Latest News and Updates from Staples Rodway Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay Thu, 16 May 2013 21:04:00 Thu, 16 May 2013 21:04:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/16/budget-2013.aspx Budget 2013: Some Encouragement for innovators Further money is being put into direct grants for R&D and start ups, and the grant schemes have been amalgamated into fewer bodies. Interestingly, the new R&D Project Grants will include a repayment requirement if the R&D activity is moved offshore. In addition, the student loans scheme will be further tweaked to encourage more repayments by overseas-based borrowers. The use of a larger toolbox to address the housing affordability issue is welcome - the answers here are not just tax-related and the Reserve Bank's additional powers (among others) to require banks to hold additional capital against loans in specific sectors or restrict loan-to-value ratio lending in the housing sector may yield some results. However, there was little significant to note from a tax point of view. Some observers had thought the IRD may introduce their targeted reform of the employee allowance regime but the government may be wary after the "car park tax" back-down. Such reform will probably arrive later this year. What was announced was: "Black Hole" expenditure Some limited areas of "black hole" expenditure are to be addressed. This type of expenditure is generally incurred when it relates to the capital costs of developing  intellectual property.  Where that capital expenditure is not software (which is generally not subject to "black hole" issues) and does not specifically relate to the construction of a particular physical asset (e.g. a low cost prototype), then such expenditure can be non-deductible. Proposals in the budget will allow some capitalised legal and administrative fees related to a patent application to be deductible if the patent application is not proceeded with. This is a very limited solution to the problem, and does not address the majority of situations where  intellectual property being developed is not patentable or a patent is not being pursued for commercial reasons.  Costs in those cases can still be non-deductible. The types of resource management consents able to be depreciated are being slightly expanded (mainly related to coastal and shipping consents).  We acknowledge government's efforts to broaden deductibility in relation to fixed life resource consents, but question whether the amendments embrace the true costs of conducting business in a Resource Management Act environment. Certain businesses must comply with the Act for varying reasons and the changes proposed still leave businesses with uncertainty around deductibility in relation to many fixed life resource consents. Finally, company administration costs related to stock exchange listings, the administration of dividend payments, and costs related to holding AGMs will be tax deductible. Costs related to special shareholder meetings will remain non-deductible. This will be welcome to listed companies and an encouraging move for  capital markets. In summary, while the initial signs were that the Government would seriously be addressing the issue of "black hole" expenditure, the proposals here are still far too tentative, and leave too much potential for non-recoverable costs incurred by innovative businesses. R&D Tax Credits - back to the future? R&D intensive start up companies will be able to obtain a refund of tax losses, up to a certain limit, arising from research and development expenditure. The details of the proposed scheme are not yet available but a public consultation paper will be released in June. The language used in the press release would suggest a potentially restrictive scheme; existing business have been excluded and terms such as 'R&D intensive' will need to be clarified.  It is also likely that conditions regarding the ownership of any resulting intellectual property will be included. It is worth noting that Australia and the UK already provide similar incentives that potentially provide greater benefits than the New Zealand proposals. The proposal is positive, although whether they will help to make New Zealand an international destination for research and development activity is yet to be tested. The refund of tax losses has the potential to be more generous than the previous R&D tax credit scheme, provided you meet the criteria. IRD Property Bloodhounds The property market is clearly on the government's mind with two counter-measures announced which are designed to restrict the boom currently evident in Auckland and Christchurch. The first counter-measure related to the Reserve Bank Memorandum of Understanding already referred to. The second is the investment of an additional $6.65 million per year for the Inland Revenue to increase property investment tax compliance. The Inland Revenue's designated Property Compliance Team has been successful in extracting an additional $110 million from taxpayers since 2010, and the government's desire is to have that success continue. Our experience with audits in this area show the Inland Revenue have specific targets in mind. They are closely looking at land speculators, builders and developers to ensure a level playing field for those who regularly deal in land. The issues at the top of their list are the usual culprits, such as sound business systems, financial reporting and documentation.  Where industry benchmarking reports identify particular businesses as being outside the acceptable range, then those businesses should expect a visit. Thin capitalisation changes The government is pressing ahead with the proposed reform of some areas of the thin capitalisation rules, as flagged in the January discussion paper.  Primarily these relate to groups with high levels of external debt which are not controlled by a single non-resident.  In those cases, the thin capitalisation rules will not operate to restrict the deduction of interest incurred on the debt. The IRD is concerned about shareholers who might be legally associated but who are "acting together". They believe that New Zealand groups owned by shareholders "acting together" should be subject to the thin capitalisation rules. Drafting the legislation for this appears to be proving difficult. It will be introduced later this year, effective from the start of the 2015/16 income year. