Budget Commentary

In what was widely anticipated as a aggressive budget announcement yesterday, the Right Hon Bill English has presented his second budget as the Minister of Finance and the purpose is now to summarise some of the key points that will affect you going forward.

GST Rise

As anticipated the GST has risen to 15% from the 1st October.  This would indicate according to the Government Actuaries, resulting in a $2.46 billion tax increase by the year ended June 2014.  The finer details of how the implementation of debit and credit notes will of course come in time, but at the moment many businesses will need to gear up for the rise in GST commencing 1st October.

Tax Rates

Tax rates will drop from 38% to 33% from 1st October for the top tax rate and also the Company tax rate has dropped from 30% to 28% from the 1st April 2011.  This of course makes New Zealand more competitive than Australia as Australia is looking to introduce the 28% tax rate for Companies in four years time.

We all knew that property was in the gun on the budget radar and as widely anticipated the use of Depreciation claimed against rental income will cease and there is a new rule being introduced that will affect LAQC's.

Under the current rules, shareholders and LAQC's have been able to rather than retaining them or having them taxed at the lower company rate, effectively creating what is known as a tax abitrage.  Instead of having the losses assessed by a LAQC the profits and losses are assessed at the marginal tax rate of the investor.  In effect this means that there will be a 28% tax on Company profit and losses as opposed to the tax back in the hand of the shareholder.

It is intended that the property investors who have more houses will be worse off comparatively speaking to what they were, and while it is most probably in the most desirable benefit of the investor, the reality is it could have been a hell of a lot worse.

The important thing at the moment is not to panic, but rather to digest the examples that the IRD and Government will be issuing in due course finalising details that have come out in the budget and determining what the best course of action going forward is for rental properties.

We have until 1st April 2011 which means that there is ample opportunity to reconsider some restructuring that may take place to maximise the tax efficiencies of the rental companies and to see whether it is better to maintain properties in personal names, transfer through to trusts, or a host of other options that may be available.  We will be watching the development of the details closely and will report in due course when more is known.

Key Changes Announced

• Cuts to personal tax cuts at every threshold level, with the top personal tax rate falling from 38% to 33%; tax on income between $48,000 and $70,000 falling from 33% to 30%; a new 17.5% rate for income between $14,000 and $48,000, down from 21%; and 10.5% on income up to $14,000.  Two-thirds of the tax returned by the package goes to income below $48,000, English says.
• A rise in the rate of GST from 12.5% to 15%, with a 2.002% compensating increased for beneficiaries, pensioners and recipients of Working for Families tax credits to offset the rise on October 1;
• An end to depreciation allowances on buildings deemed to have more than a 50 year life, to net around $1 billion a year in additional tax;
• Abolition from yesterday of the 20% automatic depreciation loading available for newly purchased assets;
• A change to the tax treatment of loss attributing qualifying companies to become "flow through entities", similar to limited partnership, expected to raise around $65 million a year;
• A cut in the rate for portfolio investment entities (PIEs) to 28%, to align with the new company tax rate, kicking in from October 1 for PIEs taxed at investors' marginal tax rates, and 2001/12 for other savings vehicles;
• Abolition of tax benefits relating to capital contributions for the purchase of capital assets;
• GST base-broadening to prevent so-caled "phoenix" scheme frauds, where GST is reclaimed by an entity which liquidates before paying GST owed
• An end to the redundancy tax credit from October 1.

Further changes, covering areas such as distribution from trusts and income from cash PIEs will follow the Budget, for consultation and implementation by April 1.

Practical Thoughts on the Proposed Tax Reforms

 The worse kept secret has been the government indicating a rise in the GST rate to 15%. If past reforms are anything to go by, the rate increase could be effective from as early as October 2010. While the implications of a rate increase seem simple enough, there are a number of practical issues to consider. How will the GST increase be transitioned?  What rate of the GST will apply to contracts that are contracts that are conditional or unconditional on the date the GST rate changes? What happens if I have a fixed price contract made at the 12.5% rate but it doesn’t settle until after the 15% rate applies – do I have to pay the extra tax, and if so can I recover it from the other party? These are just some of the practical questions that spring to mind.   

 While the details of any changes will not be finalised until after the budget announcement, it is likely that GST cut-off date will be set (say 1 October 2010) and that the time of supply date will be the trigger point of determining whether supplies are subject to GST at 12.5% or 15%. Whether time of supply has been triggered will therefore become a crucial consideration, particularly for a big ticket items or large adjustments such as a change in use adjustment or deregistration.

