The government is providing an extra $6.65 million a year to the IRD to pursue property investors. Previous funding provided to the IRD has led to the government receiving a 660% return on its investment from this sector.  

The government is expecting to receive an additional amount of $45 million from property sales as a result of the increased funding. This is a large amount of money for property investors to be concerned about.

What do you need to do? Unless you are clearly not liable for tax on your property sale (for example: you have lived in one family home all your life, have no other properties, and have no connection to property or construction related businesses), you should take expert advice on your tax position when you sell a property. This is advisable even if you have been living in the property.

There are common myths about the sale of property, including that you will not be liable for tax if the property was your family home (sometimes tax will apply), that you have to sell a certain number of properties before you pay tax, or that any property you hold longer than 3 years is not taxable on sale.

We can provide expert advice for as little as $150. This is nothing compared to the cost of getting it wrong and failing to pay tax that should have been paid.

Please talk to us in confidence if you have any questions or concerns.

The IRD is getting tough with overseas based student loan borrowers who don’t keep up with their obligations. In the case of student loan borrowers living in Australia who are not meeting their obligations, private debt recovery agencies will be used to aggressively pursue the debt. Anyone not meeting their obligation will be at risk of being arrested when they enter or leave New Zealand.

It is common for people with New Zealand student loan debts, and who are living overseas, to overlook their obligations. The important thing to remember is that student loan debts don’t go away. If you don’t pay, the amount owed will increase dramatically and there will be consequences. If you have issues with your debt it is essential that you deal with it. If you can’t pay and you are unable to negotiate an acceptable arrangement you may wish to consider bankruptcy. Bankruptcy is a serious step with serious consequences but it may be the better option than doing nothing – in some circumstances.

If you need assistance with negotiating a debt repayment proposal, or advice on the pros and cons of bankruptcy, please contact us.

We help many people with overdue tax debts and unfiled tax returns.

Some of the people we help haven’t filed tax returns for 10 years; others haven’t understood that the situation is serious until they are served with IRD bankruptcy proceedings. 

One question is: when is it too late to seek help to negotiate a settlement of your tax debts? If you have already been bankrupted or your company has been liquidated there are some circumstances under which you can undo this, however, this would be uncommon. For most people this stage would be too late.

If you have been served with debt recovery proceedings, or even a liquidation or bankruptcy application, we may be able to help but you need to contact us without delay. Obviously, the earlier you contact us the better. We help many people with tax and student loan debts and the main thing to remember is that it doesn’t go away, so the sooner you seek help to negotiate a write off or repayment arrangement, the better.

How is your imputation credit account? With limited exceptions all New Zealand resident companies must have an ICA account. Imputation credits have value as they can be passed through to shareholders and used to reduce the tax that shareholders might otherwise be liable for on company dividends.

A key point is that in order to carry forward imputation credits, 66% shareholder continuity must be maintained for the period from the time the imputation credit arises until it is used. The time to consider the impact of shareholding changes is before it occurs.

Imputation credits don’t have the same value to all shareholders. They may, for example, not have value for charities or overseas shareholders. Who your shareholders are is an important factor in considering your company or group structure.

Imputation credits are recorded in a memorandum account. There is no limit on how far back the IRD can go when looking at memorandum accounts. Imputation credits need to be carefully managed so that the company does not try to pass them on to shareholders when they no longer exist (for example, because the shareholder continuity requirement was breached), or because an error in the account many years prior has led to a debit in the account. Imputation credit accounts are an area that the IRD is focusing on. It is essential to get it right in order to avoid the loss of valuable credits or the imposition of tax penalties. 

We have recently helped several couples in long term de facto relationships or marriages. All of the situations involved one partner who had most of the assets at the start of the relationship and those assets were held in a trust to benefit that person. Some of the couples also had a section 21 relationship property contracting out agreement. At some point – often around the 10 year mark – the couples decided that they wanted to make everything equal and no longer have an imbalance between them in terms of the trust or separate property.

Some of the couples had consulted lawyers to try to have their simple wishes honoured. The lawyers made the process difficult, often failed to understand what it was that the couple wanted (equality in the trust and in terms of assets), and often charged thousands of dollars even when nothing was accomplished. In most cases, we have been able to cost effectively give effect to the couples’ wishes. In many cases such couples can have their needs met through simple changes to the trust deed and related paperwork – with costs in the hundreds of dollars. In all cases we listen to what you really want, provide a fixed price quote for the work, and then carry out the work promptly.

