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Published December 2010


In this newsletter you will find information on the following topics:

  1. The amendments around Gift Duty in relation to trusts
  2. An update on trust law
  3. An update on the LAQC law changes
  4. Information around the GST law changes that may affect you and your business 
  5. Some vital tips on business planning
  6. Providing credit and managing your debtors

I hope you find some of this information useful and once again, have a very Merry Christmas and enjoy the holiday season.

 

 
Trust Gift Duty abolished

On 1 November the Government announced that it will abolish gift duty with effect from 1 October next year. This basically means you will be able to gift all of your assets to a trust in one single transaction if you so wish rather than the $27,000 value limit currently in place.

This decision seems quite a sensible one. Gift duty raises a paltry $2.2M each year for the Government, when in fact it collectively costs trusts around $70M per annum to file gift duty statements, most of which are for no gift duty to be paid. At last some simplification!

It’s natural to be concerned that the removal of gift duty creates an ‘open slather’ environment, encouraging people to hide assets in trusts to avoid creditors. Not so, says the Government, who suggest that there is plenty of protection in the Insolvency Act to safeguard creditors. For those of you with trusts and gifting programmes in place, we’ll keep you updated over the coming months on how the abolition of gift duty should best be administered.
 
 
 
Review of the trust law - out with the old

The Law Commission has just released the first in a series of papers that aim to review and modernise the law of trusts. In that paper, the Commission first points out that the current legislation (the Trustee Act 1956) has been neglected and that there are concerns about its usefulness and outdated language.

Following on from that, the present law does not have enough mandatory provisions. For example, it is not unusual for a trust deed to include clauses exempting trustees for breaches of trust. The Commission sees a rewrite of the legislation as helping to clarify certain basic obligations that must be adhered to.

Even though the Act is called the ‘Trustee Act’, it contains only one statement about the standard expected of trustees. The new legislation will spell out the duties and powers of trustees, as well as beneficiaries’ rights.

It will be some months before the likely changes become clear. Having said that, we have concerns about the standard of trust administration in a number of our clients’ trusts and we’re continuing to step up our trust administration activities, to make sure those trusts are robust and cannot be challenged by any third party.
 
 
 
 
Death of the LAQC as we know it

Hopefully those of you who own a LAQC have already received this information from us, but as it is such an important change we thought it prudent to re-inform you in case you missed it;

In May 2010 the Government announced the introduction of flow-through treatment of profits and losses for closely held companies. The Government is keen to implement measures that prevent what is sometimes referred to as ‘Arbitrage’, i.e., the retaining of profits in a company and therefore the utilisation of a company tax rate (28% as of 1 April next year) that is lower than the top personal rate (33%).

Legislation was recently introduced to Parliament incorporating new rules regarding LAQC’s. We await the legislation to become final as we publish this email to you.  But to view our previous overview detailing these changes please read our full 'Death of the LAQC as we know it' article on our website.

The legislation is quite complicated and we know you don’t want wordy and complex updates on tax - that's our job!  So once the legislation is finalised we will be back in contact giving you, and us, the opportunity to undertake any necessary changes that may be required. 

                                                                                                                 Find out more
 
 
 
More GST changes ahead

Recently the focus has been squarely on GST due to the increase from 12.5% to 15%. That focus is set to continue with the release in August 2010 of draft legislation to amend the GST Act with effect from 1 April 2011 which will affect a large number of businesses.

Will these changes affect you?

If you say ‘yes’ to any of the below then the new tax rules are likely to be relevant to you and we suggest you read the full GST change article regarding these changes on our website:

  1. Buy or sell land in a business-to-business setting
  2. Enter into certain commercial leases with a lumpy consideration component
  3. Are not fully taxable for GST purposes
  4. Are currently making on-going adjustments for exempt or private use of goods or services
  5. Are involved in nominee transactions
  6. Provide residential or commercial accommodation
If you fall within any of the above, you will need to assess the effect the new rules will have on your business in conjunction with us, as your accountants.

Please contact us directly if you have any questions or would like further clarification on these tax changes. 
                                                           
                                                                                               Read the full article now
 
 
 

Business plans - vital to business success

Writing a business plan can seem a daunting challenge. However, this skill is a vital requirement for any entrepreneur or business seeking to increase their chances of long term survival, especially in our current economic climate. And once you’ve written your plan it’s very important to keep it current, so you know your business is in good shape to meet changing conditions.

It is hard to take a business seriously when there is little or nothing in writing about its structure, future direction, or position in the marketplace. That is why a business plan may be one of the most important documents you ever write for your business.

Simply stated, a business plan is a written document detailing the operational and financial aspects of your company. Like a road map, it helps you determine where you are, where you want to be, and how you are going to get there. If it is well written, your business plan will keep you in touch with your goals, potential risks and probable rewards.