 The time of supply is generally at the earlier of the invoice or payment, however there are some exceptions to this such as supplies made between associated persons (the time of supply when the services are provided or goods are made available). In the case of a land contract where the GST portion can be significant, we recommend reviewing your contracts with additional care where the contract is to span the GST rate increase.

 What about fixed price contracts? You are allowed to increase the purchase price and recover the additional GST from the purchaser where the contract has been entered into within 3 months of the rate change coming into force, not where the contract specifically prohibits an increase or where the parties have already contemplated the rate increase in agreeing the fixed price. Case law has held that where a contract is “GST inclusive”, the parties have contemplated the rate increase. We recommend that fixed rate contracts are reviewed carefully in the lead up to any change in the GST rate. Clearly whether a supplier on-charges the additional 2.5% to its customers may be a commercial decision, however for the large purchase spanning the GST rate increase it may be worthwhile to consider whether specific additional clauses should be included to ensure you do not incur an unexpected GST cost.

 In the case of the voluntary registrations, consideration should be given to deregistering prior to any rate change should registration no longer be required.

 Another issue to consider is where you may be considering purchasing second hand goods from a non registered vendor. A GST input tax claim is available in relation to second hand goods (subject to the usual limitations) equal to one ninth of the purchase price. Delaying an intended purchase of second hand goods until after any GST rate increase would mean a GST input tax claim could be made at 15% (purchase price x 3/23). The GST portion on the same $100,000 purchase price would be $13,043.

 If any of this applies to you please feel free to contact us..

 

___________________________________________

 

IRD shifts approach on GST applied to land

 Inland Revenue has signalled a further shift in its approach on GST when applied to land sales.

 It is aiming its guns at “phoenix” property companies which claim GST rebate for inputs but which end up “at the bottom of the harbour” by the time the Department comes to collect a the other end of the GST process.

 In November, Inland Revenue proposed a “domestic reverse charge” by which the obligation to account for the GST on land and other transaction on assets worth more  than $50million is put onto the buyer rather than the vendor.

 Submissions on that closed just before Christmas and Inland Revenue has now gone back to submitters with further refinements to the proposals. 

 These include a wider definition of the land and a proposals that Inland Revenue have greater powers to “deem” people GST registered.

 The New Zealand Institute of Chartered Accountants (NZICA) has broadly endorsed the new proposals although it says the extension of the definition of land may not be needed.

 The new proposals extend then reverse charge: they still zero rate the vendor and pick up the GST from the purchaser.

 It will apply to all GST registered persons involves in selling land or transactions which involve a missed supply if land and another component.

 Vendors will have to establish that the purchaser is a GST registered before a transaction can be zero-rated: if it is not, and the purchase goes ahead, Inland Revenue will have the power to deem the purchaser GST registered and to claim the GST off them.

 The NZICA says this may not be necessary and that there is a risk of “legislative overshoot” – it could potentially catch leases, which are not part of the issue Inland Revenue, is trying to address.

 To protect purchasers from unscrupulous vendors who may represent themselves as being not registered for GST, the NZICA suggests some way for recipients to be able to check whether a vendor is GST registered, and also a provision allowing the Department to pursue the vendor if a misrepresentation has been made.

 The NZICA also suggests including a “checkbox” on GST to record if the taxpayer had made a zero-rated land transaction.

 “This is suggested with the thought that Inland Revenue may be interested in the undertaking audit activities to know who is undertaking zero-rated supplies of land.”

 

___________________________________________

 

What’s it worth?

 When a business is offered for sale, or is being valued on the basis of Fair Market Value, the terms and conditions relating to the potential sale can have a significant impact upon the value of the business. Some valuers apply one single earnings multiple to an industry whiteout considering the difference that these term of sale (and other value modifiers) can have on the value of a business.

 Case Study: 

 Two businesses with similar public practices are offering their practice for sale – But with markedly different sale terms: 

Business ‘A’   Terms   Full Payment on settlement date. Vendor assistance – minimum of 20 hours per week @ $90 per hour. Vendor assistance – Maximum period 6 months. Restraint of trade period 1 year. No Adjustment for lost contracts.

Business ‘B’   Terms   Payment to be spread in equal amounts over 3 years (interest rate on outstanding amount 4.5%)  Vendor assistance on an “as-needed” basis @ $45 per hour. Subsequent assistance on an “as-needed” basis @ $45 per hour for up to 3 years Restraint of trade period 3 years 50% of annual fees for any “lost” contracts deducted from the final payment.

