Tax Specialsts Auckland
Chartered Accountants


Newsletter December 2017

Get the staff hiring right

If your business is doing well and you can no longer do it all yourself, you need to hire staff. That’s when the real work begins.

 Hiring the right staff is what small businesses say is the one most difficult task – and one which can so often lead to problems. Potential staff might look good on paper and in person, and interview well, but you’ll only know whether you’ve made the right decision when they begin to do the work.

Here are a few tips to help you get the right staff.

Do the checks. Too many companies in New Zealand don’t check to see whether qualifications are genuine, or follow up with previous employers. The experience of those employers could be critical to your decisions. Three key questions to ask have to be:
Why did the employee leave?
Did you have any specific or general problems with their work, their behaviour or their attitude? And perhaps most crucial, would you hire them again?

Identify the role and aim at getting the person with the right attitude (first and foremost) and skills for the job. Don’t be side tracked by a good candidate who’s not suited to the role you need to be filled.

Consider experience, but also learning ability. Your company will always operate differently than someone else’s, so a staff member’s ability to learn how you do things is important. They are also more likely to use their initiative to suggest improvements in work practices.

Include someone you trust in your interview team. If you can afford to hire a professional recruiter, you should do so. There are self-employed individuals, if you can find them, who would be happy to receive a fee.

As a business owner, your focus is going to be different than theirs. You will ultimately make the decision, but another person’s perspective can often provide insights you might never think of.

Whatever your business, if you’re expanding it means a new staff member is going to be part of a team. The big companies always look for people who are able to work in a team. They also look for good written communication skills and an ability to solve problems. Whether you’re hiring waiting staff for a cafe or an IT specialist, these qualities will matter.

Written contracts are important

A Hamilton car dealer recently incurred fines and a liability for back-paid wages of $65,000 for not having an employment agreement and imagining his staff were self-employed. He did two things wrong:

  1. he didn’t get advice about what constituted a contractor;
  2. he didn’t have a written agreement.

Don’t make the same mistakes, talk to us before deciding whether or not a person you wish to hire will be classified as an independent contractor or an employee.


The following story indicates the folly of trying to prepare your own tax returns.

It involves a taxpayer who bought three properties. He paid costs for his business and his rental, plus personal costs, from personal credit cards and funds in a revolving credit account. He also put all his income into the revolving credit account. He mixed up his personal, his business and his rental income and expenditure.

When it came to a claim for interest on money borrowed, he was unable to identify precisely how much had been borrowed to finance the rentals. As he couldn’t prove the amount, Inland Revenue allowed none of the expense.

Believe it or not, in spite of his family trust owning one of the properties, he returned the rental income as his own income. To make things even worse he bought furniture, carpet, stove and other household items and couldn’t show that these were actually bought for the rental properties.

Save fringe benefit tax on the car

Fringe benefit tax (FBT) is calculated at 20% of the cost of your car. There is a second choice which is 36% of its tax book value each year. Whichever way you go, you will pay a lot of fringe benefit tax on an expensive car. However, if you’re prepared to keep the car for a long time, you may switch your calculation method after five years. At which point 36% of tax book value works out as a better proposition than 20% of the cost. You will find your FBT drops enormously.

When you buy the car, remember the more you pay for it the higher the FBT because FBT is based on the cost of the car. So when you are negotiating to buy, keep in mind you want as low a purchase price as possible. There’s no sense in getting a big trade-in value and then paying more to purchase. Similarly, if you’re offered incentives, convert them to a reduction in the purchase price before you buy.

Small companies are now (from 1 April 2017) allowed to use an alternative logbook method instead of paying fringe benefit tax.

Speak to us if you are unsure which method is right for you.


GST Compulsory Zero Rating Provisions & Land Transactions

Land sold between two GST registered persons, will be zero rated for GST purposes under the compulsory zero rating provisions, provided that the land will be used by the purchaser for the purposes of their taxable activity.

Whilst these provisions are not so new anymore, we are surprised to see how many are still getting this wrong.  The recent case law suggests that not even lawyers are fully up to speed with these provisions, let alone the clients who rely on their lawyers to get these right.

