What's new?

Tax and Student Loan legislation enacted - On 30 August 2011, legislation introduced in the Taxation (Tax Administration and Remedial Matters) Bill and the Student Loan Scheme Bill has been enacted. Both received the Royal assent on 29 August 2011. Inland Revenue has announced that special reports on changes to gift duty and the PIE rules will be made available over the next few days. Full coverage of the contents of the new legislation will appear in a Tax Information Bulletin to be published later this year and copies of the new Acts will be available soon.

Government welcomes Supreme Courts' decision in the Penny & Hooper case - On 25 August 2011, Revenue Minister Peter Dunne said the decision by the Court to dismiss an appeal by Christchurch Surgeons, Ian Penny and Gary Hooper, and declare that their income arrangement was tax avoidance was the correct decision and a fair one. "It is important to the integrity of New Zealand’s tax system that everyone pays their fair share of tax,” said Mr Dunne. “Businesses often use companies and trusts for legitimate reasons and this is not enough to constitute tax avoidance. However, the Court’s decision is a clear signal that people cannot structure their income arrangements in such a way that they artificially reduce their tax liability and still receive the benefits". Mr Dunne said that IRD takes avoidance and evasion seriously as part of its compliance focus and will take action against those individuals who artificially divert income so the income is taxed at a lower marginal tax rate. Given Mr Dunne's comments, and the recently issued IRD compliance statement for the coming year, taxpayers paying themselves less than market salaries by using companies and/or trusts are likely to find themselves on the receiving end of a tax avoidance dispute with IRD. If you think this may apply to you then you should contact us.

Supreme Court unanimously dismisses Penny & Hooper appeal - On 24 August 2011, the Supreme Court released its long-awaited decision about a landmark tax case – Penny & Hooper - deciding that the fixing of the taxpayers’ salaries at artificially low levels so that tax at the highest personal rate was avoided constituted tax avoidance. The case is a classic example of taxpayers complying with the ‘black-letter’ of the law, yet not acting within the ‘scheme and purpose’ of the Income Tax Act. This case involved the restructuring of the business of two surgeons (Penny & Hooper) from sole practitioners earning an income of approximately $500,000 per year, into a company owned by a family trust for the benefit of the surgeons and their respective families. The surgeons became employees of their companies, on salaries of approximately $120,000 per year, while the remainder of the profit from their services was retained by the companies and allocated to the trusts. If you pay (or have paid) yourself a salary that is not commercially realistic or, objectively, is not motivated by a legitimate (non-tax driven) reason, it will be open to IRD to assert that it is (or is part of) a tax avoidance arrangement. If you think this applies to you then you should talk to us.

Student Loan Scheme Bill passes - On 17 August 2011, the Student Loan Scheme Bill 2010 (198-2) was passed by Parliament and now awaits the Royal assent. The Bill replaces the Student Loans Scheme Act 1992, rewriting the legislation governing the administration of student loans, reforming the way student loans are repaid, the way borrowers manage their loans and the way loans are to be administered. The changes will also allow borrowers to manage their loans electronically and the Inland Revenue Department to provide more services to borrowers. The annual assessment of income for the majority of borrowers is to be replaced by deductions from salary and wages. Interest rules are simplified and the penalty rules replaced by those applying to other taxes. Most of the changes including those which benefit borrowers, such as providing a consolidated view of their loan and the removal of the end-of-year assessment, apply from 1 April 2012. The remainder apply from 1 April 2013.

Taxation Bill passes - On 17 August 2011, the Taxation (Tax Administration and Remedial Matters) Bill 2010 (257-2) was passed by Parliament and now awaits the Royal assent. The Bill includes the following major items:

• the abolition of gift duty on 1 October 2011
• amendments to the tax disputes process
• improvements to the tax pooling rules
• the introduction of new tax rules for non-resident investors in portfolio investment entities
• the introduction of rollover depreciation relief for Canterbury businesses
• relief of interest on overdue tax for foreign workers in New Zealand following the Canterbury earthquakes, and
• amendments to aid the sharing of tax information between the Inland Revenue Department and other government agencies.

Inland Revenue launches Compliance Focus 2011-12 - On 27 July 2011, IRD highlighted the tax compliance areas on which it will concentrate over the coming year. Aggressive tax planning, under-reporting of income and operating outside the tax system, and fraud and identity theft are three key areas discussed in detail in the third annual report. IRD use a range of methods such as complex data matching, analysis, research and evaluation techniques to help with its compliance work, and will continue to seek out new approaches to improve compliance and address non-compliance. IRD is monitoring online trading and short term property rentals, and will: focus on customers splitting their income to evade tax; identify those reducing their child support liability, and; reduce the opportunities for the misuse of charitable status.

Government proposed ACC levy reductions - On 11 July 2011, the Government approved for consultation Accident Compensation Corporation (ACC) levy reductions which may save workers and businesses more than half a billion dollars. ACC is proposing levy reductions for employees of 17% and employers 22% from 1 April 2012 which will save households $340m and businesses $247m a year. The Earners’ Account Levy (paid by wage and salary earners) is proposed to decrease from $2.04 to $1.70 (including GST) per $100 of their taxable earnings. The average Work Account Levy (paid by employers and the self-employed) is proposed to decrease from $1.47 to $1.15 (excluding GST) per $100 of liable earnings. Work levies for individual companies depend on their industry classification and experience rating. Submissions and comments on the proposed levies are to be made by 15 August 2011 to enable the ACC’s Board to make its final recommendations to the Government. Final levies for 2012/13 will be determined in September 2011.

Employment contracts now compulsory - From 1 July all employers must keep a copy of their employees' signed employment agreements or current terms and conditions of employment. This applies to employers who may have hired employees on a verbal agreement or who do not have current up-to-date agreements in place. Failure to do so could result in fines of up to $10,000 for an individual and up to $20,000 for a company.

Review of the Law of Trusts - On 30 June 2011, The Law Commission released a fourth Issues Paper in the Review of the Law of Trusts, 'The Duties, Office and Powers of a Trustee'. Part one of the paper examines the duties that a trustee owes to beneficiaries of a trust. It gives particular attention to the duty to inform beneficiaries about matters relating to the trust. Part one also looks at which of the duties should be considered part of the irreducible core of the trust, that is, which duties should be incapable of being excluded by a trust deed. The Commission considers whether there should be limits on what exemption clauses, which exclude the liability of trustees for failing to carry out the duties, can do. Part two of the paper discusses the appointment, retirement and removal of trustees. It also addresses the powers given to a trustee. These issues are examined to identify whether the law is effective, or whether it should be modernised and improved. The Commission is seeking comments and submissions on this paper by 31 August 2011.

Have your say on fees and levies for business services and financial regulators - Last week, the Ministry of Economic Development released a discussion document on third-party funding options for the Financial Markets Authority, the External Reporting Board, the Companies Office, and the Insolvency and Trustee Service.

The Financial Markets Authority started business on 1 May this year, and has taken on new regulatory functions to help lift the bar in terms of market behaviour, and drive a culture of visible, proactive, and timely enforcement. In order for the Financial Markets Authority to do its job it needs to be adequately resourced and some of that funding needs to be contributed from market participants, who stand to benefit from operating in this stronger regulatory environment. The discussion document proposes levies to cover the cost of these extra functions, and of administering the Financial Advisers Act, and to cover some of the operational costs of the External Reporting Board. The Board takes on additional functions from its predecessor and will be responsible for all financial reporting, audit, and assurance standards-setting.