 It is not difficult to see that the offered by business ‘B’ are far more beneficial to a potential buyer than the terms offered by business ‘A’. The spread of the capital payment at a low interest rate, the adjustment for any clients lost in the transfer, the lower hourly rate and greater flexibility of vendor support; all these terms of sale offer much more value to potential purchaser.

 Even though the two businesses have similar turnover and profit, the business offered by business ‘B’ has a higher value – because of the terms and conditions offered.

 

___________________________________________

 

Why We Want Your Birthdate

Our Business Services Support staff member Jo Reading will be contacting you over the next few months to obtain your birthdates.

 

The reason this is so important is that the Inland Revenue now requires this information on file.  If you do not get the call from us, you may receive it from the Inland Revenue.

We are advising you of this as Jo has already made a few calls, and people have been wary of disclosing this information because of identity theft.  If anyone from our office calls (David, Maggie, Ben or Jo) they can be trusted that any information requested is purely for use with completing your taxes or financial statements.

 

___________________________________________

 

Tax System Explained in Beer

 People who grizzle about ‘tax breaks for the rich’ should read this:

Everyday, ten men go out for beer and the bill for all ten comes to $100.

They decided to pay the bill by apportioning the total cost of all the drinks in the same way that we, in NZ. Pay our taxes.

This meant that:

•  The first four men (the ‘poorest’) would pay nothing.
• The fifth man would pay $1.
• The sixth man would pay $3
• The seventh man would pay $7
• The eighth man would pay $12
• The ninth man would pay $18
• The tenth man (the richest) would pay $59.

The ten men drank in the bar every day and seemed quite happy with this arrangement – until one day, the owner threw them a curve.

“since you are all such good customers,” he said “I’m going to reduce the cost of your daily beer by $20.

“Drinks for the ten of you will now cost just $80”.

The group will still wanted to pay their bill the way we pay our taxes – so the first four men were unaffected. They would still drink beer for free. But what about the other six men? The paying customers?

How could they divide the $20 windfall so that everyone would get his fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested a graduated price reduction based on what each man was currently paying, so that everyone would benefit. They all agreed that this was A good idea so he proceeded to worked out the amounts each should pay:

•  The fifth man, like the first four, now paid nothing (100% savings)
• The sixth man now paid $2 instead of $3 (33% savings)
• The seventh man now paid $5 instead of $7 (28% savings)
• The eighth man now paid $9 instead of $12 (25% savings)
• The ninth man now paid $14 instead of $18 (22% savings)
• The tenth man now paid $49 in stead of $50 (16% savings)

 Each of the six was better than before. And the first four continued to drink for free. But once they got outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20.” Declared the sixth man. He pointed to the tenth man. “But he got $10!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I did!” “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the brakes!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine mean surrounded the tenth and beat him up.

The net night the tenth man didn’t show up for drinks, so the nice sat down and had beers with out him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half the bill! And that, boys and girls, journalists and college professors, this is how our tax system works. They people who pay the highest tax get the most benefit from the tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. On fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

 

___________________________________________

 

CRUISING

David and Maggie are taking a 2 week holiday to celebrate their 5 year wedding anniversary.  They will be out of the office from 24th May to 8th June 2010. 

The office will be run by Benjamin Anderson during this time and if you have any queries, please do not hesitate to contact him as he can contact David and Maggie if the matter is urgent.

Both David and Maggie's mobiles will be left behind.

Bon Voyage!!

 

 

 

 

Hello,

If you are wondering why you have received this email - you have been automatically subscribed to receiving our newsletter via email due to being a client or business associate of Matley Financial Services.  If you no longer wish to receive these newsletters, please click on the unsubscribe function.

====================================================

POSSIBLE TAX CHANGES FOR PROPERTY INVESTORS

- Source, WHK

Proposed tax changes - What's the effect for residential property investors?

The Tax Working Group ("TWG") recently reported on options for changing the tax system.

The report only presented options and the Government will consider these.  Nothing has been ruled out, other than capital gains tax on the family home.  It will take some monhts for the Government to consider the recommendations with changes unlikely before 1 April 2011.

In the meantime it's useful to consider how your residential investment properties may be affected if the options were adopted.

 GST

The TWG recommended GST be increased to 15%.

As a residential property investor you pay GST on rates, insurance, repairs and some other costs.  GST increasing to 15% would increase these costs by 2.5%.

If these totalled $4,000 the increase would be $100.  You'll either need to raise rents to pass the increased on to tenants or pay it yourself.

 Capital Gains Tax

The TWG were not in support of a capital gains tax.  However, land tax is a possibility.