Think about where you are now and where you want to go, then explain how you are going to get there in detail.

Business Overview - Where is the business now?
SWOT (strengths, weaknesses, opportunities, threats); business structure; competitor analysis; supplier details; customers – segment where necessary; staff/management make-up; succession plan.

Business Objectives - What are your business objectives?
Set sales targets and other KPI’s (key performance indicators) that are specific for your business– be very detailed here; profitability; debt position; market position; technology advancements; staff changes/improvements; who do you want your customers to be and how many, etc.; succession plan.

Strategic initiatives - How to meet your business objectives 
Firstly, prioritize objectives; Identify how you will determine the success of each objective; set a detailed plan against each objective explaining exactly ‘how’ you will achieve it; review progress on a monthly basis, keeping a log of the results; determine which methods worked and continually aim to improve.
 
Remember to undertake an annual business plan review and ‘update’ to ensure you stay focused and re-set objectives and strategies as you business and external environment that you operate in is ever changing.

The New Year is the perfect time to start thinking about your 2011-2012 business plan, so make sure you start jotting down your ideas now.

 
 
 
Providing credit, managing your debtors

Cash flow management is fundamental for helping build and maintain a successful business and debtor management plays a key role. It may be beneficial for some businesses to supply goods and services without immediate cash payment by offering credit.

Credit can provide customers with the ability to purchase more expensive items than they would otherwise be able to purchase with cash. It provides flexibility in financing options and can demonstrate a level of trust between the customer and the business. Further, it suggests the business is in a healthy cash position as it can offer credit. This may be an important indicator for trade customers seeking security through reliable suppliers.

Key points for debtor management include: 
  1. Deciding who will be offered credit
  2. How much credit will be offered, and
  3. Drafting the documentation for enforcement of credit terms
Before you agree to perform any work for a client or supply goods to a customer, ensure you have policies in place to protect your cash flows. A well-drafted and succinct set of credit terms that are signed, dated and understood by your debtors is invaluable. Before goods or services are supplied, communicate the terms clearly to customers, ensure the terms are signed and dated by both parties and that each have a copy for their records.

Before accepting a customer as a substantial debtor, carry out a credit check and ask for two referrals. Credit checks can provide useful information regarding the person’s credit application and payment history, including whether any debts have been referred to debt collection agents. A blank record may show no signs of non-payment but may also mean the person has not chosen, or been able, to apply for credit in the past 7 years. In this situation, the referrals may provide valuable information on the customer’s payment history.

Most first-time creditors should have a low credit limit until a pattern of repayment is established. All credit limits should be enforced through systems that are able to detect the first breach and effect an immediate, albeit temporary, stop to the line of credit. All nonpayments should be promptly pursued and always in a friendly manner. There may be a rational explanation for non-payment, but remember, every dollar matters!

Credit terms should be clear, concise and robust. At a bare minimum, they should contain the following:

  1. The clients contact details: including full names, street and postal addresses, phone and email details
  2. A customer authority for signing, and whether the signatory has the appropriate authority, should be confirmed. Preferably, a company’s directors should sign the credit terms and personally guarantee the company’s debts
  3. A description of what is to be supplied
  4. A retention of title clause (ensure the security interest is registered on the Personal Property Securities Register)
  5. Details of how the fees/charges will be calculated and details of the credit terms
  6. Who is liable for the work performed, limitations of that liability and who is liable for legal costs and debt enforcement
  7. Procedures for mediation and arbitration to resolve disputes
 
 
 
Christmas opening hours
 
Please do be aware that Lock & Partners will close from 24th December and re-open on Thursday 13th January 2011.

For any urgent matters during this time please contact us on karlm@locks.co.nz.

Have a great Christmas and I'll be in touch in the New Year.

Lock and Partners



Some light reading for you...


1. According to the new Global Peace Index (GPI), New Zealand tops the list of countries that are the safest in the world.

2.
According to the Human Development Report released by the UN, New Zealand is the third best country to live in the world, climbing 17 places.

3.
And...the world recession has created an oversupply of bubbly from France. Retailers are waging a ’champagne war’, with prices for Moët slumping by almost 30%.  Get in for Christmas!

Related Pages:

Business & Tax

+ Services for business owners
+ Choosing a trading structure
+ Accounting & Tax returns

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Property Investment

+ Annual accounting & tax returns
+ Set ups & structuring

READ MORE

Trusts

+ Learn the benefits of trusts
+ Want asset protection?

READ MORE

Meet The Directors

Jon Ash
Director
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Ben Field
Director
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Scott Massie
Director
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Karl Moreton
Director
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Conal Alderson
Director
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