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/16/budget-2013.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/16/budget-2013.aspx Thu, 16 May 2013 21:04:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/15/kiwisaver-news-autum-2013.aspx The latest Staples Rodway KiwiSaver Scheme newsletter, KiwiSaver News - Autum 2013 , is now available. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/15/kiwisaver-news-autum-2013.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/15/kiwisaver-news-autum-2013.aspx Wed, 15 May 2013 03:31:00 Staples Rodway, Mike Rudd http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/12/when-is-building-expenditure-tax-deductible.aspx Written by Mike Rudd - Director, Auckland. Article published in Bayley's Total Property Magazine 13 May 2013. One of the key tax considerations encompassing the cost of building work is the distinction between what is capital expenditure and what is revenue. Up until 2012, classifying expenditure on a building as capital meant that tax depreciation could be claimed, compared to revenue expenditure where a tax deduction for the full amount could be claimed when incurred. However, the removal of the ability to claim tax depreciation deductions for buildings from the 2012 income year now means no deduction is available in most circumstances where building expenditure is treated as capital. This makes identifying the distinction between capital and revenue expenditure more vital for property owners and Inland Revenue. In most cases the difference is clear, but the boundary between the two is full of traps that can be difficult to avoid. For this reason, the courts have been asked many times to determine whether certain types of expenditure are capital or revenue. Given the wide variety of facts that have been considered, some of those decisions are not consistent and the distinction remains somewhat murky. We have had a number of clients seeking advice about the tax treatment of earthquake strengthening costs and we expect this will become a hotter topic in the near future. The tax deductibility of work carried out to remedy "leaky buildings" also remains an issue. In both cases, there is no simple answer and the position depends on the facts of each case. Earthquake strengthening Following on from the Christchurch earthquakes, there has been much greater focus on the earthquake rating of commercial property. Strengthening costs can be significant and the issue of whether they are capital or revenue is a key concern. A number of property commentators are already advising building owners to "future proof" their buildings by increasing the strengthening beyond the minimum requirement of 33% of New Building Standard which in an increasing number of cases is less than what tenants are willing to accept. A recent Inland Revenue Interpretation Statement outlines (by reference to case law) that work undertaken to strengthen a building, whether or not earthquake damaged, is considered to be an improvement to the building and capital in nature. IRD considers this is likely to be the case even when the work is required by law, such as to comply with council consents. The focus is on the work undertaken, and if the work is seen to improve the asset it will be deemed to be of a capital nature. The huge scale of this seismic strengthening issue has been identified by policymakers and there has been a call by some to change the law to enable a tax deduction to be claimed for earthquake strengthening costs, so watch this space. In the meantime, as a general comment, it may be helpful if any work is clearly separated between expenditure incurred in building restoration (non deductible), or from other work that would ordinarily be classified as repairs and maintenance (deductible). Discuss any work that might be undertaken with your tax adviser before expenditure is incurred so appropriate advice can be provided. Leaky Buildings There may be a reasonably arguable position for the tax deductibility of expenditure incurred to repair a leaky building provided the property owner was unaware of the water tightness issues and did not pay a lower price because of it.  Part of the concern of the IRD is where a taxpayer buys property at a reduced cost with the knowledge there is a leaky building issue and the likelihood that major expenditure will be required to remedy the issue. In those cases, the IRD would be more likely to assert that the costs of bringing the building up to an acceptable state are capital because the work significantly increases the value of the asset. A reasonably arguable position (subject to the individual facts of the case) for expenditure undertaken on leaky buildings may be supported if the following are met: The property was acquired with the expectation that it would be entirely suitable to derive assessable income for many years and the price paid reflected this. The repair work will not improve the property beyond what it originally appeared to be, and the character of the property will not be changed. It was always the taxpayer's intention to derive assessable income from the property. However, given the complex issues arising from expenditure of this nature on both leaky and seismically compromised buildings, it is recommended specific tax advice is sought before any tax filing position is taken.  http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/12/when-is-building-expenditure-tax-deductible.