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Published February 2011

It's time for another update on some key issues and laws that may affect you or your loved ones - I hope you find some of this information useful.  There are a number of important changes outlined below and given their complexity I appreciate it can sometimes get quite confusing. Please feel free to contact me at any time so I can guide you through these changes.

In today's update you will find information on the following topics:

  1. The new rules around LAQC's and LTC's - an important alert for all LAQC owners
  2. Gift duty abolishment now confirmed
  3. An update on the Employment Relations Law changes
  4. Building depreciation update and clarification on 'building' versus 'fit-out' 
  5. Evading student loan repayments
  6. Get your FREE gold class movie tickets and bottle of wine by referring a friend

Kind regards
The Lock and Partners team

 

 
Important changes to the LAQC rules

Following on from my email updates prior to Christmas regarding the LAQC changes, we can confirm the legislation has officially now been passed.  Please be aware that if you have an LAQC and do not take any action as a result of this new legislation then, as of 01 April 2011 you will no longer be able to offset losses from the LAQC against your personal income.

There are a number of options available for you to take in respect of your LAQC, including:
  1. Becoming an LTC (Look Through Company)
  2. Remain as a QC (Qualifying Company), but without the ability to attribute losses to shareholders.
  3. Exit the QC regime and effectively become a standard company
  4. Restructure the ownership of your business/assets so they are owned by a Partnership, a Limited Partnership or a Sole Trader.
For all clients with LAQC's we will be reviewing your individual circumstances prior to 31 March 2011 and determining the appropriate way forward ensuring you are set up to minimise your tax and protect your assets.

Later this week I will be sending you a detailed email regarding these changes, your options and the review process that will be required for all LAQC clients to ensure you are taking the best possible option. 
 
 
 
Gift Duty abolishment confirmed

Following a review of gift duty by the Government, we can officially confirm that legislation has now been enacted which abolishes this regime. This means that as from 1 October 2011 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 was made because the results of the review showed the compliance costs of gift duty far outweigh the revenue it collects, the protection it provides to creditors and the ‘social assistance integrity’ derived.

Gifts made after 1 October 2011 will be excluded from the definition of “gift” under the Estate and Gift Duties Act 1968.

If a person makes a gift or gifts in a 12 month period totalling more than $27,000, and those gifts are made before 1 October 2011, gift duty will still apply.

For those of you with trusts and gifting programmes in place who have questions about how the abolition of gift duty should best be administered then please feel free to drop me a line or call me.
 
 
 

Employment Relations Act amendments

Amendments to the Employment Relations Act have been passed and come into effect on 1 April 2011. The changes reflect National’s policy of easing the constraints on employers. While some of the changes are only of interest to employment law practitioners, others significantly change the employment landscape.

90-Day Trial Period
The 90-Day Trial Period for new employees, introduced by National in 2008 for employers with fewer than 20 staff, is now available to all employers. During the trial period the employer may dismiss a new employee within the first 90 days without a right to a grievance, but only if the requirements of the legislation have been followed precisely. The trial period must be in writing at the commencement of employment, the employee must not have worked for the employer before and the employer is still obliged to be constructive and communicative in the employment relationship.

Employment Agreements
The other significant change is that the employer is now required to keep a copy of every signed employment agreement or, if the agreement is not signed, the draft agreement. This is due to the high number of personal grievance cases in which the Employment Relations Authority has had to make a decision without a written agreement available because it has been lost. Therefore, the onus has now been placed on the employer to keep a copy. This particular change comes into effect on 1 July 2011. Failure to produce a copy of the agreement can result in a penalty (fine) being imposed on the employer.

Other changes, that will have less impact on day to day employment interactions, are as follows:

Test for Justifiability
In determining whether a personal grievance is upheld or dismissed, the Employment Relations Authority must apply a test as to whether or not the employer’s action(s) or dismissal of the employee was justified. The test has been changed from what “a fair and reasonable employer would have done in all the circumstances” to what the employer “could” have done, thus widening the options of what might be considered a ‘justifiable decision’ for an employer to have made. The test is further extended to include consideration of the resources available to the employer at the time, suggesting that there should be more flexibility for smaller enterprises.

Union Access to Workplace
Before entering a workplace, union organisers must now get consent to do so and the employer has to respond to the request by the end of the next working day. If they have not responded within 2 working days, consent is treated as having been obtained. The employer must provide a reason for withholding consent and it cannot be withheld without good reason. A penalty can be imposed for unreasonably withholding consent.
 
Labour Inspectors
The functions of Labour Inspectors have changed and create the opportunity for employers to receive free advice from Labour Inspectors. Their role includes supporting employers and employees to comply with the employment laws and providing them with services that will help resolve their employment problems. This means they can be invited by either party to help resolve an issue, which is most likely to be with respect to pay or leave.