Fee changes for registered companies are also outlined. This includes re-introducing the company annual return fee, lowering the company incorporation fee, introducing an annual liquidation fee for all companies, and changing the fee structure of the Personal Property Securities Register. The change in fees relating to companies is required to cover the costs of providing those services.

Copies of the discussion document are available on the MED website here. Submissions are due by 5pm, Friday 8 July, 2011.

New FBT rate on low-interest, employment-related loans - From the quarter beginning 1 April 2011, the prescribed rate of interest used to calculate fringe benefit tax on low-interest, employment-related loans is 5.90%, down from the previous rate of 6.24% which applied from the quarter beginning 1 October 2010.

Budget 2011 legislation passed - Legislation giving effect to tax reforms announced in Budget 2011 to reduce the fiscal costs of the KiwiSaver and Working for Families Tax Credits programmes was passed on 24 May 2011. All changes, apart from the changes to the Kiwisaver Employer Tax Credit come into effect 1 April 2013. Changes to the Kiwisaver Employer Tax Credit will start 1 July 2011. The Act also set out the annual rates of income tax for the 2011/12 tax year.

NZ Government announced their 2011 Budget - It's 19 May 2010, and the Government today announced the following reforms to the tax system as part of its 2011 Budget:

Working for Families changes:

• Increase the abatement rate of the Working for Families tax credits from 20% currently to 25% over the next four indexation rounds.
• Reduce income abatement threshold from $36,827 to $36,350 on 1 April 2012 and reduce it by $450 each indexation round until it reaches $35,000.
• Remove the indexation of Family Tax Credit for children 16 and over until it is aligned to the Family Tax Credit amounts for the eldest child under 16 or for subsequent children aged 13 to 15.

KiwiSaver changes:

• Increase minimum employee contribution from 2% to 3% from 1 April 2013.
• Increase compulsory employer contribution from 2% to 3% from 1 April 2013, subject to Employer Superannuation Contribution Tax at employee’s marginal tax rate.
• Decrease member tax credit from $1 to 50c, up to a maximum of $521 a year, for the year ending 30 June 2012 and beyond.
• Existing Kick-Start payments will remain unchanged.

Student Loan changes:

• Restricting student loan eligibility for those with an overdue student loan repayment obligation of $500 or more who are in default for more than one year.
• Restricting borrowing for people aged 55 and over to tuition fees only.
• Removing the entitlement for part-time full-year students to borrow for course-related costs.
• Suspending inflation adjustments to the student loan repayment threshold until 1 April 2015.
• Shortening the repayment holiday for overseas-based borrowers from three years to one year, and requiring borrowers to apply for the repayment holiday and provide a New Zealand-based contact person before they go overseas.

2011 pre-Budget speech - on 11 May, John Key announced there would be changes to Kiwi-saver, Working for Families and interest-free student loans in the Budget to be delivered next week. These changes would only come into force if National is re-elected.

In the Budget the Government will change the mix of contributions to KiwiSaver accounts, with less coming from the Member Tax Credit and more coming from both individuals and employers. The $1,000 kick-start for new KiwiSaver members will remain as it is now. The changes to KiwiSaver won't happen immediately, and this will give people and businesses time to adjust.

In terms of Working for Families, the scheme will be better targeted at lower-income families, which have a much greater need for assistance, and will be a little less generous to families higher up the Working for Families scale. The Government plans to slightly reduce the amount spent on Working for Families each year, but at the same time target a greater proportion of the total spend at the most vulnerable families. This will be done gradually, in a way that minimises the impact on families, phasing them in over the best part of a decade.

Student loans would remain interest-free but there would be more changes to tighten the scheme in the Budget next week. It will be harder for over-55s and people re-applying for a student loan to get more debt from the Government, and the Government will be taking a more aggressive approach to getting back unpaid student debt from graduates living overseas. Borrowers need to understand that when they choose to access the loan scheme they are also taking on all the responsibilities that come with it.

2011 review of Commissioner’s mileage rates - The IRD has advised that the motor vehicle mileage rate reflecting on the average cost of running a motor vehicle, including the average petrol and diesel fuel prices, has been increased from 70 cents per kilometre to 74 cents per kilometre from 1 April 2011.

Review of the Law of Trusts - The Law Commission released its third Issues Paper in the review of the law of trusts on 2 May 2011. The paper, “Perpetuities and the Revocation and Variation of Trusts: Review of the Law of Trusts — Third Issues Paper”, focuses on the issues relating to the variations of trusts and the law against perpetuities.

Part one of the paper examines the rules that limit the duration of a trust: the common law rule against perpetuities and the Perpetuities Act 1964. The Commission considers the underlying rationale for the rule against perpetuities and questions whether the rule continues to meet a relevant policy need or whether either the mechanism for achieving this policy or the policy basis itself should change. The paper outlines different options, including retaining the statutory perpetuity rule, adjusting or extending the statutory rule and abolishing the rule altogether.

Part two of the paper considers the rules that allow trusts to be altered. Trusts may be revoked and varied through various common law, judicial and statutory mechanisms. These rules are questioned to ensure that they are clear and workable, and to determine whether reform is needed.

OECD report supports capital gains tax - The latest economic survey by the Organisation for Economic Co-operation and Development (OECD) released on 27 April 2011 supports New Zealand adopting a capital gains tax and lifting the retirement age. The Government's response was they agree with the OECD that New Zealand should return to budget surplus as soon as possible and that Budget 2011 will take further steps to get the Government’s finances in order, setting a path back to surplus so the Government could start repaying debt on behalf of taxpayers and help increase national savings.

Budget 2010 changes - From 1 April 2011, the second round of the 2010 Budget changes will take effect:

• a cut in the company tax rate from 30% to 28%
• a cut in the tax rate faced by unit trusts, life insurance policyholders and some other savings vehicles from 30% to 28%
• ending landlords’ and businesses’ ability to claim depreciation on buildings with an estimated useful life of 50 years or more
• abolishing loss attributing qualifying companies (LAQCs) and replacing them with a new structure that ensures owners cannot claim a tax deduction on losses at a higher rate than they pay on profits
• tightening the definition of income for Working for Families and the Community Services Card so income from sources like family trusts are counted and rental and other investment losses are excluded
• changes to the thin capitalisation tax rules to limit the scope for foreign multinationals to reduce their New Zealand tax liability, and
• ending the automatic CPI indexation of the Working for Families abatement threshold to stop higher-income recipients getting bigger increases than those on lower incomes.

Income-Sharing tax credit Bill to proceed - The Bill proposes that couples with dependent children should be assessed for tax according to household income as opposed to individual income as is currently the case (e.g. a couple where one individual is employed earning $100,000 would face the same tax burden as a couple who earn $50,000 each). Although the Committee had some reservations about the Bill in its current form, the policy intent of the Bill was supported and the Committee has recommended that it proceed. The Committee was not convinced that a tax credit was the best way to achieve the policy intent behind the Bill. So before the Bill is advanced to the committee of the whole House they are seeking proposals to 1) address concerns of discriminating on the grounds of marital status (as those benefiting from the tax credit must be a couple with dependent children), and 2) to investigate whether the age limit of a dependent child should be revised down from 18 years old, to two years old.