The consequence of not getting the zero rating right is that the purchaser may be denied a GST input claim, or either party may end up paying GST to the IRD. The litigation in these cases often points to a breach of warranty either by the vendor or the purchaser, because of the loss of GST.

Purchase and sale agreements are long and a bit boring to read. However one must be mindful that if representations are not correctly made by either party, then the purchaser or the vendor can have a claim against the other contracting party for breach of warranties.

As a bare minimum, the vendor should always clearly state whether or not the vendor is GST registered, as this will drive the requirement to fill in Schedule 2 of the purchase and sale agreement.

Whilst the Vendor has an obligation to clearly state their GST registration status, the purchaser is equally required to make representations in relation to their GST status and whether or not they will use the property for the purposes of making taxable supplies.

The vendor has a right to rely on the purchaser’s representation and there is no need for the vendor to question this any further. Getting this wrong can become a very costly exercise not only in relation to the GST component but possibly the litigation costs.

If you are buying or selling land come and speak to us before signing a purchase and sale agreement as poor execution of contractual documentation will result in unwanted issues.


New Labour Government Proposals

You may be aware that the Government as part of their election promise, signalled changes to the Income Tax Legislation. These changes are predominantly aimed at slowing down the residential property market. We are yet to see whether these proposals will achieve the Government’s desired outcome.

The proposed changes include increasing the Brightline test in relation to disposal of residential property from 2 to 5 years, limiting of negative gearing and possibly introducing some form of capital gains tax. Draft legislation should be published shortly. The government has signalled that this should happen in December.

Whilst we are uncertain what the legislation will look like, one must be mindful that transferring of the existing residential land to a New Trust or another structure may have an impact on the Brightline Test.

You may also wish to consider whether or not restructuring your existing debt or income would be beneficial so as to achieve a situation where the loss from negative gearing could be reduced or offset against another form of income in a separate entity as opposed to having a denied deduction arising from negative gearing.

Please come and talk to us if you have concerns about the above.

Directors Fees

A payment of fees to a Director is subject to withholding tax unless the Director holds a valid exemption certificate or receives the remuneration as part of his salary or wages.

Where the Director does not provide you with an IR 330, IR 330C form, or an exemption certificate, you are obliged to withhold tax at the non-notification rate of 45%.

You can pay Director Fees without deducting withholding Tax only if the Director provides you with a valid exemption certificate.


Don’t get caught by phishers       

The dictionaries can hardly keep up with the words coming from new technology. One of them is phishing, which sounds like fun but is far from it.

Phishing is a scam that tries to trick you into providing personal online information such as passwords, bank details and payments to legitimate sources. Once the “phishers” have your details, they can steal your money, or even use your identity for their own gain – and your loss.

Knowing how to spot a phishing expedition online will help ensure you’re not caught. Phishing is usually activated through a phony email. It often looks like it’s coming from your bank or other trusted sources. It often suggests you need to reactivate your account, your account will be closed, or you need to claim a prize. With logos and corporate-style wording, it looks legitimate.

So how can you tell if it is?

  • Don’t trust emails from someone you don’t know. If it’s legitimate and important, they’ll ring you.
  • Banks rarely ask you to verify anything online.
  • Many phishers don’t have English as a first language, so look for poor spelling and grammar, and the quality of logos and other images.
  • Look at the email address it’s coming from. It might have a bank name in it, but often along with something else, for example, anzguest, or bnzinfo.
  • If it’s not addressed to you personally, ignore it.
  • If you’re asked to click to a website, beware. Look for https in the url – the ‘s’ means it’s secure. Just http is not secure, so don’t go there. However, even https doesn’t guarantee authenticity, so remain wary.

If you do feel you’ve been caught because you’ve clicked through and provided details in good faith, notify the appropriate organisation, such as your bank, or shut down your browser, restart and change your relevant password immediately.

Christmas Shut Down

Our offices will be closed from midday on the 22nd  December 2017 and will reopen on the 15th January 2018.
We would like to thank you for your support this year and wish you and your families a Merry Christmas and prosperous New Year.

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