 
 
 
 
 
Building Depreciation update 

Legislation passed as a result of the May 2010 Budget eliminated depreciation for most buildings that had a useful life of over 50 years. After the legislation was passed there was considerable uncertainty in a commercial context regarding what part of a structure would be classified as “building” versus “fit-out” (which can continue to be depreciated). The IRD had previously provided its view on the issue, but in a residential rental context, and commented that the principles could also be applied in a commercial context. The principles would have favoured the classification of some fit-outs as part of a building. Stepping away from those principles, the Government has amended the Income Tax Act 2007 in favour of the taxpayer.

Specifically, the changes enacted include:

  1. A new definition of “building” which specifically excludes “commercial fit-out”.
  2. The insertion of a commercial fit-out definition, which includes an item attached to a “commercial building” that is non-structural and not part of a building’s weather-proofing.
  3. The insertion of a commercial building definition that captures buildings that are not primarily used as a person’s residence and specifically includes:
    • hospitals
    • hotels, motels, inns, hostels and boarding houses
    • certain serviced apartments
    • convalescent homes, nursing homes, and hospices
    • rest homes and retirement villages, from hospital care through to residential care facilities, and
    • camping grounds.

The clarification of these definitions enable items that could otherwise be considered part of a commercial building, such as internal non-load bearing walls, suspended ceilings, plumbing and electrical reticulation to be depreciated as fit-out.

Where items of fit-out are shared between both residential and commercial structures (e.g. lifts, fire protection, sewerage), the principle purpose of the building will determine whether the fit-out is depreciable property. For example, if a building is used principally for commercial purposes, then the fit-out will be depreciable property.

If upon construction or purchase a person has not separately identified and depreciated fit-out, a new provision allows the owner of a commercial building to amortise 15% of the building’s book value at a rate of 2% straight-line per year. The building’s adjusted tax book value is reduced by any fit-out purchased and depreciated separately after the building was purchased.

The question left unanswered by the IRD is whether a person that has not separately identified and depreciated fit-out in the past can perform an analysis to determine what proportion of a building is structural versus fit-out, and start depreciating the fit-out based on the higher fit-out rates.

 
 
 

Evading Student Loan Payments?

The IRD have been contacting student loan borrowers who are living in Australia regarding their student loan repayment obligations.

Most borrowers they have contacted have been happy to enter into arrangements to repay their loans, but several people have told Inland Revenue in no uncertain terms where to go. As a consequence, the IRD is taking around 10 test cases to court in order to recover the money.

These borrowers could face civil and/or criminal charges. Civil charges would involve a claim for the amount owed, whereas criminal charges could be up to three times this amount if they are tried for evasion of a repayment obligation.

Australia is the first country in which the IRD has sought to locate repayment evaders as it is the easiest place for the IRD to get information from. Similar action could take place in other countries in the future. 

 
 
 

FREE Gold Class movie tickets

If you send a client referral our way before 30 April 2011 then we will show you our appreciation by sending you a thank you gift of 2 Premium/Gold Class (or equivalent) movie tickets worth $50 plus a great bottle of wine to enjoy.

Whether you know someone who is looking for an accountant, is unhappy with their current accountant or whether they are after some business or personal accounting advice, please give them my details.  I will personally ensure they are well looked after by myself and the experienced team here at Lock & Partners.

So keep us in mind when if someone you know needs accounting advice - myself and the team here at Lock & Partners would love to have the opportunity to help them out.

For more information please contact :
Karl Moreton
(09) 379 8410 or karlm@locks.co.nz

 
 
Interesting inflation facts...
  1. The term “inflation” is from the Latin term inflare, meaning to “blow up or inflate,” and it was first used in a monetary sense to describe “an increase in the amount of money” in 1838.  
  2. The inflation rate is the percentage increase in the price of goods per year. For example, if the inflation rate is 2%, then a $1 chocolate bar will cost $1.02 in a year.
  3. Hyperinflation occurred in Germany in 1920, leading to great social unrest. The purchasing power of money fell so low that the German currency, the Mark, became cheaper than firewood. Hitler blamed the Jews for spiralling inflation, which helped pave the way for the Holocaust.
  4. The Zimbabwean dollar bank note holds the record for the greatest number of zeros shown (100,000,000,000,000). Hungary holds the record for the largest banknote ever issued, but its bank note did not depict all the zeros—the amount was spelled out.
  5. Historians cite runaway inflation as a major cause of ancient Rome’s fall.  
Did you know...
  1. Less than five per cent of New Zealand's population is human - the rest are animals. This is one of the highest ratios of animals to humans in the world.
  2. There are more Scottish pipe bands per head of population in New Zealand than in Scotland.
  3. New Zealand our country's official name derived from the province Nova Zeelandia in Netherlands.
  4. Plastic surgery was pioneered during World War I by the Dunedin born Sir Harold Gillies. This led him to become the outstanding plastic surgeon of the century.
  5. Jandals the kiwi word for flip flops or thongs is a combination made in 1957 from Japanese and sandals.
  6. The average office worker spends 50 minutes a day looking for lost files and other items.
  7. More than 50% of the people in the world have never made or received a telephone call.
  8. More than 2,500 left handed people a year are killed from using products made for right handed people.
  9. Months that begin on a Sunday will always have a "Friday the 13th".
Related Pages:

Business & Tax

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

READ MORE

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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