Land Tax

A land tax was suggested.  The report discussed 0.5% of land values.

If you had land worth $200,000, the tax would be $1,000.  This is a cost to you unless rents could be increased to cover it.

It seems likely land tax would be collected in the same way as rates.

The TWG recommended concessions be made for those who would have cash flow difficulties with paying this tax, e.g. the elderly.

Building Depreciation

The TWG recommended that depreciation on most buildings should be removed because evidence suggested that buildings did not actually depreciate over time.

Although the tax saved on building depreciation is often repaid on sale it currently provides a cash flow benefit while the building is owned.

Depreciation on a building which cost $300,000 results in an annual tax saving of about $2,000 to $3,000 depending on how long its been owned.  This tax break would stop.

Risk Free Rate of Return

The TWG liked the idea of a percentage of the equity in land being taxed annually.  If you own a property worth $750,000 with a mortgage of $250,000 there is $500,000 of equity.  If the risk free rate of return was 6% you would have income of $30,000.

If you paid tax at 38% the tax payable would be $11,400.

Actual income and expenses would be ignored.  If your profit was more than $30,000 you would like the risk free rate of return.  If your profit was lower you would have to pay more tax, which might cause you cash flow difficulties.

The TWG recommended that further work be done on this option.

 Ring-Fencing Tax Losses

There has been much talk about not allowing rental losses to be offset against other income, e.g. salaries.  This was not included in the TWG's recommendations.

If this happened you wouldn't receive tax refunds from your property losses.

 Income Tax Reductions

It's not all doom and gloom.  The TWG recognised that company, trust and top personal tax rates would best be aligned at 30%.

If you pay tax at 33% or 38% your tax bill would go down.

 What should you do now?

Most important is not to panic, no decisions have been made and any changes are some time away.

However, you should consider how you might be affected if one or more of the recommendations were adopted.  You might need to raise rents or reduce costs to cover any extra tax.

If you rely on a tax refund to pay property costs you need to work out how you will pay the bills if there wasn't a refund.

Any tax changes may reduce property values, at least in the short term.  You need to consider what effect this might have on your current arrangements.  Lower prices also mean an opportunity to acquire more properties.

 ====================================================

PROMOTION:Profit Optimiser 

 

HOW WOULD YOU LIKE TO KNOW THE FINANCIAL IMPACT OF EVERY BUSINESS DECISION BEFORE YOU MAKE IT?

 ARE YOU PAYING TOO MUCH TAX AND LOOKING TO FIND LEGITIMATE WAYS OF REDUCING THIS TAX BEFORE IT’S TOO LATE TO ACT?

HAVE YOU GIVEN YOUR BUSINESS A HEALTH CHECK LATELY?  LOOKING FOR WAYS TO IMPROVE YOUR CASH FLOW OR YOUR BOTTOM LINE PROFITS?

THINKING ABOUT OBTAINING FINANCE AND WANT TO KNOW IF YOU WILL BE SUCCESSFUL BEFORE WASTING TIME WITH LENGTHY AND COSTLY APPLICATIONS?

 

If you have answered YES to any of these questions, then you should definitely read on to find out more about our exclusive Profit Optimiser services. 

 

An introduction:

 We use an easy to understand, financial modelling software program to provide a critical financial analysis of your business.  Recently, the major banks adopted this very same software for the specific purpose of processing and approving business finance applications.

 Aside from assisting in identifying a businesses ability to meet the banks “hidden criteria” for finance applications, it has been proven to be most beneficial in predicting possible tax liabilities before the end of a financial year.  Even where there hasn’t been a tax problem, this service has been invaluable in graphically identifying the key drivers within a business that can assist in turning a loss making or average turnover business, into an extremely profitable one.

 

What is Profit Optimiser? 

 When you feel physically unwell or lacking in performance, you would usually approach your local doctor for a diagnosis and possibly a remedy to your illness by way of a prescription or referral?  Well in business, it is not dissimilar.  Our Business Fitness & Tax Reviews are essentially a ‘health check’ of your current and future financial positions.  It allows us to diagnose your business and offer recommendations and solutions to potential tax problems, cash flow and profit issues, whilst maintaining a focus on the overall improvement in financial performance.

 So why not see how your business checks out today?  There’s a good chance Profit Optimiser has the remedy!

   

How does it benefit my business?    

 Here at Matley Financial Services, we have heard many positive and negative comments about accountants and their performance over the years and we are not referring to the ones about accountants having personality extractions and the like.

