Matley May Update

Posted 1 year, 4 months ago by Maggie Waine    0 comments

Hi everyone!  It's been 2 months since our last newsletter, so thought we had better bug you again! :-)

This month's newsletter covers:

- The hazards of not paying PAYE

- Reverse mortgages

- Simplifying tax 

- Introducing our new Practice Manager

- Davids opinion on Foreign Trusts.

First up however, you may remember that David and Maggie are gearing up to add to their family.  This is due to happen this month so when making appointments with David, please bear in mind that your time may need to be flexible in case he has to dash away unexpectedly.  Maggie is still in the background working in and around her pregnancy (as you may have realised from emails etc) - so hopefully the interruptions to clients will be minimalistic.

 

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CLIENTS WHO FAIL TO PAY PAYE

- TAX-E-MAIL ISSUE 1603 [THE SMALL BUSINESS INSTITUTE LTD]

An entrepreneur started a business involving employing a number of workers.  He deducted PAYE from wages but never remitted the money to the Inland Revenue.  The total amount came to $120,055.  He tried makin an arrangement to pay the tax but couldn't honour it.  His business failed.  IRD prosecuted.  The judge sentenced him to 14 months in jail, even though he pleaded guilty.  Why so severe?  Because the judge thought it would help deter others.  The taxpayer appealed.  Fortunately the High Court substituted 4 months home detention and 300 hours community service.  Clients who get into trouble with their business don't realise the seriousness of failing to pay PAYE.

 

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REVERSE MORTGAGES - SOMETHING NEW

- TAX-E-MAIL ISSUE 1603 [SMALL BUSINESS INSTITUTE]

Family Loans Limited has come up with an improvement to the common option recommended to avoid reverse mortgages.

Intra-family loans are generally seen as the better alternative but they can often have pitfalls if not managed correctly.

  • disputes between family members
  • people can lose their home
  • wills can be contested, and
  • family relationships can become strained

The solution is getting the loans documented so all members of the family, who have an interest in a family loan, can see what the position is at any time.

Family Loans Limited has created a register.  It will provide:

  • standard loan documentation that complies with the Ministry of Social Development (MSD) code of standards;
  • registration of the security for the protection of all parties,
  • monitoring the loans until settlement, and
  • online loan statements for the borrower and lenders and their respective accountants and lawyers.

For more information go to www.familyloans.co.nz

 

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PROPOSALS TO SIMPLIFY TAX RELEASED 13 APRIL 2016

- INTELLICONNECT TRACKER 13-4-2016

An officials' issues paper, "Making tax simpler - Better business tax", has been released on the 16 measures proposed by the Government.  One of the proposals, the Accounting Income Method (AIM), is the subject of a more detailed discussion through an online forum.  The 16 measures are as follows:

  • increasing the current $50,000 residual income tax limit for use of money interest (UOMI) to $60,000 for individuals and non-individuals
  • removing UOMI interest for the first two provisional tax payments for all taxpyers who use the uplift method
  • allowing businesses to us the Accounting Income Method (AIM) to pay provisional tax through their accounting software (applies from 1 April 2016)
  • allowing companies to pay tax on behalf of shareholders (applied from 1 April 2016)
  • allowing contractors to elect their own withholding rate
  • permitting voluntary withholding agreements
  • extending withholding tax to labour-hire firms.
  • no longer imposing incremental late payment penalties on future GST, provisional tax, income tax and Working for Families Tax Credits (WfFTC) debt
  • sharing tax information with the Companies Office about serious offences
  • simplifying FBT for close companies
  • simplifying deduction calculations for dual use vehicles and premises
  • increasing thresholds for adjustments in subsequent returns
  • removing the requirement to renew RWT exemption certificates annually
  • increasing the threshold for annual FBT returns from $500k to $1m of PAYE/ESCT, and
  • modifying the 63-day rule on employee remuneration.

 

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MATLEY STAFF CHANGES 2016

Further to our announcement in the January newsletter, we welcomed Neisha Comins to Matley Financial Services in April.  Neisha is a Chartered Accountant with Senior accounting experience in Public Practice. 

 Neisha is our Practice Manager and the objective of her role is to improve our  Operations system to support and compliment David’s current relationships and interactions with clients.  The end result is to exceed client expectations of communication and delivery of service.  If you have any feedback or suggestions, we encourage you to contact Neisha on 0800-MATLEY or via email, Neisha@matley.co.nz.  

 

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FOREIGN TRUSTS – are they all that bad?

There has been a lot of media discussion around the use of Foreign Trusts in New Zealand and the stigma that they are all bad and that New Zealand is going to be tarnished with being a tax haven.  Well are they all that bad?  Remember no one has said they are illegal, its just rich people should pay tax, so sayith our egalitarian culture.

Let’s say for example that you were born in the United Kingdom and move to New Zealand.  Your parents, to assist you in your new venture to the antipodes, purchases a house for you to live in.  Let’s face it, with current exchange rates it only costs half the price in pounds as it does in NZ dollars!  To ensure that any new partner you find does not capitalize on the increase in property values your parents decide to put the property into Trust with you as the beneficiary and their NZ appointed lawyer firm as the Trustee.  This is now a Foreign Trust.

Further, you now met your significant other and they move in.  Your parent’s feel that rent should be paid.  Yes the trust is still a foreign trust, but now the Trust must pay tax on the earnings generated in New Zealand.  This is a good thing – but remember Foreign trusts are bad!

Another scenario – I leave on my OE and go to South America (perhaps keeping away from Panama for the purpose of this exercise) and meet a nice Brazilian girl.  She comes from a family that have invested wisely over the years and have significant resources.  We marry (yes it is still very much a good Catholic country) and return to New Zealand.  We have children.  My (now) Brazilian wife’s family send money over to help pay for the grandchildren’s education and perhaps buy a house for them to come and live at when they visit.  They decide to put these assets into trust and name my wife as the Trustee.  Yes that is a foreign trust, how terrible!

There are cases where Foreign trusts will be abused, but there are also cases where they are legitimately and genuinely used for family and commercial arrangements that benefit the New Zealand economies.  Foreign trusts must pay tax on income generated in New Zealand.  And even if New Zealand is seen as a tax haven, is that such a bad thing?

Some well known tax havens are Monaco, Switzerland & Luxembourg (there are around several Island’s throughout the Caribbean).  Monaco has a population of less than 40,000 people, has a GDP of $78,700 per person and the average life expectancy of 90 and is focused on banking services and tourism (Monte Carlo).  Switzerland has a population of 8million, a GDP of $59,150 per person and major economic base is manufacturing and head quarters of major corporations.  Luxembourg has a population of 563,000 a GDP of $100,991 per person and banking and finance is it’s focus (it is the second largest investment fund service after the US).

By contrast New Zealand has 4.7 million people, a GDP of $36,950 and an economy that focuses on primary production.  Political commentary has been made about New Zealand getting economic parity with Australia (GDP is $47,318).  Perhaps there is a case to suggest based on the tax haven scenarios, that we should foster this status to become a banking, finance and service centre.  After all no one is baying for the blood of Monaco, Switzerland & Luxembourg.  Perhaps that is because they ignore everyone and just carry on doing what they do and don’t worry about the little storms in the teacup??? 



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