Tax Specialsts Auckland
Chartered Accountants

Publications

Newsletter October 2018

TAX CALENDAR

October 23, 2018
Quarterly FBT return and payment due

October 29, 2018
Provisional tax instalments due for taxpayers  who file GST on a six-monthly basis

October 23, 2018
PAYE returns for period ended 30  September 2018

October 29, 2018
Pay GST for period ended 30 September 2018

 

Location the key to success

We’ve all heard the phrase “location, location, location”. It applies just as much to business location as it does to your home.

In business, you want to be in a location that attracts customers, whether it’s through a shop front or an attractive office space.

Finding the right place is important. In fact, it might be the most important business decision you make. So it’s worth doing your homework thoroughly, as you’re looking at a big investment.

Some of the key considerations are as follows.

  • Ensure you can afford it. It might sound obvious, but many business owners sign a lease or sale agreement based on what they hope their bank account will look like, not what it is. It’s always best to work within your budget. Don’t forget the cost of utilities, such as electricity, phone and internet.
  • Get a real estate agent or broker who understands and has good experience of commercial real estate. You need to sit down and talk with them so they know what will suit your needs. They should help you with inspections and sale or lease negotiations.
  • Is the site as good as it sounds on paper? You’ll often get inflated figures quoting foot traffic data or access and office quietness. It pays to walk around the site or park there at different times to find out for yourself. Are competitors close by, or a noisy workshop? Can your staff and your customers park nearby, and is it close to public transport?
  • Talk to your potential neighbours. They know the area best. A good question might be whether they are happy where they are, or looking to move out. Your neighbours might also become advocates for your business, so nurture them. They might have similar customers, so you might be able to partner with them to offer complementary services. Imagine a party hire business next to a cake shop.
  • And lastly, don’t forget to insure your property, whether you’re leasing or owning. If something does happen, you’ll be pleased you were insured.

 

Remember to say “Thank You”

Courtesy can go a long way.

Whether you are in business or not, common courtesy will go a long way. When anyone does anything to help your business, be sure to say thank you by way of a card or a small gift. These gestures are often greatly appreciated by the recipient and they are more likely to help you in the future.

 

DID YOU KNOW?

Anti Money Laundering Legislation (AML)

If you have recently tried to start a new investment or open a bank account, you would have been required to prove your identity, location of residence, and perhaps proof of your source of funds. These requirements are all part of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (Act). This Act has now been widened (via the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017) to include lawyers from 1 July 2018 and accountants from 1 October 2018. Real Estate agents will also be subject to this legislation from 1 January 2019. Unfortunately, to our disappointment we have to act like banks and start requesting certain documents from our existing clients for whom we provide certain activities.

Effective from 1 October, we will need to meet rigorous regulatory obligations. Non-compliance with these regulations is an offence under the Act and is subject to fines, penalties and sanctions.

All new and existing clients who are engaging us to provide ‘designated activities’ which is pretty much anything other than preparing financial statements and income tax returns, will be required to provide confirmation of identity and proof of address. In certain circumstances we will need to obtain a confirmation of source of funds as well.

We apologise for the inconvenience these new processes may cause, but we are obligated to comply with the Act. We will work as hard as we can to streamline the process and minimise your frustration with being asked for proof of identity, and other information described above.

You will be receiving a letter shortly with a specific request for you and your entities. Once again, we apologise for any inconvenience that this may cause.

 

Dual Status Trusts

Long standing uncertainty has been clarified.

A trust that qualifies as a Foreign Trust (because it never had a NZ resident Settlor) can also qualify as a Complying Trust, because it only receives NZ sourced income, and there is no non-resident trustee income derived by the Trust. These trusts are referred to as Dual Trusts. There was a long standing concern that such trusts will be taxed as Foreign Trusts in relation to taxable distributions (distributions other than from corpus or third party capital gains).

It has been recently clarified that these trusts will be taxed as complying trusts in relation to distributions. However these types of trusts will still need to comply with the Foreign Trust registration and disclosure rules.

If you have a trust that has a Foreign resident settlor, but only derives NZ sourced income, and has not been registered with the IRD as a Foreign Trust, this will need to be rectified and respective registration and disclosures made to the IRD.

 

A Going Concern

For a business to be a going concern it must be capable of being run by the buyer with the equipment used by the seller.

A simple example of this  would be the sale of a taxi business. Arguably, it should include the car.

 

Quote  

“Nobody made any money being paid once for a job they had to do twice.”

– Len Southward, engineer

 

Hong Kong DTA Update

An amendment to NZ ‘s DTA with Hong Kong has now entered into force. It enables automatic exchange of information between the two countries.