 More often we hear comments like…… “my accountant never tells me how I can improve my business” or “I really want to know how can I reduce my tax”.

Well in short, some of the many benefits you receive are:

• Uncovering the possible causes of current financial difficulties.
• Plotting future directions through goal seeking analysis.
• Creating projections, discovering solutions and averting potential disasters with graphical “what if scenarios” such as - What if sales improve by 10%? What is the financial impact on cash flow if I increase my volume? How can I improve my cash flow from -$325,500 to breakeven and have the answers in a second?
• Find out if your next dollar of sales will have a positive or negative cash flow impact?                    

 Some of the favourable comments we have received from clients following these reviews:

 

• “I have been wanting this from my accountant for years”

 

• “now we have a much clearer picture of where we are heading”

 

• “great, now we know what we need to focus on to turn our business around”

 

• “can we book a follow up review next quarter to review our progress”

 

How long does it take & how is this service delivered?     

            Due to the extremely informative nature of this review, we allow for an hour and a half to visually deliver our analysis and then discuss strategic recommendations based on the priorities we identify with you.

 Although we prefer to deliver these reviews in our own office, we are more than happy to come to your premises, although in order to get the best value for your money, we would recommend you provide a room that is practical in size, lighting and guaranteed free from interruptions.  You will also need to provide a suitable projection screen.

 Profit Optimiser ‘graphically’ demonstrates the analysis and review utilising modern technology via notebook computer and digital data projector.  This allows the directors, partners or key managers of your business to participate in this process without having to crowd around a computer workstation or muddle through mountains of meaningless papers and reports.

                         Do I receive reports or summaries of this review?

 Yes, most definitely.  Shortly after your review has been conducted, you will receive professionally bound reports clearly outlining and summarising both the initial analysis and subsequent goal seek scenarios undertaken during our meeting.  These prove invaluable when monitoring your performance improvements over the coming periods

 What guarantee do we offer with this service?

 We are so confident that we can advise you of ways to either save you the cost of our fee in tax, or improve the bottom line by the same amount that in the unlikely event we should not be able to do either of these, we will provide you with a credit for the full amount of our fee for service! We will also provide a full credit if you are in any way dissatisfied with this service.

 Yes, this is our guarantee to you and we are both professionally and ethically bound to it.  So what do you have to lose or should it be, how much are you going to save?

 

==================================================

INTRODUCING....

Matley Financial Services is growing all the time.  Our newest team member is Samantha-Jo Reading (Jo).  She is Maggie's chief side kick and you will most often hear her lovely voice on the end of the phone should you phone the office.

Jo is in the office to balance the male/female feng shui as Ben has started back with us beginning his third year of university studying to become an accountant.

 

=====================================================

IRD - GIVE AS YOU EARN

A new voluntary scheme called payroll giving will be available from 7 January 2010.  It's an easy way for your employees to support a good cause.

Give as you earn

Payroll giving allows employees to "give as they earn" by making donations directly from their pay.  They'll receive tax credits of 33 1/3 cents for each dollar they donate, for that pay period.  For example, if they donate $10, they'll receive a tax credit of $3.33.

The choice is yours

Payroll giving is voluntary, so as an employer you have a choice about whether to offer this scheme to your employees.  Further detail and resources to help introduce payroll giving in your workplace are also available on IRD's website, www.ird.govt.nz/payrollgiving.

Other changes to volunteer support

Reimbursements for expenses incurred while volunteering are now considered to be exempt income of the voluteer for tax purposes.  Honoraria are now treated as schedular payments, which means PAYE rules apply to the payments and they're taxable.

In April last year the 5% dudction limit on donations made by companies and Maori authorities was removed.  This means they can now claim a deductions for cash donations they make to donee organisations up to the level of their net income.

These changes recognise the significant contribution made by the charitable and non-profit sectors to the well-being of our communities. 

-Source IRD Communication received 19 November 2009.

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

STRATEGIC PLANNING - What is it and how can I benefit from it?

As another year draws to a close, we will soon be inspired (or not) to make New Year’s resolutions, and set goals to make changes to ourselves, our businesses and our lives.  I believe Strategic Planning can be a useful tool for us to adopt on a regular basis so that we have a Road Map of where too next.  There is no trick to success it is all about Planning, Doing and Reviewing.  We are usually good at one or two of these actions and the one we are weakest at utlising, is often what limits us in achieving our goals.  The other key point is that a Strategic Plan is an opportunity to set goals, but you also need to be adaptable to changing plans, as “Shift” happens!

So in simple language a Strategic Plan is a Road Map of where you want to travel with your business.  