Official Cash Rate decreased to 2.50 percent - The Reserve Bank decreased the Official Cash Rate by 50 basis points to 2.50 percent on 10 March 2011.

Christchurch earthquake support package - Recognising the effect of the February earthquake on Christchurch business and workers, the Government has implemented an initial support package to support the recovery and rebuilding of Christchurch. The Christchurch Earthquake Support Package provides support to employers and employees in Canterbury affected by the February 2011 earthquake. The Christchurch Earthquake Support Package is made up of two components: 1. the Earthquake Support Subsidy and 2. the Earthquake Job Loss Cover for employees.

1. Earthquake Support Subsidy - This is a subsidy for employers who believe they are going to remain in business and want to keep their staff. The payment will be made directly to the employer who will then pay the employee. The wage subsidy will be paid:

• for up to six weeks from 22 February 2011
• at a gross rate of $500 per week per employee for full-time employees (over 20 hours per week) or a gross rate of $300 per week per employee for part-time employees (anyone working 20 hours a week or less).

The first payments will be made from Wednesday, 2 March 2011. People will be notified when payment has been made.

Persons who qualify are:

• New Zealand-owned business
• Christchurch City Council area-based employer, or
• self-employed, sole trader, or contractor.

These persons must be unable to access the workplace because of damage or a cordon. The subsidy for the initial six-week period is also available where a business can open but an essential service is not available or the business is experiencing a significant loss of trade.

Employers who have business interruption insurance should contact their insurance company in the first instance. If insurance payments will be delayed, employers can access the Earthquake Support Subsidy to cover the intervening period, but will be required to repay it when the insurance payment is received.

Employers who do not qualify are:

• employers who can continue to operate and/or meet obligations to pay employees
• government or government-related organisations, and
• international and large national organisations.

Employers may apply:

• online at www.workandincome.govt.nz
• by phoning the government helpline on 0800 779 997 (this line operates 24/7), or
• at a Work and Income office if there is no access to Internet or phone.

Employers will need to provide their business Inland Revenue Department (IRD) number, business bank account number and the details of the staff requiring the subsidy (employee names and IRD numbers). This information will be confirmed by the IRD Revenue before payment is made. Employers are required to pay ACC levies, PAYE, holiday pay and all normal employment-related expenses but the Government has waived GST on the Earthquake Support Subsidy.

2. Earthquake Job Loss Cover for employees - The Earthquake Job Loss Cover is a $400-a-week, in-the-hand payment for a period of six weeks and is paid to employees whose employers are no longer able to operate. It is backdated to 22 February 2011. For part-time employees (anyone working 20 hours or less per week) a $240-a-week, in-the-hand payment is available. The first payments will be made on Wednesday, 2 March 2011.

Employees who qualify are:

• those who were employed on 22 February 2011
• those who worked for an employer who was based in the Christchurch City Council area, or
• those who no longer have an employer (if they have not accessed the Employer Support Subsidy and have decided not to operate) or cannot contact their employer.

Employees who receive a benefit, ACC weekly compensation or a Civil Defence Payment for loss of livelihood are not eligible for the Job Loss Cover. Employees cannot get the Earthquake Job Loss Cover payment if their employer is already getting the Earthquake Support Subsidy.

Employees may apply:

• online at www.workandincome.govt.nz
• by phoning the government helpline on 0800 779 997, or
• at a Work and Income office if there is no access to Internet or phone.

Employees will need to provide personal details, bank account and IRD number. This information will be confirmed by Inland Revenue before payment is made.

Budget 2011 - The Government announced that Budget 2011 will be delivered on Thursday 19 May 2011, and that it will focus on taking further measures to build New Zealand's national savings and reducing vulnerability to foreign debt.

2011 General Election - The Prime Minister has announced that the 2011 general election and referendum on the voting system will be held on 26 November 2011.

On 20 December 2010, The Taxation (GST and Remedial Matters) Act 2010 was given royal assent. The legislation contained within it changes to GST, Qualifying and Loss Attributing Qualifying Companies, Look Through Companies, and adjustments to the calculation of family income for working for families tax credits.

GST zero rating of land transactions - From 1 April 2011, GST registered vendors will be required to charge GST at the rate of 0% on any supply to a GST registered person involving land, or in which land is a component, if at the time of settlement:

• the purchaser intends to use the goods for making taxable supplies, AND
• the supply is not a supply of land intended to be used as the principle place of residence of the purchaser or a relative of the purchaser [if not met then transaction will be taxed at 15%].

The Purchaser will be required to advise the vendor of their GST registration status and intentions in respect of the land [if the purchaser doesn’t advise then the vendor should standard rate the sale].

For transactions entered into before 1 April 2011 but for which the time of supply is on or after that date, the vendor has the option of treating the transaction as being governed by either the current GST rules or the new rules.

The definition of land largely follows the income tax definition but will exclude most commercial leases. [will include easements or restrictions on the use of land]

GST new apportionment rules - from 1 April 2011, on purchase of an asset, unless an exclusion applies, the portion of a deduction that a GST registered person can claim must correspond with the portion of the asset’s use that is intended for taxable purposes [this differs from the ‘old’ rules where the GST registered person could either claim 100% and the adjust for a private portion each period for an asset used more than 50% for taxable purposes; or claim 0% and make a business adjustment for assets used less than 50% for taxable purposes].

Adjustments to the deduction claimed may be required to the extent to which the asset is used for taxable purposes differs from the intended taxable use of the asset (only if the difference between the amounts is 10% or more, or the monetary value of the adjustment is more than $1,000).

The number of adjustments will be based on the assets value or estimated useful life of the asset. No adjustment will be required for assets of GST exclusive $5,000 or less, or where the purchaser makes both taxable and exempt supplies and the total value of their exempt supplies in the adjustment period is no more than the lesser of $90,000 or 5% of the total consideration for all taxable and exempt supplies of the adjustment period.

GST transactions involving nominations - from 1 April 2011 new rules within the GST Act will dictate what happens when a vendor enters into a contract to supply goods or services to a purchaser and the purchaser later directs the vendor to provide the goods and services to a nominated person.

When the purchaser and the nominated person have the same registration status, the GST treatment will depend on who provides the consideration for the supply:

• If the purchaser pays full consideration for the supply, the supply is treated as a supply from the vendor to the purchaser and the existence of the nominated person is ignored.
• If the nominated person pays the full consideration for the supply, the supply is treated as a supply from the vendor to the nominated person and the existence of the purchaser is ignored.
• If the purchaser and the nominated person each pay part of the consideration for the supply, the supply is treated as a supply from the vendor to the purchaser. However, the purchaser and the nominated person may agree in writing that the supply is to be treated as a supply made to the nominated person. No such agreement can be made if the purchaser has claimed an input tax deduction in relation to the supply.

When the purchaser and the nominated person have different GST registration status – the supply is treated as a supply from the vendor to the nominated person. If the supply wholly or partly consists of land, the supply will always be treated as made by the vendor to the nominated person. This is intended to provide consistency with the fact that the zero rating rules apply at the time of settlement.

In a nomination, a nominee may not have the requisite tax invoice as it may have been issued to the purchaser. In such cases, the nominee need only have records identifying the name and address of the vendor, the date of payment for the supply, a description of the goods and services supplied, and the consideration for the supply.