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/may/12/when-is-building-expenditure-tax-deductible.aspx Sun, 12 May 2013 21:54:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/27/meet-our-new-wellington-firm.aspx The Staples Rodway national network gains an important link when long-established Wellington firm PKF Martin Jarvie officially joins the Staples Rodway team on April 1. Staples Rodway has been seeking a Wellington partner for a number of years and Staples Rodway Chairman Peter Guise says the established and respected local firm fits well into the Staples Rodway network. "We share similar beliefs and goals around quality of service and relationships with clients and that's what we have been looking for in our careful search for a Wellington partner," says Mr Guise. Martin Jarvie managing partner Robert Elms says the firm is founded on the values of providing top quality personal service to both business and individual clients. "This philosophy continues today with the partners placing a strong emphasis on building and maintaining client relationships by leading all assignments and being accessible to all clients." The firm was founded in 1941 by Henry B Martin who was joined over the next few years by Robert Jarvie, David Underwood and Graeme Hall and became a very successful, proudly Wellington, Chartered Accountancy practice known for many years as Martin Jarvie Underwood and Hall or simply Martin Jarvie.  In succeeding years the partners changed periodically but the underpinning values and the name remained unchanged.  For the decade through to 2011, the firm was strongly led by the late Graham Langridge. Robert Elms became managing partner following Graham's retirement in 2011 and today the two partners, Robert Elms and David Hulston, are assisted by a team of 28, including five experienced managers and a strong professional and administrative complement. "We work with our clients to assist them in achieving their business and financial objectives while the firm has developed a strong sense of community and assisting various community organisations.  We currently support the Cancer Society, assisting with collections on Daffodil Day, and sponsor the activities of the Friends of the Cancer Society," says Mr Elms. "There is a significant level of expertise and skills within the firm in all facets of accounting, auditing, business advisory and tax compliance.  We focus on servicing small and medium sized enterprises, investment trusts and individuals from our premises at 85 The Terrace, Wellington. Mr Elms says the decision to join Staples Rodway was relatively easy with its similar strong focus on client relationships, the provision of quality services and a strong sense of community. "Staples Rodway offers us a strong national network and presence, and through Baker Tilly a strong international network.  The Staples Rodway support services are very important with technical and marketing support being paramount. "We are moving into a period of significant change both in the general business environment and in financial reporting, auditing and tax, therefore strong representation and support is imperative. Being able to call on any number of specialists within Staples Rodway will allow us to continue to provide our clients with timely, cost effective and high quality advice and services" said Robert. David Hulston expects existing Martin Jarvie clients will only see positives from the move to join Staples Rodway's network as it allows the firm to provide a wider range of services to clients and maintain the essence of its 70 years of tradition. "The beauty of joining Staples Rodway is that we also retain all our current structures. While gaining the benefits of national and international links for those clients." http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/27/meet-our-new-wellington-firm.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/27/meet-our-new-wellington-firm.aspx Wed, 27 March 2013 21:35:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/08/staples-rodway-appoints-three-new-directors.aspx DAIMON STEWART Mr Stewart joined the Taranaki office as a senior accountant in May 2002 and has been a Chartered Accountant since 2004. Daimon has been responsible for a wide variety of duties within the Taranaki team, including staff management and training, business and strategy planning with clients, business development and co-ordinating NZ Trade and Enterprise approved training courses. In his role, Daimon's clients have utilised his skills in business and strategic planning to focus on business growth and development, and profit improvement and this is a real passion for Daimon who also has an excellent knowledge of the complexities of ACC, FBT and Working for Families. Daimon has been working closely with CanTeen Taranaki in a number of fundraising and awareness projects and enjoys playing tennis and running around after his two boys. CRAIG HAMILTON Mr Hamilton joined the Staples Rodway Christchurch team in April 2007, after returning to New Zealand from Canada and Australia. While overseas, Craig worked as a Senior Accountant and Auditor for accountancy firm Harris and Partners in Canada, and Foster Raffan Chartered Accountants in Sydney, Australia. At Staples Rodway, Craig's role includes advising clients on annual compliance and associated tax matters. He enjoys working closely with clients to ensure their business interests are appropriately structured and managed efficiently. Craig has been responsible for managing a team of accounting staff and client portfolios consisting of mainly small to medium sized businesses. Craig specialises in Income Tax Returns and Financial Statements for various clients, as well as reviewing and monitoring budgets. With 15 years experience in generalaccounting and tax issues, Craig provides clients with day-to-day accounting and tax advice, specifically advising on accounting software available in New Zealand and business structuring options always with a focus in tax efficiency and asset protection. Craig's pursues a wide variety of outdoor interests, including road cycling and triathlons, and recently completed the gruelling Ironman triathlon. CRAIG BARRETT Waikato born and raised, Mr Barrett completed a Bachelor of Management Studies, majoring in Accounting and Finance. Craig joined Staples Rodway in 2005 after working for one of New Zealand's biggest companies. Craig is a licensed auditor and responsible for the Hamilton audit practice. Craig's responsibilities also include due diligence, prospectus, acquisitions/amalgamations, system reviews and technical opinions. Passionate about all things sport, Craig's hobbies also include gardening and spending time with his young family. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/08/staples-rodway-appoints-three-new-directors.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/march/08/staples-rodway-appoints-three-new-directors.aspx Fri, 08 March 2013 03:02:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/february/20/kiwisaver-news-summer-2013.aspx The latest  Staples Rodway KiwiSaver Scheme  newsletter,  KiwiSaver News - Summer 2013 , is now available. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/february/20/kiwisaver-news-summer-2013.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2013/february/20/kiwisaver-news-summer-2013.aspx Wed, 20 February 2013 23:41:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/december/7/numbers-magazine-issue-25.aspx Our lastest Summer edition of the Numbers Magazine is out now - click here to view. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/december/7/numbers-magazine-issue-25.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/december/7/numbers-magazine-issue-25.aspx Fri, 07 December 2012 22:37:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/november/20/kiwisaver-news-spring-2012.aspx The latest  Staples Rodway KiwiSaver Scheme  newsletter, KiwiSaver News - Spring 2012 , is now available. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/november/20/kiwisaver-news-spring-2012.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/november/20/kiwisaver-news-spring-2012.aspx Tue, 20 November 2012 02:23:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/october/02/lease-inducement-payments,-further-changes.aspx The Government has responded to criticism levelled at the proposed changes to the tax treatment of lease inducement payments. The tax changes to lease inducements announced in July had been a surprise as they arrived without consultation and had not appeared on any announced work programs.   Late last week, responding to some of the concerns raised, Revenue Minister Peter Dunne released details of changes to the original proposals, which were originally to apply to lease inducement payments relating to leases entered into on or after 26 July 2012.  The changes will now apply to leases entered into on or after 1 April 2013.    Lease inducement payments are lump sum premiums paid to tenants by landlords to induce tenants to lease the landlord's property.  New Zealand case law treats lease inducement payments as deductible payments for landlords but capital, and non-taxable receipts for the tenant.  Under the announced changes, lease inducement payments made in relation to leases entered into on or after 1 April 2013 will be taxable income to the recipient.      The income would be spread over the term of the lease, as previously announced.  Landlords who pay lease inducement payments are generally entitled to a  deduction for the payment, but from 1 April 2013 will also have to spread the deduction over the lease term  A welcome further announcement was in relation to lease surrender payments. Lease surrender payments occur when tenants pay the landlord a lump sum amount to exit a long term lease. In most cases lease surrender payments have been non-deductible to the exiting tenant, but taxable to the landlord receiving the payment.  However, under the announced changes, any lease surrender payments made on or after 1 April 2013 will be deductible to the payer and taxable to the recipient.  With effect from 1 April 2013, landlords and tenants should therefore have symmetrical tax treatment for virtually all receipts and payments. If you are contemplating entering or exiting any lease arrangements over the next year we strongly recommend you obtain advice from your usual Staples Rodway contact before finalising any agreements. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/october/02/lease-inducement-payments,-further-changes.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/october/02/lease-inducement-payments,-further-changes.aspx Tue, 02 October 2012 02:43:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/18/tax-clampdown-on-mixed-use-assets.aspx Introduction The Government announced last year that it would bring in rules to clamp down on people taking  deductions for the costs of holiday homes, yachts and similar leisure assets worth more than $50,000 which are offered for occasional hire. These assets are referred to in Government commentary as "mixed use assets". On Wednesday 13 September, it introduced the Tax Bill containing these changes, which will have effect from the start of the  2013-14 income year. The Current Rules There are currently no specific apportionment rules, and so the test of deductibility is based on the period that the mixed use asset is available to derive taxable income . Therefore, many taxpayers would deduct all expenses except those relating to the days when they used the asset privately. So, for example, if a holiday house was used privately for one month a year, they would deduct 11 months of expenses, even if the house was hired for only a few days or weeks. The New Rules The new rules are unfortunately not as simple as the current rules. Conditions for the new rules to apply The new rules apply to assets that are: used to earn income; and used privately; and not used for at least 62 days (62 working days if the asset is typically only used on work days) in an income year. In addition, the asset has to be of a type and owned in the following circumstances: the asset must be held by an individual, trust, partnership or a close company (a close company has five or fewer natural person shareholders); must  be land (including buildings), or cost more than $50,000; must not already be subject to apportionment based on space (such as a home office); must not be a motor vehicle; must be used privately; which means by the owner or anyone associated with the owner, including their partner, siblings, parents, children, grandparents or grandchildren; any use below market value will also be regarded as private use. Private use will not include use by the person if it involves expert or specialist knowledge in order for it to be used, the person uses it in that capacity, and the income derived is at market value, which includes an amount paid for the provision of the person's services.  