 

TAX TIPS, TRAPS AND TROUBLES

Farmland & Main Home Exclusion – Brightline Test – IRD’s current view?

Recently IRD published an exposure draft which is still open for consultation, in which they provided insight on the application of the Brightline rule to the sale of lifestyle blocks.

The main home exclusion in CB16A applies where:

  • More than 50% of the area of the land has been used for the vendor’s main home. This includes curtilage and other land used for residential purposes; and
  • The land has been used in that manner for more than 50% of the time the Vendor has owned it.

The emphasis here is on the words “more than 50% of the area of the land” which is very different than the general home exclusion in CB16 which applies for the purposes of land taxing provisions other than the Brightline Rule, where the land has a dwelling house on it and where the total area of the land is 4,500 square metres or less or more than 4,500 sq metres if the larger area is required for the reasonable occupation and enjoyment of the dwelling house.

The land that is used for main home is not limited to the land on which the dwelling is situated or to the surrounding curtilage (like yard & garden). Land used for main home can also include other areas the vendor uses frequently, repeatedly or customarily in connection with or for the benefit of the dwelling which will be a question of fact.

The exposure draft notes that in the case of a lifestyle block examples of land that is is used for a dwelling  (other than house & curtilage) are;

  • Areas set aside for growing food for domestic use; (veggie patch)
  • Areas for pet animals;
  • Land used for hobby farming, and
  • Areas used to enhance the enjoyment or aesthetic value of the dwelling (i.e. in case of an average 4 ha lifestyle block, a reasonable amount of park land or covenanted native bush that is used to provide green vista, would be an area that enhances the enjoyment of a dwelling)

For the main home exclusion to apply the land would have to be used as a dwelling for more than 50% of the time the seller owned the land.

 

Subdivision of a lifestyle block

Brightline Test – IRD’s current view?

If you are thinking of making a tax free gain from subdividing an existing lifestyle block and selling of the subdivided section – think again!

IRD has recently published exposure draft, which is still open for consultation that covers this very topic.

Under the main home exclusion, if residential land has been used predominantly as a dwelling that is the vendor’s main home and used in this way for most of the time the vendor owned the land, then the sale of the land will be excluded from taxation under the brightline rules.

IRD’s current view is that if the subdivided section, does not form part of the  50% or more of the area of the land which was used by the vendor as main home for most of the time the vendor owned that land, the sale of the subdivided section, if sold within the brightline period, will not qualify for the main home exclusion, and any gain derived from disposal of the subdivided section will be taxable. Therefore, one must be mindful of the use of the land prior to and also after the subdivision as there may be a time lag between subdivision and disposal.

The main home exclusion is not available where the Vendor disposes of residential land, if he has already used the main home exclusion two or more times within 2 years immediately preceding the brightline date, or if the vendor has engaged in a regular pattern of acquiring and disposing of residential land.

With this in mind, IRD is of the view that, if an area of residential land that was subdivided into three sections of land and all three sections were sold and the main home exclusion was relied on for the sale of the first two sections, then the main home exclusion can not be relied on for the sale of the third section or for any other sections made by the vendor in the following 2 years. The acquisition of undivided land, and sale of subdivided sections will be taken into account when determining regular pattern.

Even if the land has been owned for more than five years or acquired before 01 Oct 2015 the profits from such subdivision may still be taxable under other land taxing provisions if subdivision commenced within 10 years of acquisition.

 

BIT OF TECHNOLOGY UPDATE

Get rid of email prompts!

Are emails distracting you from your important business more than you would like?

Do you have the temptation to check an email as soon as it lands?

Do you feel that you do not achieve what you have planned?

Most of us get distracted by incoming e-mails at all times. Rather than dealing with e-mails as soon as they arrive and being distracted from what we do a better habit may be to check emails, and respond if necessary, at regular intervals that suit your work flow – perhaps every couple of hours. This way you will not have a feeling at the end of the day that you have been way too distracted and that you have not achieved what you have planned for that day.

Most email programs, however, automatically prompt you when an email comes in, by a flash on the bottom of your screen or by a brief preview of the message.

If you find this distracting and you feel that you will be more productive without these prompts then either turn the notifications off or simply do not open your e-mail until you are ready.

To turn off prompts in Outlook (the most common email program), go to File > Options > Mail > Message Arrival. The four boxes will be ticked, so just untick them.

Less stress = better performance!

 

STAFF NEWS

We welcome Brian Rodgers who is our latest addition to our team. Brian started on 27th August and has many years of accounting experience. He is also very good with computers and systems. We welcome him to our MRA family.

Contact Us

Michael Roberts

[email protected]

Martina Evans

[email protected]

Shane Zhou

[email protected]

P: 09-9661370
Level1, 10 Manukau Rd, Epsom, Auckland