GST on supplies of accommodation - From 1 April 2011, the definitions of "dwelling" and "commercial dwelling" are changed. "Dwellings" will include premises that the person occupies, or premises that can be reasonably be foreseen that the person will occupy, as their principle place of residence, and of which the person has "quiet enjoyment". "Commercial dwellings" adds homestays, farmstays, bed and breakfast establishments, and serviced apartments managed or operated by a third party for which services (in addition to the supply of accommodation) are provided and in relation to which a resident does not have quiet enjoyment.

Qualifying Companies (QC's and LAQC's) - From 1 April 2011 LAQC’s will lose their ability to attribute losses and effectively be taxed the same was as Qualifying Companies, and companies will no longer be able to becoming Qualifying Companies.

Companies that were incorporated during the year ended 31 March 2011, or started business during the year ended 31 March 2011 will still be able to elect to become QC’s or LAQC’s from the commencement of business as long as they elect to do so before the due date of lodgement of their 2011 income tax return.

Transitional rules exist to allow QC’s and LAQC’s to shift to another business vehicle at no tax cost:

• Transition can take place in either of the first two income years starting on or after 1 April 2011. The year of transition is called the "transitional year".
• QC’s and LAQC’s will have six months from the start of their transitional year to advise IRD of their transition.
• If transitioning to a new business structure, the partnership or sole trader must consist of the same person(s) who owned the QC or LAQC.
• Transitioning will require the setting up of the alternative business structure and the transfer of assets, liabilities, and legal titles and so forth from the QC to the chosen structure.
• All of the necessary transfers of assets and liabilities plus all other legal documentation necessary in the new business must be completed by the end of the transitional year.
• If the transition process is not completed by the end of the transitional year, the company will be taxed as an ordinary company for that year as if its QC status had been revoked.
• The appropriate tax treatment (LTC, sole trader, partnership) will apply from the start of the transitional year.
• All of the QC’s assets, liabilities, tax balances and other obligations will automatically transfer to the new LTC, sole trader, or partnership with no tax cost. The historical tax position of the QC transfers to the partnership or sole trader.
• Any carried forward losses of a QC can be used in future but are effectively ring fenced for owners of the LTC, or partners of the partnership, to use against future income from that LTC or partnership.
• The memorandum account balances and other related tax accounts for a company that was a QC or LAQC before the transition are extinguished. The company effectively becomes a "shell" company and may be liquidated or written off the Company Register.

Look Through Companies (LTC's) - The new LTC rules are available for income years starting on or after 1 April 2011 and apply only to companies which are resident in NZ:

• Only a natural person, trustee or another LTC may hold shares in an LTC. All the company shares must be of the same class and provide for the same rights and obligations to each shareholder.
• An LTC must have 5 or fewer owners.
• Shareholders related by blood relationships (second degree), marriage, civil union or de facto relationship, or adoption are counted as a single "owner" for the look through count test. The relationship between a step parent and a step child is a second degree relationship.
• In the case of trust shareholders, it is the natural person beneficiaries that have been allocated income from the LTC as beneficiary income in that income year or in any of the three preceding income years.
• Trustees of a trust are counted as one look through counted owner for an income year if any income the trust was allocated from the LTC in that income year, and in each of the preceding three income years was retained by the trust and not paid out as beneficiary income.
• All owners must elect for the LTC rules to apply initially. LTC elections are to be made prospectively.
• Any loss balance of a company from income years prior to becoming an LTC is cancelled when it becomes an LTC.
• If a company becomes an LTC after its first year of trading, its reserves are regarded as held by the owners in proportion to their look through interest and each owner will be deemed to have an amount of income arising on the first day of the income year the company becomes an LTC.
• Once a company becomes an LTC it will remain so unless one of the owners decides to revoke their LTC election, or the company ceases to be eligible.
• If a company ceases to be an LTC but continues in existence, it will be taxed as an ordinary company and the owner is deemed to have disposed of the underlying property at market value on the date of exit. The company is deemed to have immediately reacquired the property at the same market value. Any retained revenue profits held by the company would have been previously allocated to owners who would have been subject to tax on this income in the year the income was derived. To avoid double taxation, future dividends from those LTC retained revenue reserves will be excluded income in the hands of the shareholder recipients.
• An LTC’s income, expenses tax credits, rebates, gains and losses are passed onto its owners (generally in proportion to the number of shares held by each owner).
• Any profit is taxed at the owner’s marginal tax rate. Anti-avoidance rules exist to prevent income being unduly diverted to owners under the age of 20.
• The owner can use losses against their own income subject to the loss limitation rule. The loss limitation rule ensures that the losses claimed reflect the level of an owners’ economic loss in the LTC (including shareholder loans and any guarantees or indemnities for any loans of the LTC). An anti-avoidance rule prevents owners artificially inflating their economic loss around year end to increase their loss flow-through. Owners’ excess losses are carried forward to future income years.
• When owners sell their shares they are treated as disposing of their share of the underlying LTC property where the amount of the disposal proceeds exceeds the net tax book value of their share of LTC property by more than $50,000. Exiting owners do not have to perform a revenue account adjustment for trading stock if the LTC’s total annual turnover is less than $3m, nor depreciation recovered or loss on their share of any depreciable tangible asset if the historical cost of the asset is $200,000 or less.
• When exiting owners account for tax on their share, income owners must take on a cost basis in the LTC’s assets and liabilities that is equal to the deemed disposal under the disposal provisions.
• The disposal thresholds do not apply if the company is liquidated, or ceases to use the LTC rules but otherwise continues in business. In these situations, the owner is deemed to have disposed of their shares at market value on the date of exit.
• Look through treatment applies for income tax purposes only. An LTC retains its corporate obligations and benefits such as limited liability under general company law.
• An LTC is still recognised separately from its shareholders for certain other tax purposes including GST, PAYE and certain administrative or other withholding tax purposes under the Income Tax Act.
• LTC’s must file an income tax return ignoring the look through requirements. The return must specify the amount of income and deductions allocated to each owner.

Working for Families Tax Credits - Changes have also been made to how a family’s income is calculated when working out a family’s entitlement to working out working for family tax credits. A person’s family scheme income for the income year now also includes:

• The net income of any trust for which the person is a settlor, reduced (to not less than zero) by the amount of any beneficiary income received by the person in the income year from that same trust;
• A company’s net income for the income year multiplied by the persons, or person’s trust or any associated persons holding voting interests of 50% or more at year end (or market value interests of 50% or more if there is a market value circumstance) LESS any dividends received from the same company in the same year;
• The value of any attributable fringe benefits is required to be declared by all shareholder-employees if they, or their associates, hold voting interests of 50% or more in a company. Attributable fringe benefits include: motor vehicles for private use; low/nil-interest employee loans; subsidised transport (when the employer is in the business of transporting the public) in excess of $1,000 in value; contributions to insurance schemes in excess of $1,000 in value; contributions to sickness, accident or death funds in excess of $1,000 in value; any other benefits received in excess of $2,000 in value.
• The amount of a deduction under the main income equalisation scheme allowed for a payment made to the Commissioner as a main deposit for an accounting year, corresponding to the same tax year as does the income year, and for a business of the person, any company controlled by you or your trust, or any trust of which you are a settlor.
• Half of the amount of any pension or annuity that is exempt income of the person under section CW 4 (Annuities under life insurance policies) or is a pension from a superannuation fund derived in the income year;
• The amount by which the total of amounts derived by the dependent child in the income year (resident passive income, royalty, rent, beneficiary income, attributed income from a PIE that is not a superannuation fund or retirement savings scheme, or a distribution from a PIE) that exceeds $500 per child.
• The non-residents’ foreign-sourced income for the income year of the person’s spouse, civil union partner, or de facto partner.
• The value of payments paid or provided to the person from any source (only if more than $5,000 for the year); and used by the person to (i) replace lost or diminished income of the person or the person’s family: (ii) meet usual living expenses of the person or the person’s family; and is not:
  • a loan under ordinary commercial terms and conditions:
  • from an amount that is (i) proceeds of the disposal of property; and (ii) not assessable income of the person disposing of the property:
  • a payment on behalf of the person by a local authority or public authority:
  • a forgiveness of debt by a public authority:
  • a charitable distribution from a charitable entity registered under the Charities Act 2005:
  • an educational scholarship:
  • a student loan under the Student Loan Scheme Act 1992:
  • a grant for the payment of expenses relating to medical treatment or a funeral:
  • a payment under an insurance contract, other than a payment for a loss of income:
  • compensation for a loss other than a loss of income:
  • lump sum compensation under the Accident Compensation Act 2001:
  • a monetary benefit under the Social Security Act 1964 that is exempt income:
  • a pension or allowance under the War Pensions Act 1954 that is exempt income:
  • a payment that is exemptincome under section CW 33(1)(c), (e), or (f) (Allowances and benefits):
  • an amount that is declared not to be income for the purposes of the Social Security Act 1964 by a regulation under section 132 of that Act:
  • included in the family scheme income of the person under another section:
  • expressly excluded from the family scheme income of the person under another section.

Issues with the use of trusts in NZ - In December 2010 the Law Commission issued its second issues paper into the review of the law of trusts entitled "Some issues with the use of trusts in New Zealand". The Commission’s review looks at trust use in New Zealand, provisions that "look through" trusts, Judicial responses to some uses of trusts, and options for reform. Their main findings are summarised below:

• Trusts are sometimes perceived as a means by which people shelter their true wealth and avoid liabilities.
• The number of trusts in NZ has almost doubled in 2008 to 237,500 from that in 2001.
• Trusts have been used to avoid estate duty and other high rates of taxation; to protect assets from matrimonial property claims; to shelter income from higher personal income tax rates; to reduce exposure to superannuation surcharges; to maximise social assistance claims (like working for families tax credits or residential care subsidies); or to avoid creditors.
• Gift duty has acted as a constraint on the transfer of property to trusts. The recent repeal of gift duty will increase the speed with which people transfer assets to trusts, and may lead to an increase in trust use.
• There is the perception that trusts allow some people to avoid their legal obligations (such as debts) leaving others to bear the cost.
• Government policies regard the use of trusts in certain situations as inappropriate and potentially unfair.
• Legislative measures vary depending on the area of law and the underlying policy considerations involved. No single overarching statutory provision exists to deal with every situation.
• It is the Ministry of Social Development’s impression that many trusts are established to allow the trustees or settlors to receive subsidies while also enjoying the benefit from or getting the enjoyment of substantial property held in a trust.
• The Commission is interested in understanding how effective the existing measures are, and what the scale of the problem is in relation to attempts to use trusts to artificially minimise assets to access government benefits.
• The Commission has been alerted to developments in the trust industry concerning the quality of many of the trusts that are in existence.
• There are concerns that some of these trusts would not withstand close scrutiny concerning both the quality of trust deeds and the way they are administered should a dispute arise.
• The Commission’s principal concerns are the more fundamental issues of how the law should address the need to "look through" trusts to access assets for certain purposes and when trusts should be found invalid.
• Several reform options are provided for consideration and comment:
  • A provision that sets out factors that would be considered in assessing whether a disposition of property to a trust can be disregarded in assessing a person’s obligations to another person or Government, or in assessing eligibility for government assistance.
  • Incorporate a provision incorporating a principle that a "trust can be created for any purpose that is legal, which is not against public policy" into trusts legislation in order to set limits on the purposes for which trusts may be used.
  • Legislation might possibly assist in determining what amounts to a sham trust.
  • Amending the Property (Relationships) Act 1976 to make it clear that discretionary rights are "property" for the purposes of the Act.
  • The law could assert that there is no trust where, for example, a settlor is able to benefit under the trust.
  • A provision that enables the court to exercise its discretion as to whether a structure is a valid trust, and guides that discretion with a list of relevant factors.
  • A statutory provision that enables the courts to make an order setting aside a trust if, having regard to a range of considerations, the court was of the opinion that no trust had been established or that the trust should be permitted to continue to exist.

Use of money rates changed - From 16 January 2011 the use of money interest payable drops to 8.89% p.a., and receivable increases to 2.18% p.a.

Gifting duty to be abolished - The Minister of Revenue, announced on 1 November 2010 that the abolition of gift duty will be included in legislation to be introduced in November 2010 and will be effective from 1 October 2011. Gift duty applies when the aggregate value of all gifts made by a person in a 12-month period exceeds $27,000. There are some concerns about the impact of repealing gift duty will have on creditor protection, social assistance, legal aid, child support, and trust law which may see more changes still to come.

Qualifying Company reforms - On 12 October 2010 the Minister of Revenue released questions and answers providing further detail on the Qualifying Company reforms:

• LAQC's will be replaced by a 'Look Through Company'.
• LTC's retain their identity as a registered company.
• A LTC's income, expenses, tax credits, rebates, gains and losses will pass to its shareholders in accordance with their shareholding.
• Shareholder's of LTC's can utilise losses only to the extent the losses reflect their economic loss - i.e. you can only claim losses to the extent of loans you have provided to the LTC (this should include personal guarantees). Any unused losses will be allowed to be carried forward.
• Existing LAQC's and QC's will be allowed to transition into the new flow-through tax rules or change to another entity without a tax cost.
• QC's and LAQC's to continue under the existing rules WITHOUT the ability to attribute losses until a review of the dividend rules for closely held companies has been completed (this is the default assuming shareholders do not elect for the QC/LAQC to transition into another entity).
• The new rules are expected to commence from 1 April 2011.

New FBT rate on low-interest, employment-related loans - From 1 October 2010, the FBT prescribed rate on low interest loans increased to 6.24%.

Goods and Services Tax - On 1 October 2010 the GST rate increased from 12.5% to 15%.

Income Tax - On 1 October 2010, personal income tax rates dropped to 10.5% on income up to $14,000 (down from 12.5%); 17.5% on income between $14,001 and $48,000 (down from 21%); 30% on income between $48,001 and $70,000 (down from 33%); and 33% on income over $70,000 (down from 38%).

Resident Withholding Tax - On 1 October 2010 RWT reduced to align with the new personal income tax rates.

Income Support and other payments - From 1 October 2010 income support and other payments increased by 2.02 per cent. These payments include: All main benefits, Student Allowances and a number of supplementary benefits; NZ Superannuation, Veterans Pension and CPI-adjusted Government Superannuation Fund and National Provident Fund payments; Working for Families (Family Tax Credit and Minimum Family Tax Credit).

PIE rates - On 1 October 2010 the top tax rate for most PIEs reduced from 30% to 28%.

