Matley Update - July 2013

Posted 4 years, 1 month ago by Maggie Waine    0 comments

Hi Everyone!

Its been a while since we have sent out a newsletter, but we haven't forgotten!

Just a quick update first on what Matley Financial's creators have been up too.  David and Maggie have moved house.  They are now happily ensconced in Rototuna.  This month was a bit haphazard because of the move, so if you have found its been hard to get hold of either of them, this is probably the major culprit!

Also, there will be a new addition to the Waine family at the end of November, beginning of December with Maggie expecting a sibling for young Heath.   Maggie is expecting to be on maternity leave from early November, but will continue to work from home where possible, so she will still be a point of contact should you require it.

As David is quite difficult to get a hold of at times now with running between three offices, please ensure that you get your appointments in with plenty of notice and if he is unavailable on the phone we have several other qualified staff who may be able to assist you.  If its an accounting query, you can talk to Ben, Jenny or Janine and if they can't help, David will be able to call you back if you leave your query with them.

TAX REFORM CONTINUES APACE

10/07/13 - www.nzica.com - Peter Vial ACA NZICA's General Manager - Tax

Recent and proposed changes in taxation.

Although tax was not "front and centre" in Budget 2013, some of the tax proposals buried in the fine print are worth keeping an eye on as they develop.  Also worth a watching brief are various legislative amendments and changes to tax policy that Parliament and Inland Revenue are currently working on.

Budget 2013

The 2013 Budget focused on expenditure ("spending well and not spending up" in the words of Minister of Finance, Bill English) and not on radical changes to the revenue side of the equation.

As expected, tax reform was a bit part player, with the focus more on housing, "bang for buck" in the public sector, and the Christchurch rebuild.

The Minister of Finance reiterated that the government is comfortable with tax policy settings in the "near term".  This suggests we are unlikely to see significant tax changes between now and the 2014 election and possibly throughout 2017 if there is no change in government in the meantime.

The National-led Government has considered and rejected major reform measures such as land tax and a capital gains tax and, instead, is focusing on "base maintenance" - filling perceived gaps in the tax base and closing loopholes.

The Budget also confirmed that tax revenue for the current year is up from the estimate by $1.5 billion - not surprising given they economy has expanded and unemployment has dropped.  A further sizeable jump is expected for next year.  In fact the government is banking on increases of about $3 billion per year for the next three years.

R & D tax break

The government is promising a tax break for small start-up businesses that invest heavily in research and development.  It will refund losses that arise from R & D expenditure up to a specified limit.  As we got to print, the detail, including an implementation date, has yet to be released but is expected soon.  The tax break will be useful provided the rules for accessing it are straightforward.

Blackhole expenditure

The government will address certain types of "blackhole expenditure", ie expenditure that is neither tax deductible nor depreciable.  The specific areas targets are company administration costs, certain costs related to patent and plant variety right applications, and expenditure on certain resource consent applications.  This is a welcome development.  However, there are many other types of expenditure that are still in the "blackhole" and that the government needs to address.

Thin capitalisation

 The Minister of Finance confirmed that changes will be made to the inbound thin capitalisation rules that apply to New Zealand taxpayers controlled by non-residents.  The key proposed changes are targeted at non-residents such as private equity investors who are "acting together" but are not subject to the current rules.

The changes are expected to generate $20 million over three years from 2014/2015.  It is critical that the changes do not "over-reach" and alarm foreign investors.  The detail is still to be finalised and NZICA will continue to engage with officials as they firm up the proposals.

IR's property investment focus

In the Budget the government allocated an additional $6.65 million a year of funding to Inland Revenue to tackle property investment tax compliance.  This follows several additional tranches of funding allocated to the Inland Revenue in the past few years for tackling compliance in the property sector.

According to the Minister of Revenue, about $110 million has been raised from additional property audit funding since July 2010.  On the same day as the Budget, Inland Revenue released an Issues Paper on the vexed question of when a taxpayer's intention or purpose to acquire land should be determined.  It invites views on which of the following two options is appropriate: when the sale and purchase agreement is entered into; or when the agreement becomes unconditional.

Tax legislation

There are currently three tax Bills in Parliament.  Two of them are so called "omnibus" Bills because of the wide range of issues they cover.  The first, which includes changes to the livestock valuation regime and new rules for mixed-use assets (such as baches, boats and aircraft that are used for both private and business purposes) is likely to be enacted in the next few months.  We are expecting confirmation that the mixed-use asset rules will apply to baches from 1 April 2013 and to other mixed-used assets in a later year.

The second Bill was introduced in late May and is likely to be enacted in the first half of next year.  It simplifies the law relating to foreign superannuation and brings the taxation of specified minerals mining (gold, silver and iron sands) more into line with the taxation of other businesses.  It also introduces the mechanism whereby Inland Revenue will be able to set minimum financial reporting requirements for certain taxpayers (in addition to companies that will be required to prepare financial statements).

Under the proposed changes to the taxation of foreign superannuation, the foreign investment fund (FIF) rules will no longer apply to foreign superannuation schemes.  Instead, lump sums from foreign superannuation schemes will be taxed when they are withdrawn or transferred to a New Zealand or Australian scheme.