Businesses succeed when you make time to work on your business and not just in it.

Steps to follow in establishing your own Strategic Plan:

1.  Vision – make a statement of about 15 words which is a high level enduring statement for your business
2. Mission – this is the How To achieve the vision (we will work towards our vision by ...)
3. Core Values – list your top 5 core values for the business (integrity, professionalism, empowerment, etc and review how this is incorporated into your business
4. Organisational Culture – write down how you staff your business, your customer service ethos, systems you have in place, marketing/incentive programmes, etc.

SWOT Analysis – this is the processes to identify your Strengths, Weaknesses, Opportunities and Threats.  Review your Mission Statement, Core Values, Organisational Culture to identify areas to include in the SWOT Analysis.  When doing this use a white board or big sheets of paper, felt pens, etc – get creative!  Layout the SWOT Analysis like this:

Once you have completed the SWOT analysis you then need to develop 3 key strategies (goals/actions) to address your Weaknesses and Threats so that they can become Strengths and Opportunities (you do not need to focus on all the Weaknesses and Threats, more the most important to you).  Through this review you also may decide to adopt a strategy to further develop your Strength and Opportunities, although the main focus of this exercise is to be fully aware of your Weaknesses and Threats so that you can turn them into Strengths and/or Opportunities through action plans.  Give yourself realistic timeframes to achieve your strategies and also ensure the appropriate staff member is able to manage the actions required of the new strategy.  Also review your Vision to ensure it does not need updating or developing further, often following this type of exercise the Vision can be very different to what is actually happening in the business.  

To start your strategic planning, contact our office or Sharon Jefferies from Future Directions International on sharon@futuredirections.co.nz. 

 - Source - Sharon Jeffries, Future Directions International Ltd

 

 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

MONTHLY PAYMENTS

Do you cringe when you receive your annual accounts, just knowing that the accountant's bill is around the corner?

Do you worry where you are going to find the funds to pay the aforementioned invoice?

We can make this easier. 

We have a growing number of clients who choose to have their total accounting fee for the year invoiced out and then pre-paid at a set amount each month. 

This improves their cash flow, and stops the scary  debt collection letters from Maggie about overdue amounts. 

If any further projects are undertaken during the year over and above normal work, these are invoiced separately.

If this sounds like it could be up your alley, please contact us and David will work out your estimated accounting fee for the year.

We send out annual invoices for our monthly paying clients in January.

 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 

MATLEY CHRISTMAS HOURS

We are closed over the Christmas and New Year period from 18th December 2009 to 18th January 2010.

If you require to speak to David urgently, please phone his mobile on 029 452 1985 and leave a message.

The team at Matley Financial wish you all a safe and happy Christmas and New Year and look forward to speaking with you in 2010.

Its the beginning of December now, and David has completed his mission....growing a moustache to help men's health.

 

We raised $80 from three people with internet donations (you know who you are), received $20 from one person in cash donations.  If you have sent a cheque directly to Movember, please let us know so we can thank you directly.

 

Here is the final article.

 

Its not too late still to donate.

To sponsor David's Mo, you can either:

•    Click this link http://nz.movember.com/mospace/93953/ and donate online using your credit card

•    Write a cheque payable to ‘Movember’, referencing David's Registration Number 93953 and mailing it to: Movember, PO Box 12 708, Wellington 6144

 

Since the support for David was a lot less than we expected, Matley Financial Services has boosted the funds in support of Mens Health and donated $500 to the worthy cause.

Each year 600 men die of prostate cancer in New Zealand and one in ten men will experience depression in their lifetime - many of whom don’t seek help.

To sponsor David's Mo, you can either:

•    Click this link http://nz.movember.com/mospace/93953/ and donate online using your credit card

•    Write a cheque payable to ‘Movember’, referencing my Registration Number 93953 and mailing it to: Movember, PO Box 12 708, Wellington 6144

 

Now, we thought that we would give you a timeline of mo growth so you can see just how hard David has been working for 50% of the population to keep them healthy and happy....

 

Week One

 

 

Week Two 

 

Week Three

 

 

So far David has raised $20 in cash, and $80 via the website.  Thank you so much for those who have donated, you are truly helping to make a difference.

There is only 7 days left in the month before the end of Movember.  Please, dig deep and donate to a good cause.

 

Hello,

Please find our newsletter for November 2009 below.

If you are wondering why you have received this email - you have been automatically subscribed to receiving our newsletter via email due to being a client of Matley Financial Services.  If you no longer wish to receive these newsletters (which will occur every 3 months or so), please click on the unsubscribe function.

