grandpa removes his glass eye and bites it.
The auditor's jaw drops.
Grandpa says, 'Now, I'll bet you two thousand dollars that I can bite my other eye.'
Now the auditor can tell Grandpa isn't blind, so he takes the bet.
Grandpa removes his dentures and bites his good eye.
The stunned auditor now realizes he has wagered and lost three grand, with Grandpa's attorney as a witness. He starts to get nervous.
'Want to go double or nothing?' Grandpa asks 'I'll bet you six thousand dollars that I can stand on one side of your desk, and pee into that wastebasket on the other side, and never get a drop anywhere in between.'
The auditor, twice burned, is cautious now, but he looks carefully and decides there's no way this old guy could possibly manage that stunt, so he agrees again.
Grandpa stands beside the desk and unzips his pants, but although he strains mightily, he can't make the stream reach the wastebasket on the other side, so he pretty much urinates all over the auditor's desk.
The auditor leaps with joy, realizing that he has just turned a major loss into a huge win.
But Grandpa's attorney moans and puts his head in his hands.
'Are you okay?' the auditor asks.
'Not really,' says the attorney. 'This morning, when Grandpa told me he'd been summoned for an audit, he bet me twenty-five thousand dollars that he could come in here and pee all over your desk and you'd be happy about it.'

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