Apportioning Expenditure The apportionment formula provides for the amount of deductible expenditure, including depreciation, to be calculated as follows: Expenditure * Income earning days/(Income earning days + private days) Private days includes any use by associated persons of the owner, even if market value is paid for the use of the property. Example A boat is chartered for 30 days and used by its owners for 30 days.  Fifty percent of the general expenditure will be deductible (30 days income-earning use / 60 days total use). Apportioning interest expenses In addition, a new rule of interest deductibility is introduced for close companies holding assets subject to the rules.  Any interest expenditure incurred in relation to debt within the company, where the debt is equal to or less than the cost (or rateable value, if land) of the asset, will be subject to apportionment.  Further rules exist to limit interest deductibility for group companies, corporate shareholders and non-corporate shareholders, if applicable.  These rules are complex but are designed to prevent taxpayers side-stepping apportionment by using debt in other group companies to, effectively, fund the purchase of mixed-use assets. Examples Company A holds a mixed-use asset with a cost of $100,000.  The company has a total interest-bearing debt of $75,000.  The company is required to apportion the interest expenditure on the $75,000 of debt. Company B holds a mixed-use asset with a cost of $100,000.  The company has a total interest-bearing debt of $150,000.  The company must apportion the average interest expenditure on the $100,000 of debt.  Interest on the remaining $50,000 is subject to existing interest deductibility rules. Quarantining expenses in some cases In addition to the above, quarantining of expenditure could occur if the gross income derived from the asset is less than 2 percent of the cost of the asset or, for land, 2 percent of the rateable value.  The quarantined expenditure will be denied as a deduction in the current income year, and can be used in a later year when there are sufficient profits derived from the asset.  To prevent the inflation of income to get above the 2 percent threshold, income received from relatives and associated persons is excluded from the definition of income when applying this test. The quarantining provisions do not apply to assets predominantly used in business. Option to treat income as exempt The draft legislation gives you the option to elect out of the rules by treating the income as exempt (and not getting to claim the deductions).  However, this will only apply where the gross income in a year is less than $1,000, and includes situations where losses are being made. GST Treatment The GST treatment will reflect the income tax treatment.  The rules are complex, and consequently we cannot discuss them in detail here.  It will suffice to note that where before you would have been able to claim an input tax credit proportional to the business use and the amount of time the asset was available for business use, this credit will now be limited in a similar way as for income tax. Conclusion The above discussion illustrates how making things "fairer" often ends up  making them more complex.  Your Staples Rodway advisor can help you manage your way through these rules, and we'll keep you up to date with any changes as the Bill makes its way through Parliament. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/18/tax-clampdown-on-mixed-use-assets.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/18/tax-clampdown-on-mixed-use-assets.aspx Tue, 18 September 2012 01:07:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/10/managing-imputation-credits.aspx Recent reductions in the corporate tax rate, while generally welcomed by those operating under a company structure and investors, have created issues with respect to the imputation regime that need to be managed.  We discuss the issues and explain why companies should consider paying a dividend before 31 March 2013 to ensure that their shareholders get the greatest benefit possible. What is imputation? For the past 23 years, New Zealand has had an imputation system which eliminates the double taxation that can arise when profits earned by a company are taxed at company level then again when a shareholder receives a distribution of the profits in the form of dividends. How does it work? The mechanism is relatively simple. A company is generally allowed a credit to its imputation credit account ( ICA ) for income tax paid on its profits. When a company pays a dividend, these credits can be attached to the dividend which allows shareholders to use these credits against the income tax payable on the dividend, thereby eliminating double taxation.  Without this regime, the combined corporate and individual tax could be up to almost 52%, assuming companies have paid all their profits out as dividends. What is the issue? The amount of imputation credits that a company can attach to any dividend distribution is capped to the corporate income tax rate which was reduced from 33% to 30% from the beginning of the 2009 income year and from 30% to 28% from the beginning of the 2012 income year (1 April 2011 for companies with a March balance date). Notwithstanding these reductions, dividends continue to be subject to resident withholding tax ( RWT ) at the rate of 33% less the imputation credit percentage attached to the dividend.  RWT is payable on the 20th of the month following the payment of the dividend, resulting in a timing disadvantage to shareholders. This can be illustrated by the following table. Dividends imputed at 28%   30% Net dividend 10,000.00   10,000.00 Plus:       Imputation Credits 3,888.89   4,285.71 Less:       Resident withholding tax 694.44   428.57         Cash to shareholder 9,305.56   9,571.43 Thus, the reduction in the company tax rate increases the amount of RWT payable. What can you do? Although dividends payable from 1 April 2011 generally have a maximum of 28% imputation credits attached, there is a transitional period which allows a company to impute dividends at 30% thereby not disadvantaging shareholders.  