The amount of tax will depend on how long the taxpayer has been a New Zealand resident, using one of two calculation options.  Periodic pensions will continue to be taxed in full on receipt.  People who transfer their foreign superannuation scheme interests into KiwiSaver will be allowed to make a withdrawal from the KiwiSaver scheme to pay their tax bill.  The proposed changes are intended to come into effect from 1 April 2014.

The third Bill, which introduces the concept of income sharing for parents with children, has been languishing in Parliament since 2010 and seems unlikely to get enough support to progress to a second reading.

Tax policy developments

Late last year Inland Revenue released a draft interpretation statement on the residence of individuals and companies.  When finalised it will replace a 1989 Public Information Bulletin which many practitioners currently consider when looking at residence "scenarios".

The Commissioner's new interpretation of the law of residence for individuals differs in several key respects from the 1989 view.  For example, in determining whether a person has a permanent place of abode in New Zealand the Commissioner is now proposing to place more emphasis on the availability of a dwelling.  Significantly it also concludes that a dwelling can be available even if it is rented to a third party - this is on the basis that such a dwelling can be within "sufficient reach" of the person.  The new interpretation also comes to some different conclusions regarding how the residence tie breaker tests under the double tax agreements work.

NZICA and members have made submissions on the draft statement and Inland Revenue is working through the issues raised.

Allowances

The Commissioner has issued an operational statement on the income tax treatment of accommodation payments, employer-provided accommodation and accommodation allowances.  The statement concludes that accommodation is generally treated as income of the employee and subject to PAYE.  An exception applies to "temporary accommodation".

The Commissioner has rejected the "net benefit" approach, which many practitioners have applied.  Under this approach, where an employee maintains a home in their original location, the argument is that no benefit arises from the employer-provided accommodation or allowance and that therefore no tax is payable.  According to the Commissioner the maintenance of a house in a different location is irrelevant.  It is fair to say that the statement has met with considerable opposition.  It seems likely that the government will introduce legislation intended to bring more certainty to this area.

The statement can be viewed at www.ird.govt.nz.

 

ACC DISCOUNTS - WORKPLACE SAFETY DISCOUNT (WSD)

- Nice ACC Lady that visited our office on Thursday 1st July 2013.

You Get:

- 10% Work Levy Discount for 3 years

To Qualify:

- Available to any business with 10 or less employees or payroll of less than $537,000.

- Open to all industries

 To Do:

- Fill in a self-assessment booklet and provide Health & Safety documentation

- May be subject to an audit.

 

RENTAL PROPERTY REPAIRS VIEWED DIFFERENTLY

 - Small Business Institute Tax-e-mail Issue 1304

Now there is no depreciation on buildings, you should look at repairs in a new light.  For example, a kitchen forms part of the house structure and you cannot claim depreciation.  The kitchen is a small part of the total cost of a house.  Therefore replacing it could be considered to be a fully tax deductible cost assuming the basic configuration is the same and any improvement is merely due to technological advancement.

For commercial property the law is being amended to remove this doubt.  This draft legislation will impact on repair treatment for commercial property.  The proposal is that even where an item is not a separate stand alone asset, if it has been separated in the depreciation schedule sometime in the past, it will be treated for repair purposes as a separate asset.  For example electrical reticulation.  We will report further on this with an example when the legislation is enacted.

In future, be careful splitting out the assets like reticulation, as separate item.  If they are getting near the end of their useful life and are going to need to be replaced in a few years, it could be better to forego the depreciation and leave them as part of the building.

 

LTC AND CURRENT ACCOUNT - BIG PROBLEM

- Small Business Institute Tax-e-mail, Issue 1306

A credit balance in the shareholder current account of an insolvent LTC will become income when the company winds up for ceases to be a LTC.  This arises because the debt owing by the company to the shareholders becomes forgiven and thus is income to the company under the accruals rules.  Company income has to be returned in the shareholders' tax returns.  To overcome this, we need to capitalise the loan.  This can be done by using the credit balance to pay for share capital or by subscribing for the shares in cash which is in turn used to repay the current account.  Either method will involve minutes and filing documents with Registrar of Companies which is why it is important to tell us when winding up a LTC.

 

FINANCIAL REPORTING FOR SMALL BUSINESSES

- Small Business Institute Tax-e-mail, Issue 1306 

From 1 April 2014, subject to the requirements of the Financial Reporting Act being repealed by that date, the requirements for small and medium sized businesses (not being issuers) to prepare financial statements will be largely governed by IRD needs.

IRD will want companies to continue to prepare financial statements.

For all other entities it intends to require the use of of double entry bookkeeping, accrual accounting and some minimum level of notes and accounting policies to be supplied by all entities.  Further, it will require a note of all related party transactions.

It looks as though nothing much is going to change.

 

STAFF DAYTONA COMPETITION

On April 12 2013 the Matley staff had a competition to see who was the speediest of them all.  For some fun, here are the results...

1. Benjamin (fastest lap time 28.60 seconds; slowest 30.74 seconds)

2. Nicholas (fastest lap time 29.74 seconds; slowest 33.83 seconds)

3. David (fastest lap time 30.87 seconds; slowest 35.69 seconds)

4. Angeline (fastest lap time 38.20 seconds; slowest 45.28 seconds)

5. Janine (fastest lap time 38.44 seconds; slowest 47.65 seconds)

6. Jenny (fastest lap time 58.15 seconds; slowest 1 minute 13.75 seconds)



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