______________________________________________

Is Your Trust Up To Scratch?

Having recently attended a professional development course on effective administration of trusts, it has become evident that in the recent case studies coming out of the courts, the focus of trust busting is not on the administration side of the trusts rather on the intent and robustness of the trusts.

To date Matley Financial Services has focused on the administration ensuring that proper records are kept, administrative decisions are made and recorded and that the proper book of accounts are kept.  While these are certainly important to undertake in terms of the ongoing administration of the trust, the focus also needs to be on the intention of the trust at the time of creation.  So how does one prove intention?

The first thing should be the appointment of an independent trustee.  The purpose of an independent trustee is to ensure that an independent party is being consulted in making the decisions relating to the trust.  While its important to note that this also shows that if the independent trustee has not being consulted it shows that the settlors of the trust had no intention of keeping their assets separate, i.e. the trust assets.

The second step is the ongoing day to day operations of the trust.  At the very least, a separate bank account should be maintained by the trust and assets of the trust should be treated as if they are not owned by the individual settlors. 

There are a number of asset classes which separation is easy to determine. For example, Term Deposits, Shares and Bonds.  However, there are some asset classes where this is more difficult, in particular, family properties or beach properties.

If we take into account a trust that owns investments in Term Deposits, listed company shares, debentures etc, the trustees would most probably take recommendations from a stock broker, or an investment advisor. 

However, when the Trust owns such things as shares in unlisted companies (such as the Family Trusts owning shares in the business), the prudent trustee rule would be that the trustees would consider the soundness of the investment to ensure that they are continuing to invest. 

What this means is that if you are an insolvent company (which is when the assets are less than the liabilities of the company and the company can not meet its debts as they fall due) then the trustees may wish to divest themselves of that investment.  What this means is that if you have a LAQC or a loss company, then it is better that the shares are held in the individual names, rather than in the trust names.

The family home and beach homes are also another consideration when looking at intentions of a trust.  For example, if the trustees wish to purchase a beach in Tauranga and have located one that they like and have gone ahead and purchased it and then advised the trustees, no consideration has been given to where the location of the property is and what the long term prospects are.  While it does not mean that the trust cannot purchase the property, consultation with all trustees and minutes to resolve to consider purchasing a beach property would be the most prudent step, rather than finding something and then retrospectively resolving to purchase it.

So what does this mean going forward?

One of the things that we can offer with Matley Financial Services is a full review of your trust.  We can review the asset classes that the trust currently owns and cross reference that to the minutes and resolutions of the trust  to ensure that due process was followed.  In the event that there are some deficiencies in decisions, then it is a matter of correcting the records to show that those decisions have been made.

However, in terms of intention, the idea is to protect the greatest asset that any family has (which is the family home) from attack by creditors.  Therefore if you treat the family home as if it is your own property and not trust property, then creditors will have a claim against that property if your business falls into trouble.  In order to protect this, the idea is to have at least an annual meeting with your trustees on the property and to go through any changes that have been done during the course of the year - e.g. new decks, carpets etc.  

You are not required to go through and explain what repairs and maintenance have been undertaken on the property on the basis that these have been paid in lieu of rent.  However, any repairs and maintenance should be funded from the individual’s pocket, rather than the trust’s pocket.  The alternative is to treat a rent payment from the individual's to the trust and then the trust pays all associated operating expenses as you would have in any normal rental situation.  This would be further supported by the issuing of a tenancy agreement putting the individuals and the trust.  A tax return may not be required.

For those trust that are administered by Matley Financial Services, we will be undertaking a full review of the trusts in the new year to ensure that the intention can be supported an any necessary documentation to support that intention is held on file.  If your trusts are not administered by Matley Financial services and you wish to undertake a review to ensure that they are compliant as much as they can be, then please contact the office to arrange an appointment to do so.

LAQC's

Remission income can arise when a company is released from a full or partial obligation to repay creditors or loans.  This is becoming a more significant issue in the current climate.

Where the company is a qualifying company, the shareholders are personally liable for their share of any unpaid income tax of the company.  Therefore the shareholders need to consider revoking the QC/LAQC status of the company if the company is unlikely to be able to pay the income tax.

Ideally they should make that decision before the appointment of a liquidator.  We are aware that the IRD has a view that once the liquidator is appointed, the shareholder cannot revoke their QC election as section 248(1)(e) of the Companies Act 10993 says that once a liquidators is appointed, the shareholders' liabilities cannot be altered.