New FBT rate on low-interest, employment-related loans - From 1 October 2010, the FBT prescribed rate on low interest loans increases to 6.24%.

Paid parental leave (PPL) maximum entitlement rate increases - The PPL weekly maximum entitlement rate increased to $441.62 (before tax) from 1 July 2010.

Official Cash Rate increased to 3.00 percent - The Reserve Bank increased the Official Cash Rate by 25 basis points to 3.00 percent on 29 July 2010.

Making Tax Easier - The Government is looking at ways to simplify PAYE and tax returns, provide faster, more efficient online services, and reduce people's paperwork and compliance costs. Proposed changes to Inland Revenue's systems and processes should make it easier for businesses to manage their tax obligations online. You'd spend less time filling out forms, filing paper records or following up queries with us, and have more time to devote to your business. Before any changes are made, the Government wants to hear your opinions of the proposals. If you want your say about the proposed changes then you need to comment through their public online forum at The IRD's Making Tax Easier website. You'll only have until around 21 July 2010 to make any comments or submissions.

Official Cash Rate increased to 2.75 percent - The Reserve Bank increased the Official Cash Rate by 25 basis points to 2.75 percent on 10 June 2010.

Infinite Possibilities has moved to new offices - On 1 June 2010 we moved into our new office premises located at Unit 14, Chartwell Professional Suite, 9 Lynden Court, Chartwell, Hamilton, New Zealand (across the car park from where we used to be in unit 4). Our postal address, email addresses, and phone numbers remain unchanged. We invite you to stop by and visit us for a chat about your accounting needs.

Budget 2010 tax measures legislation enacted, 31 May 2010 - The Taxation (Budget Measures) Act 2010 (No 27 of 2010) received the Royal assent on 27 May 2010 and gives effect to the tax reforms announced on 20 May 2010 in Budget 2010. The legislation gives effect to personal and company tax cuts, a rise in the GST rate to 15%, and changes to the investment property rules. Proposed tax changes in the pipeline that may come into effect on 1 April 2011 are as follows: new rules to improve the integrity of Working for Families Tax Credits; changes to the rules for qualifying companies and loss-attributing qualifying companies; and new rules to prevent "phoenix" arrangements.

The sale of private homes to loss attributing qualifying companies to generate tax deductions - The IRD has issued an Alert in response to their recent tax avoidance win over a taxpayer who sold their own or family home to a LAQC, then rented the property back to themselves (even at a market rate) and claimed tax deductions for the property that would otherwise have been considered to be private expenses. IRD's current view is that this type of LAQC is a tax avoidance arrangement and will fall under section BG 1 of the Income Tax Act 2004, as many of the expenses would not be deductible if the home was personally owned because the Act does not intend that private expenses can be deducted. IRD acknowledge that section BG 1 might not apply to all instances where a home is rented from a LAQC so they will independantly review each case on its own facts before a final decision is made. The Alert can be read in full here.

The Government's Priorities for 2010: A growth enhancing tax system – The Government will be introducing measures this year to reform the tax system. These will be announced as part of the Budget in May. Changes will include:

• Changing the way property is taxed, which will result in increased Government revenue and more fairness for taxpayers. There were no detail on how that would happen, but his speech ommitted any reference to the removal of tax depreciation on buildings, nor ending the ability of investors to write off losses on property against other income.
• Carefully considering a modest increase in the rate of GST, to no more than 15 percent. Increases to GST would be accompanied by across-the-board reductions in personal taxes, as well as up-front increases in benefits, NZ Superannuation and working for Families payments.
• Looking at how to make Working for Families fairer to avoid circumstances where people can earn a lot of income but do so in a way that means they are still eligible for Working for Families payments.

The Government will not be developing any proposals for a land tax, nor a comprehensive capital gains tax, or a risk-free return method for taxing residential investment properties.

Beneficiaries will face tough new measures in legislation set to be passed this year:

• The criteria and testing for the sickness benefit would be changed - "to ensure it only goes to those people who are genuinely too sick to work".
• Appointing a working group of experts to recommend ways to reduce long-term welfare dependency.
• Having strict re-application rules for people on the unemployment benefit and an increase in the work and training expectations for people on the Domestic Purposes Benefit.
• Changes to the benefit abatement regime, to improve incentives for beneficiaries to work.

Budget to be delivered on 20 May - Finance Minister Bill English confirmed Budget 2010 will be delivered on May 20 and will set out important policies to lift economic growth and give hard-working New Zealanders incentives to get ahead.

Minimum Family tax credit rises – From 1 April 2010, the annual amount of the minimum family tax credit that guarantees a family's after tax income rises from $20,540 to $20,800.

Changes to RWT rates and thresholds – From 1 April 2010 RWT rates on interest will be aligned with recent changes to personal tax rates and the company tax rate.

Further change to associated persons definition – from 8 December 2009 a trustee and a beneficiary of a trust are no longer associated if one is a charitable trust and the supply between the trust and the beneficiary enables the charitable trust to carry out its purpose. Further, two trustees of trusts with a common settlor are no longer associated if either trustee is a charitable trust and the supply is made carrying out the charitable purpose.

No more annual PAYE tables – The IRD will no longer be sending out printed PAYE tax tables to employers. Employers will now have to rely on payroll software or alternatively the IRD PAYE calculator at the IRD website.

New secondary tax rates – From 1 April 2010 a new secondary rate tax of 12.5% for individuals who expect their total income from all sources to be less than $14,000 for the year. New calculations for extra pays and lump sum payments will also be introduced.

New FBT rate on low-interest, employment-related loans - From 1 October 2009, the FBT prescribed rate on low interest loans reduces to 6.00%.

What's Possible has been updated - Whether you have a trust or are thinking of using one, you need to read this. You may be wasting thousands of dollars either getting a trust, or in managing it. Worse still, your trust may not hold up under scrutiny and any assets you placed in your trust could be ‘fair game’ to any partner or creditor. This article won’t explain what a Trust is, but it will help you understand how you can increase the likelihood your trust will survive any claim by an aggrieved beneficiary, relative or partner, creditor, or official assignee under bankruptcy. Follow me >

Public rulings on break fee deductibility – On 16 December 2009, the IRD issued public binding rulings, BR Pub 09/09: "Deductibility of break fee paid by a landlord to exit early from a fixed interest rate loan" and BR Pub 09/10: "Deductibility of break fee paid by a landlord to vary the interest rate of an existing fixed interest rate loan".

Generally speaking, where the loan is repaid early (whether replaced by further borrowing from the same or another financial institution or not), then a base price adjustment will be required which should result in the overall cost being treated as interest. An automatic deduction for the interest will be allowed for a company, and other entity types will need to consider the interest costs in light of the general deductibility rules.

Where the interest rate of the loan is simply renegotiated during the term of the loan and the existing loan continues, then no base price adjustment will be required. Instead, a full deduction in the year will be allowed for 'cash basis' persons (natural person, income from financial arrangements < $70,000 p.a., total value of financial arrangements held during the year < $600,000, and the difference between financial arrangement income calculated using the cash basis method and either the straight line or yield to maturity method is < $20,000), otherwise the cost must be spread over the term of the loan.