The transitional period will however cease on 31 March 2013, regardless of the company's balance date, and all 30% imputation credits held will revert to 28% imputation credits.  Where the shareholding is held by non-residents, it is more advantageous to use 28% imputation credits rather than 30% imputation credits due to the foreign tax credit mechanism. Warning To take full advantage of the transitional period a company must have imputation credits generated at the corporate tax rate of 30% (or at the earlier 33% rate).  These must be very carefully calculated, taking into account refunds due, transfers to other tax types, etc which will reduce the amount of 30% imputation credits available.  If an over-allocation of 30% imputation credits occurs, a 10% penalty arises on the amount of the over-allocation, which cannot be reversed. Inland Revenue are showing increasing interest in the accuracy of ICA's in their risk reviews and audits.  They can check back a number of years as the four year statute bar rule does not apply to the ICA return. If you wish to maximise the use of the available 30% imputation credits, we suggest that we review the balance available before a dividend is declared. Our review would include the following: Checking any changes in the ultimate individual or trust shareholders. A company can only carry forward its imputation credits if it maintains a shareholding continuity of 66% or more for the period from when the imputation credits arose to when they are used.  Any change in excess of this forfeits the credits. Tracking imputation credits Although only one combined imputation credit account is filed with Inland Revenue, it is necessary to track the 30% imputation credits carefully to avoid over-allocation.  As mentioned above, the available 30% imputation credit balance would be reduced by a tax refund from a 30% income year, any transfers to other tax types such as GST and PAYE, and transfers to meet provisional tax liabilities for a 28% income year. Corporate shareholder fish-hook A corporate shareholder receiving a taxable dividend imputed at 30% will only be able to claim a 28% tax credit (of the net dividend plus credits).  This effectively limits the tax credit to the corporate tax rate.The corporate shareholder will however receive the full 30% credit to its 30% imputation credit account.  This effectively allows the company to pass on the 30% imputation credits to its ultimate individual or trust shareholders prior to 31 March 2013. What if the company cannot afford to pay a dividend? It may not be possible for some companies to utilise all available 30% imputation credits if cash flow requirements do not allow a dividend payment.  There may however be other options available in these situations.  For example, the company can make a Taxable Bonus Issue to the shareholders.  This involves an increase in the equity of the company bay way of a re-allocation from retained earnings and an election is made with the tax return to treat the bonus issue of shares as a Taxable Bonus Issue.  The advantage to the company is that this does not involve any cash outlay on its part other than the payment of resident withholding tax (effectively at 3%). For tax purposes the Taxable Bonus Issue will be taxable to the shareholders as a dividend, with 30% imputation credits attached. This option should be discussed with your Staples Rodway Advisor before implementation.  If you wish to pay a dividend and require any assistance or would like any further information, your Staples Rodway Advisor would be happy to assist. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/10/managing-imputation-credits.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/september/10/managing-imputation-credits.aspx Mon, 10 September 2012 00:52:00 Staples Rodway New Zealand http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/august/24/canteen-sponsorship.aspx Staples Rodway is a positive supporter of CanTeen the only New Zealand organisation dedicated to supporting young people aged 13-24 who are living with cancer as patients and their siblings.  What attracted Staples Rodway to support CanTeen was the unique approach at CanTeen where young people hold leadership roles within the organisation at a regional level and National Board level and are therefore responsible for shaping the future of CanTeen.  Staples Rodway wanted to help by adding value to CanTeen's operations both financially as well as through their expertise and mentoring.   http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/august/24/canteen-sponsorship.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/august/24/canteen-sponsorship.aspx Fri, 24 August 2012 04:14:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/july/26/financial-reporting-insight.aspx The first edition of Financial Reporting Insight now available.  This new Staples Rodway publication will provide you with regular updates on key areas of interest to preparers and users of financial statements in New Zealand.  This edition of Financial Reporting Insight looks at: Proposed changes to New Zealand's financial reporting framework New financial reporting standards coming into effect on 1 January 2013 Changes to accounting for financial instruments The proposal to change audit requirements for charities New licensing requirements for auditors of issuers  If you want more information, please contact us. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/july/26/financial-reporting-insight.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/july/26/financial-reporting-insight.aspx Thu, 26 July 2012 03:06:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/fbt-changes-flagged.aspx Some existing Fringe Benefit Tax (FBT) exemptions are coming under the IRD's spotlight. An official's issues paper calledRecognising salary trade-offs as incomewas issued recently by the Policy Advice Division of the IRD. The proposals contained in the paper will have a significant effect on the current treatment of car parks and on-premises childcare facilities that employers provide to their employees, as well as fringe benefits provided to employees of charities.  