There are other ways a company can drop out of the QC regime, such as revocation of a director's elections or a change in shareholding, but neither of these can be done once a liquidator is appointed.

A reminder too that there are strict rules and timelines for a company becoming a QC/LAQC and maintaining that status.  The IRD gives not leeway for oversights that affect the company's QC/LAQC status.

These are some of the issues we see crop up now and again which are sometimes overlooked:

• Losses carried forward by a company are forfeited on becoming a QC and cannot continue to be carried forward.  The forfeited losses are not reinstated if the company later ceases to be a QC.
• For an existing company an election cannot be made retrospectively.  The notice electing to be a QC/LAQC must be received by the IRD before the commencement of the first day of the year for which the company is going to be a QC.  A late notice would be effective from the start of the next year, and any losses incurred in the earlier years would be lost.
• For a new company the election must be made within the time for filing the company's first income tax return.  This would be to the extended due date if the company has an extension of time at the time of making the election.
• If a trust is a shareholder, dividends paid to the trust must be passes out as beneficiary income.  Overlooking this revokes the company's QC status and can have adverse consequences for later dividends if they are paid out in the mistaken belief that the company was still a QC.
• A change in shareholding may require new elections to be made within 63 days of the change.

 

IRD Strips Uncertainty Around "Asset Stripping"

Under section HD 15 of the Income Tax Act 2007 (formerly HK 11 of the 1994 and 2004 Income Tax Acts), directors and shareholders can become personally liable for the tax debts of a company in certain situations.  The effect of this provision is that IRD can "pierce the corporate veil" if a director or shareholder has been party to an asset stripping arrangement so that the company cannot pay its tax debts.  This is not a new provision however, IRD have rarely used this provision partly because of uncertainty about how the section operated in the context of the disputes resolution procedures.  In particular, IRD were unclear whether a Notice of Proposed Adjustment (NOPA) was required to be issues to a director or shareholder.  In the recent case of CIR v Skudder  the IRD made an application to the Court for a ruling on this particular issue.  the Court held that the decision to invoke section HD 15 was a "disputable decision" which meant that IRD was required to issue a NOPA to directors or shareholders before they could become liable for the tax debts of the company.  This decision is not being appealed.  Armed with certainty about the operation of section HD 15 it is likely IRD will be far more vigilant in its efforts to recover corporate tax debt from directors and shareholders, particularly in these current economic conditions.

If you are looking to enter transactions which might leave your company in a position where it cannot meet its tax liabilities, then consideration should be given to whether personal liabilities could arise under section HD 15.  If you have any doubts, please give our office a call for advice about these issues.

A Few Reminders....

We are still having clients posting information to our old addresses.  We moved in June and our redirection will be ceasing this month, so please ensure that you have updated our addresses and phone numbers are per below or your mail will be returned to you:

Physical - 758A Horotiu Road, RD 8, Hamilton 3288

Postal -  PO Box 10318, Te Rapa, Hamilton 3241

Phone - 07 829 7084 or 0800 MATLEY (628539)

Fax -  07 829 7086

Also, since early this year we have closed our Westpac bank account.  Some clients still have this old bank account logged on their internet banking systems.  Please ensure that the following bank account is loaded into your systems for payment:

National Bank - 060869-0122557-01

Ways to Pay

We have multiple ways that you are able to pay your account:

Cheque - made out to Matley Financial Services Ltd

Credit Card - please phone the office to arrange this

Direct Credit - into National Bank - 060869-0122557-01

Cash - it is still legal tender!  Although, we prefer it not being posted to us please.

Please remember that interest is charged on all accounts over 28 days.  Please pay in a timely manner.

Movember - Week Two

Here is the growth for two weeks down.  So far we have acquired only a meagre $100!  Please, to protect and support Men's health, please consider donating towards this worthy cause.

To sponsor my Mo, you can either:

•    Click this link http://nz.movember.com/mospace/93953/ and donate online using your credit card

•    Write a cheque payable to ‘Movember’, referencing my Registration Number 93953 and mailing it to: Movember, PO Box 12 708, Wellington 6144

 

 

 

 

 

 

 

 

 

Well, here is the result after one week of concentrating really hard!

Remember, to sponsor David's Mo, you can either:

•    Click this link http://nz.movember.com/mospace/93953/ and donate online using your credit card

•    Write a cheque payable to ‘Movember’, referencing David's Registration Number 93953 and mailing it to: Movember, PO Box 12 708, Wellington 6144

 

We have raised a mere $50 so far, but I know that David's mo is capable of doing much better!!!