We are often asked about the order of events when setting up a trust.

The first step is to create the trust (through the trust deed) and all related paperwork. To set up a trust, simply contact us. We make the process easy and straight forward. Once the trust has been set up, any assets need to be transferred into the trust. This cannot happen until after the trust has been set up.

If you have a mortgage on your home you may need to talk to your bank about transferring the title, and possibly the mortgage, into the trust. The bank will issue documents that will need to be signed – after the trust has been set up. It is possible to provide some protection for your home without transferring it to the trust and without involving the bank in paperwork; however, it is usually best to formally transfer the title to the trust. Most other types of property can easily be transferred into the trust.

Once the assets are in the trust, we remain available to help you with any questions that arise or with changes to the trust’s requirements or asset base. For example, if the home is to be sold and another purchased, or if you marry or divorce or other significant changes happen in your personal life, we are here to help you with any queries about how this affects the trust and we can help the trust with minutes, resolutions and related paperwork.

Please talk to us if you have any questions about setting up a trust or its ongoing administration.

The Inland Revenue Department needs a new computer system. If there are issues with this new computer system the risk to the tax base, and the potential to undermine taxpayer confidence, is enormous. Let’s hope therefore that nobody connected to the Novopay fiasco is involved with the implementation of the IRD’s new system. 

We regularly receive inquiries from people with tax or student loan debts that they cannot pay. Often the people involved have tried talking to the IRD and been given the brush off by front line staff. Sometimes people in this situation need to consider bankruptcy. Before you consider bankruptcy, and before you give up because it seems like you’re getting nowhere with the debt or the IRD, please talk to us. We can often help to negotiate a debt write off, or reduction, or a repayment arrangement, even if the situation seems hopeless. Even if bankruptcy is a realistic alternative for you, it’s worth trying to see if it can be avoided – if we can’t negotiate a good resolution for you (usually we can help), at least you will know that you have tried everything.

In terms of cost, we will discuss what is affordable for you and then tailor a solution that fits your budget. Common scenarios involve a client agreeing that we will carry out work to the value of $250, or $500. In many cases that is the entire cost, however, if it is not, we will not charge you any more unless good progress has been made and if you are happy to take things further. 

Cash flow is the lifeblood of a business. Without careful cash flow management the business can die. If you have rental properties, you may be able to top up cash flow negative property investments from personal earnings, but doing so long term is a risky strategy. Cash flow management is also crucial for the rental property investor.

You should have a cash flow forecast so you know about problems well before they occur. For a rental property investor a yearly forecast may be appropriate. You would need to forecast for expected rental income, periods of no income, routine maintenance, and unexpected costs. For a business, a rolling 12 week (at least) cash flow forecast is advisable.

If your forecast shows a cash shortfall what should you do?

• Talk to your bank about additional funding to cover the gap in cash.
• Discuss with your suppliers delaying payment for a period of time.
• Reduce your inventory, and increase sales, by launching a promotion.
• Concentrate on collecting money from your debtors.

By dealing with future cash flow issues well in advance you will be able to negotiate with third parties, and make sensible plans, on a  professional and businesslike basis. The bank is unlikely to be happy if the first thing they know about your problem is that you have exceeded your limits.

If you know about an issue before it occurs you have time to do something about it. 

Google is defending its tax policies which have led to it paying tax at an effective rate of 3.2% on profits. Because it’s not illegal that makes it acceptable, according to Google’s boss. We don’t believe that Google is acting illegally either; however, it is taking advantage of lax US tax policies, with regard to unrepatriated profits, and double tax treaties in ways that were never intended by governments when those treaties were drafted. The treaties are supposed to prevent double tax, not to facilitate giant corporations obtaining the benefits of double non tax.

Although Google’s actions are not illegal, because it and other giant multinationals’ tax polices remove huge amounts of revenue from governments worldwide, this means that countries face enormous financial pressures and deficits as a result. That cost has to be borne by salary and wage earners and ordinary small to medium businesses. It’s time for fairness.