The objective of the proposed changes is to ensure that income from personal labour is fully taxed, and is taken into account when determining eligibility for social assistance such as working for families, and the parental income test for student allowances. Based on that principle, the IRD want salary and salary substitutes to be taxed equally to eliminate any tax benefit from alternative structures. Situations where there is a salary trade-off of cash in return for obtaining a benefit, whether the cash alternative is explicit or implied will, under the proposals, result in the value of the benefit being taxed. For car parks, under current rules, there is an on-premises exemption from FBT.  If a car park is on the employer's premises or is leased then this will be exempt from FBT in most cases, whereas if the car park is licensed it will usually be subject to FBT.  Under these new proposals, the exclusion from FBT for car parks provided on work premises would be removed   Instead, liability for FBT would be determined by whether the car park was provided as a trade-off with salary. The key question then becomes: what is a "salary trade-off"?  The paper sets out three possible situations: Where an amount of salary or wages is traded for a non-cash benefit; or Where an amount of any other employment-related income is traded for a non-cash benefit; or Where there is no explicit trade-off but where the employee has anenforceable rightto the benefit, the benefit is actually available, and the employee takes up that benefit.  This is called an implicit trade-off. The first two situations seem clear but the third, the implicit trade-off, is not.  An enforceable right is usually established by reference to an employment agreement.  However, an example given in the paper says an implicit trade-off arises in the situation where unallocated basement parking is available to a group of managers for use at any time and each manager is guaranteed a parking space.  There is no reference to whether the employment contract covers the car parks, or whether an amount of salary is foregone for the use of the car parks.  To the IRD, the guaranteed availability of the parking space creates an enforceable right, and therefore there is an implicit trade off if the employee then uses the car park.  This situation could potentially affect many employers who rely on the on-premises exemption.  Those employees will then be faced with the challenge of how to value the "trade-off".  Inland Revenue say they may consider a standard value for benefits in some cases to simplify compliance.   Childcare provided on employers' premises, which is presently exempt from FBT, would also be taxable when part of a salary trade-off.  Other examples of salary trade-offs are also mentioned in the paper, including the benefits to employees participating in a group life insurance policy, when this is  part of a salary trade-off.  Fringe benefits provided to certain employees of charities are currently exempt from FBT in most cases. This FBT exemption is already limited in the case of charge cards or in the case of charities that are carrying on a business.  The FBT exemption for charities is to be amended to specify  that any vouchers provided to employees of charities will be subject to FBT.  This is because vouchers are easily substituted for salaries.  Other fringe benefit provided to the employees of charities could also be subject to FBT if they are part of a salary trade-off, as set out above.  The issues paper discusses whether it is preferable to tax all salary trade-offs grossed up through the PAYE system, which then automatically brings it into the social assistance calculation.  If this approach is followed this would require changes to remove some benefits from the FBT system.  Alternatively, the FBT rules could be amended to subject to FBT benefits which are currently exempt. The changes, once finalised, are expected to be introduced with effect from 1 April 2014. The IRD is requesting the views of both employers and employees to the document.  Please let your usual Staples Rodway advisor know if there are any points on which you would like to make a submission.  Submissions are due by 31 May 2012.  http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/fbt-changes-flagged.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/fbt-changes-flagged.aspx Thu, 24 May 2012 22:45:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/2012-a-budget-of-boats,-baches-and-housekeepers.aspx The New Zealand Economy The responsible management of the economy continues to be the focus for the government, highlighted by the delivery of another 'zero' budget.　 A return to surplus by 2014/15 is still predicted, although this is well within the margin of error, as well as a fall in the unemployment rate to below 5% by 2015.　 The delayed rebuild of Christchurch will be a cornerstone of the growth in domestic activity and will contribute about one percentage point to annual growth in each year from 2012 to 2016. Apart from the focus on balancing the budget,  there is a limited amount of new targeted investment to improve New Zealand innovation, including the establishment of an Advanced Technology Institute, and a small increase in funding for science and engineering courses. The most significant revenue moves are the increase in tobacco excise by 10% in addition to the CPI increase each year for the next 4 years and some changes to tighten the student loan rules, including the elimination of the early repayment discount from 1 April 2013, and an information match between Inland Revenue and the Customs Service for Student Loan borrowers in serious default, which could cause some excitement at airports in the future. There are limited tax changes focussed on the targeting of loopholes, outdated regimes, and increased enforcement. Mixed Use Assets Concern for this tax loophole for the well-off was raised by the Government last year in a discussion paper that set out a method to restrict the tax deductions taken by those who had high value assets available for rent and, therefore, were partly used for business purposes.  