Tax Working Group releases final report - The TWG was established by Victoria University of Wellington's Centre for Accounting Governance and Taxation Research, in conjunction with the Treasury and the Inland Revenue Department. On 20 January 2010, the TWG released its final report believing the problems with the current tax system are such that it requires significant change. The main recommendations of the group are as follows:

• The company, top personal and trust tax rates should be aligned to improve the system's integrity.
• New Zealand's company tax rate needs to be competitive with other countries' company tax rates, particularly that in Australia.
• The imputation system should be retained. (This may need to be reviewed if Australia decides to move away from its imputation system).
• The top personal tax rates of 38% and 33% should be reduced as part of an alignment strategy and to better position the tax system for growth. Where possible, personal tax rates should be reduced across-the-board to ensure lower rates of tax on labour more generally.
• Base-broadening is required to address some of the existing biases in the tax system and to improve its efficiency and sustainability.
• The most comprehensive option for base-broadening with respect to the taxation of capital is to introduce a comprehensive capital gains tax (CGT). However, the TWG has significant concerns over the practical challenges arising from a comprehensive CGT and the potential distortions and other efficiency implications that may arise from a partial CGT.
• The other approach to base-broadening is to identify gaps in the current system where income, in the broadest sense, is being derived and systematically under-taxed (such as returns from residential rental properties) and apply a more targeted approach.
• A low-rate land tax should be introduced as a means of funding other tax rate reductions.
• The following targeted options for base-broadening should be considered for introduction relatively quickly: Removing the 20% depreciation loading on new plant and equipment; Removing tax depreciation on buildings (or certain categories of buildings) if empirical evidence shows that they do not depreciate in value; Changing the thin capitalisation rules by lowering the safe harbour threshold to 60% or by reviewing the base for calculating this measure.
• GST should continue to apply broadly. There should be no exemptions.
• Increasing the GST rate to 15% would have merit on efficiency grounds because it would result in reducing the taxation bias against saving and investment. However, any increase in the GST rate would need to be accompanied by compensation to those on lower incomes. This would significantly reduce the net revenue raised from a higher GST.
• There should be a comprehensive review of welfare policy and how it interacts with the tax system, with an objective being to reduce high effective marginal tax rates.
• The Government should introduce institutional arrangements to ensure there is a stronger focus on achieving and sustaining efficiency, fairness, coherence and integrity of the tax system when tax changes are proposed.

The Government has stated that it will carefully consider the report on options for improving New Zealand's tax system as part of Budget decision-making. It is important to note that these are merely recommendations only and nothing has changed. Whether the Government accepts any of these recommendations in full or in part will not be known until the coming Budget this year.

Student Loan bonus scheme – If you are a student loan borrower, and you make payments on or after 1 April 2009 that are at least $500 more than the minimum amount you are required to pay for that same tax year, the Government will pay an additional bonus for you of 10% of the amount overpaid. Any bonus will be calculated after the end of the tax year and credited against the loan as at the following 1 April. To qualify, your student loan must be up to date with no arrears.

Threshold for attribution of personal services income – From 1 April 2008, the $60,000 income threshold in the personal services attribution rule has been raised to $70,000 bringing it into line with the new personal tax rates introduced in 2008.

Extension of time arrangements for taxpayers without a tax agent – Taxpayers without a tax agent are required to lodge their income tax return(s) for the year ended 31 March with the IRD by 7 July in that same year (i.e. they would have 98 days to prepare and file their return). Tax Agents with an extension of time have until 31 March the following year in which to lodge (i.e. 365 days to prepare and file a taxpayers return). A taxpayer without a tax agent may now request by phone or in writing from the IRD, for an extension of time to file their annual income tax return.

Amended definition of beneficiary income - The definition of beneficiary income has been amended from the 2009/2010 and later income years. The amended definition extends the 6 month period within which a trustee must allocate income to the later of: the end of the 6 month period, OR the period within which the trustee either files or is required to file a return. Just ensure the trust deed provides that income is available to be paid or applied outside the 6 month period, as most trust deeds state that income must be paid or applied within a six month period.

Infinite Possibilities has a new postal address - We've had to change our postal address and you can now send mail to us at PO Box 12274, Chartwell 3248, Hamilton.

Minimum family tax credit rises - The Government has announced that the annual amount of the minimum family tax credit that guarantees a family's after-tax income will rise from $20,540 to $20,800 from 1 April 2010. The change to the minimum family tax credit, which takes into account the impact of rises in inflation on benefit rates, was approved by Order in Council on 23 November 2009.

FBT rate for low-interest loans down - On 24 November 2009, the Government announced that the prescribed rate used to calculate fringe benefit tax on low-interest, employment-related loans will fall from 6.41% to 6.00% from the quarter that began on 1 October 2009. The new rate was set by Order in Council on 23 November 2009.

Own-home Loss Attributing Qualifying Company ("LAQC") was tax avoidance arrangement - On 23 October 2009 the Taxation Review Authority ("TRA") held that Mrs B ("the shareholder") entered into a tax avoidance arrangement by renting her residential home from a LAQC in which she was the sole shareholder. The LAQC failed because:

• The rental activity was not carried out on an arm's length basis - There was no third party tenant introducing external funds into the "business". The property was the only asset of the LAQC. The sole shareholder had been the only tenant for the four years in dispute. The purchase of the $290,000 house was funded completely by an interest bearing loan from the shareholder’s trust (which borrowed $160,000 from the Public Trust whom took a mortgage over the LAQC owned house). All funds and expenses were sourced solely from the shareholder as neither the LAQC nor the trust had a bank account. And while there was a tenancy agreement between the taxpayer and the LAQC, Mrs B paid the ‘rent’ directly to the Public Trust; and
• The property was the private residence of the shareholder and the LAQC's tax losses were generated by tax deductions arising from the shareholder's expenditure that would normally be private or domestic to her.

If you are using an LAQC to rent your own home back to you, you need to ensure that your structure can survive the IRD's scrutiny and it isn't perceived as artifical and contrived. Call us if you want help identifying any risk, or reducing the likelihood of your LAQC being seen as a tax avoidance structure by the IRD.

Infinite Possibilities now has its own office space - On 31 October 2009 we moved into our new office premises located at Unit 4, Chartwell Professional Suite, 9 Lynden Court, Chartwell, Hamilton, New Zealand. We invite you to stop by and visit us for a chat about your accounting needs. Our postal address remains unchanged at 42 Winchester Place, Rototuna, Hamilton 3210. Our new office has a library of interesting books you can read if you happen to be waiting for us. And you can choose to have your meetings with us in an indoor room or a private outdoor courtyard (if you'd prefer the fresh air and sunshine) to discuss your needs.

New definitions of associated persons - The main changes include:

• there are new tests focusing on a trust's settlor (that is, the person who provide property to a trust).
• aggregating the interests of associates to prevent the test relating to companies being circumvented by the fragmentation of interests among close associates.
• a tripartite test associating two persons if they are each associated with the same third person, thereby making the associated persons tests as a whole more difficult to circumvent.

The general application date for the reforms (excluding those applying for the land provisions) is the 2010/11 and later income years. The changes relating to land transactions generally apply to land acquired on or after 6 October 2009.

What's Possible has been updated - This month we've posted an article about the lessons we learned while building a website. We took everything we learned while building our web site and condensed it down into two and a half pages of information focussed on eight key points relevant to building the web site you want. We guarantee there's something here that will save you time, money and lead to you having a site that works for you. Follow me >

What's Possible has been updated - If you're employed or unemployed and finding things difficult in light of the 'Recession', then you'll want to read this month's article. It's all about evaluating your own personal strength or weakness in light of the current tough times we're facing. We'll even give you some ideas of what you can start doing, what you can stop doing, what things you can continue doing, and some ideas on where you can look to for help.

What's Possible has been updated - If you're in business and finding things difficult in light of the 'Recession', then you'll want to read this month's article. It's all about evaluating your business's strength or weakness in light of the current tough times we're facing. We'll even give you some ideas of what you can start doing, what you can stop doing, what things you can continue doing, and some ideas on where you can look to for help.

New FBT rate on low-interest, employment-related loans - From 1 July 2009, the FBT prescribed rate on low interest loans reduces to 6.41%.

Paid parental leave (PPL) maximum entitlement rate increases - The PPL weekly maximum entitlement rate increased to $429.74 (before tax) from 1 July 2009.

Use of money rates changed - From 28 June 2009 the use of money interest payable drops to 8.91% p.a., and receivable reduces to 1.82% p.a. Is it cheaper to pay the IRD interest as opposed to the bank?

What's Possible is now alive - Our newest section of our website is now active. Here you will find FREE information helping you to get what you want ... in business and life. Check it out by clicking on the "What's Possible?" menu bar to the far left or by clicking here. Our first topic is Succeeding during tough times which is all about helping you reach your goals in a recession; identifying the opportunities that exist; explaining why it doesn't matter how long the 'Recession' will last; and identifying four philosophies you'll need to take on board if you want to survive.

NZ Government announced their 2009 Budget - It's 28 May 2009, and the Government today announced that personal income tax cuts planned for 1 April 2010 and 2011 will now be deferred. Automatic contributions to the NZ Superannuation Fund will be suspended and Government spending will be reduced. Refer here for a copy of the Minister's Executive Summary, or the Budget 2009 website for all the 2009 Budget documents.

New mileage rate for employee reimbursement - the mileage rate for when you reimburse staff (including shareholder-employees) who use their own vehicle for work has increased to 70 cents per km (from 62 cents per km), and is effective from 1 April 2008.

Official Cash Rate reduced to 2.5 percent - The Reserve Bank reduced the Official Cash Rate by 50 basis points to 2.5 percent on 30 April 2009. Can you save cash by reducing your loan repayments to take advantage of the lower interest rates and renegotiate the terms of your loans?

Job support scheme changes - The scheme has been extended to include employers with 50 to 100 employees from 27 April 2009. Refer here for more detail. Can you subsidise your labour costs to help retain staff as opposed to laying them off?

Infinite Possibilities has moved to Hamilton - We are now located at 42 Winchester Place, Rototuna 3210, HAMILTON. Our new phone number and fax number is 07 853 3671. Have you updated our contact details in your filofax, diary, Outlook, or other address book?

Infinite Possibilities is now officially online - Our new web pages were posted online.

Changes to Kiwisaver – From 1 April 2009, the minimum contribution rate reduced to 2%. Compulsory employer contributions set at 2%. Employer tax credits to stop.

Rest and meal breaks for your staff — From 1 April 2009, employees are now entitled to one paid 10 minute break when working between 2 to 4 hours; one paid 10 minute rest break and one unpaid 30 minute meal break when working between 4 and 6 hours; two paid 10 minute rest break and one unpaid 30 minute meal break when working between 6 and 8 hours.

Minimum wage increase - From 1 April 2009, the minimum wage will increase to $12.50 and the new entrants wage will increase to $10.00. Have you revisited your margins, budgets, payroll for the changes to your staff on the minimum wage?

Infant feeding in the workplace - From 1 April 2009, employers are now required to provide employees who breastfeed during work hours with appropriate facilities and unpaid breaks. Have you made a space for breastfeeding mothers who work for you?

Income Tax changes - From 1 April 2009, the highest income tax rate drops to 38% for incomes over $70,000; Introduction of an independent earner credit for middle income taxpayers who do not receive core assistance from the Government earning over $24,000 from non-benefit sources; Research and development tax credits have been removed. If you employ staff, are you using the new PAYE tables from 1 April 2009? If you are earning wages, then have you decided what you will do with the extra wages you'll be getting in your hand? If you earn between $24,000 and $48,000 and don't receive any other benefits, then have you updated your PAYE code with your employer so you get the new independent tax credit?

Twice-monthly PAYE threshold goes up - From 1 April 2009, the threshold for paying PAYE twice monthly increased from $100,000 to $500,000 PAYE and employer superannuation contribution tax per annum. For those of you with PAYE between $100,000 and $500,000 p.a. you'll now only file PAYE returns once a month due by the 20th.

Provisional Tax changes - From 1 April 2009, the uplifts for the 2008/2009 and 2009/2010 provisional taxes have been reduced saving at least $730 and 5%, and $1,460 and 5% respectively. If you are paying provisional tax, have you checked to see how much less you'll be paying now?

GST changes - From 1 April 2009, the threshold for compulsory GST registration increases to $60,000 per annum (from $40,000 p.a.). The GST payments basis threshold increases to $2m (from $1.3m).

Job support scheme commences - Starting on 27 March 2009, the Job Support Scheme is for large employers (more than 100 staff) and is designed to help employees keep their jobs in this challenging economic climate. It provides a minimum wage allowance to supplement the income of employees who have agreed to reduced hours at work. The allowance is available for up to six months. Employers need to negotiate an agreement with their employees, and unions where appropriate, which reduces their hours by up to 10 hours per fortnight. This encourages businesses to keep employees on reduced hours rather than make them redundant. It also provides job security to employees while they take part in the scheme. Rather than making staff redundant, can you take advantage of this scheme?

Official Cash Rate reduced to 3 percent - The Reserve Bank reduced the Official Cash Rate by 50 basis points to 3 percent as of 12 March 2009. Can you take advantage of the lower interest rates by renegotiating your loans?

Employing staff on a 90-day trial period - From 1 March 2009, employers with less than 20 employees can now engage workers on a 90 day trial period without the risk of an unjustified dismissal claim. Have you updated your employment contracts for the probationary periods for any new staff you may employ in the future?

Use of money rates changed - Use of money interest payable drops to 9.73% p.a., and receivable reduces to 4.23% p.a. as of 1 March 2009. Is it cheaper to pay the IRD interest as opposed to the bank?

Government announces tax changes to give businesses a helping hand – It's 4 February 2009, and the Government announced it would make reductions to the provisional tax uplift rates; use of money interest to now apply from residual tax figures of $50,000; use of money interest payable drops to 9.73% p.a., and receivable reduces to 4.23% p.a.; GST payments threshold increases to $2m; GST registration threshold increases to $60,000; Business related legal expenses totalling under $10,000 will be deductible regardless whether they are capital or revenue; fortnightly PAYE threshold increased to $500,000; annual FBT filing threshold increased to $500,000; minor FBT thresholds increased to $300 per quarter per employee and $22,500 a year per employer; FBT prescribed rate on low interest loans reduces to 8.05%. Generally these will apply from 1 April 2009.

Official Cash Rate reduced to 3.5 percent - The Reserve Bank reduced the Official Cash Rate by 150 basis points to 3.5 percent from 29 January 2009. Can you take advantage of the lower interest rates by renegotiating your loans?

New FBT rate on low-interest, employment-related loans - The FBT prescribed rate on low interest loans reduced to 8.05% from 1 January 2009.