Typically, owners would deduct costs associated with owning the asset for the full year except when that asset was actually used for private purposes.   The announced rules appear to be less restrictive than originally proposed and will apportion deductions based on the actual business use of the assets when compared to the total time the asset is used for any purpose.　 This effectively removes the 'available for rent' periods from the calculation.　 For example, if an asset is rented for 40 days and used privately for 80 days during the year the taxpayer will only be able to claim 33% of the expenses.  　 Further details as to the operation of these rules are not yet available and we will issue a further update once these are released. Repeal of the $9,880 tax credit The low income rebate was originally introduced to balance the effect of GST being introduced in1986, and will now be repealed with effect from the 2012/13 tax year. However, if individuals are currently claiming this via their tax code they will continue to receive this through the PAYE system for the current year.　　Interestingly, if this is  claimed via an individual's tax code via PAYE and they file a tax return (for example because they have income not taxed at source) they will forfeit the benefit of the credit for the 2012/13 tax year. Children's Income The tax credit for active income for children has been repealed from the 2012/13 tax year.　 Essentially, children can no longer file a tax return to receive a refund of tax deducted at source by their employer.　 Going forward, if an employer deducts PAYE from payments to children, the credit will not be available in respect of that income.  If they have active income of $2,340 or less which is not subject to PAYE (e.g. casual baby sitting, lawn mowing) then this income will be exempt. Repeal of childcare and housekeeper tax credit This has been repealed with effect from the 2012/13 tax year.  It provided a credit of 33% of the amount paid for a housekeeper or for childcare under specific circumstances up to a maximum of $310 per annum. 　The Government considered this to be a poorly targeted credit as only 11 per cent of claimants come from the bottom 30 per cent of households. Livestock valuation changes The livestock changes were originally announced as a part of Budget 2011 and an Issues Paper was released on 18 August 2011.　 It was then announced on 28 March 2012 that elections to use the herd scheme will become irrevocable from the date of that issue paper, 18 August 2011.　 The announcement in Budget 2012 confirmed that the legislation to give effect to this change will be included in the Budget legislation, and the specific detail will be introduced in the next Tax Bill.　 This is expected to prevent a fall in revenue of $184 million over the next 4 years. The backdating of the changes in the election rules to 18 August 2011 will mean that farmers will be unable to switch schemes for the 2012/13 year. 　The Government's view was that the previous rules were allowing farmers to switch between the two main livestock valuation methods to receive an unfair tax advantage. 　Farmers were previously able to elect out of the herd scheme at times when livestock values were high and obtain a tax advantage.　 Elections to use the herd scheme will now be irrevocable except when there is a change in farming operation due to a fattening regime.　 A link to the fact sheet setting out further details of the changes released on 28 March 2012 is here .  Further detail is to follow later this year so there may be some minor changes to what has already been proposed. Increased compliance funding The Government continues to increase funding to the Inland Revenue, with an additional $78.4 million over the next 4 years.　 This is intended to target the hidden economy, debt collection and unfiled returns and is expected to generate an extra $345.4 million of revenue over the 4 years to 2015/16.　 Whilst the expected return of $4.40 per dollar spent is significant it illustrates the law of diminishing returns compared to the return of $6.62 per dollar spent over the 2010 and 2011 tax years.　 It is likely that Inland Revenue have now picked off all the relatively easy targets and are having to work harder to find additional revenue. Kiwisaver Automatic enrolment has been placed on the back burner and will not be introduced in 2014/15 as originally planned, as this would jeopardise the Government's target of returning to surplus.  This measure will be subject to public consultation at a later date.　　 The changes announced in the last year's budget will still go ahead as planned when the employer and employee's contributions will both increase to 3% from 1 April 2013. Other items on agenda Whilst not included in the budget, Inland Revenue have recently signalled their intent to review the FBT exemptions in relation to employee car parks and childcare provided on employer premises as well as the wider issue of employees trading salary for allowances that are not subject to tax.　 Whilst no firm decisions have yet been made we expect there to be a tightening of the rules to be announced later this year.　 　   http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/2012-a-budget-of-boats,-baches-and-housekeepers.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/may/24/2012-a-budget-of-boats,-baches-and-housekeepers.aspx Thu, 24 May 2012 07:17:00 Staples Rodway http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/april/27/grant-and-govt-assistance-april-2012.aspx To review the types of grants and goverment assistance that may be available to you, download our most recent summary here. http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/april/27/grant-and-govt-assistance-april-2012.aspx http://www.staplesrodway.co.nzcategory=Hawke's%20Bay/information-resources/latest-news/posts/2012/april/27/grant-and-govt-assistance-april-2012.aspx Fri, 27 April 2012 21:38:00