Tax upheaval coming - or is it?

If you believe the media and the growing talkfest about what everyone “knows” is true, NZ is due for a major tax shake-up - or is it?
At the moment there is a lot of hype and the media is reporting that the tax system is “broke”. That may be so, but it will take politicians with conviction to fix it.
Neither Prime Minister Key nor Finance Minister English have shown any stomach to date for the hard yards (to the disappointment of many), just as their former labour colleagues couldn’t bring themselves to do it either.
Make no mistake about it, GST increases, capital gains’ taxes, property investment changes and their impacts on rents, and tax rate disparities are hard issues.
The Government’s actions will be hemmed in by its reliance on Maori Party support. And the latter will again fall for the old left-aligned arguments about the changes proposed not being good for its followers, despite the fact that clearly they would be in the long term.
For my money, the Government will tinker around the edges (again!), much to the frustration of those having the best long-term interests of NZ at heart.

2009 filing deadline approaching fast

The 2009 tax filing deadline for most taxpayers (March 31 2010) is approaching fast. We do still have some clients who haven’t sent in their papers.
They run the risk of incurring late filing penalties, but more than that they run the risk of incurring use of money interest and late tax payment penalties if their tax liabilities haven’t been carefully managed over the year. As well, they loose their extension of time (EOT) facility and cannot get it back until they have filed returns in the standard time for a subsequent year. For most clients this would be by July 7 following the end of the March 31 tax year.
We also can be exposed to risk from the IRD if our tax agent EOTs are not met. Hence the IRD tool, the L-Letter, to help us manage this problem. Once we advise the IRD that particular taxpayers have not supplied their papers to allow us to complete the returns in time, the IRD computer generates letters to the relevant taxpayers warning them of the consequences of late filing.
Importantly for us, this removes the errant client names from our full-year target and so allows us to meet it. We have been fortunate to have met all of our targets for the last five years, a tribute to our ever- watchful Karen.

Beware new associated person rules

The new associated persons (AP) rules generally will be effective from the 2010/11 tax year. They introduce major changes in the area of land sales.
We have dealt with one case already and agree with the tax consult advice that for most taxpayers the avoidance of association has now become so difficult (read complex and expensive?) that it’s probably not worth the effort. What becomes important therefore is managing the AP risks and being aware of the pitfalls to minimise exposure. For instance, holding properties for at least 10 years has become increasingly critical.
The case we’ve been involved with already concerned a taxpayer having a family trust which in turn had a rental property portfolio. The taxpayer was looking to do a small land development project in a company. The single biggest concern for him would be to avoid doing major improvements to any of the trust’s rental properties while the company development was underway. Doing so could taint the improved rental property. To avoid the tainting, he would have to ensure he didn’t sell the property within 10 years of the trust acquiring it. Probably not an issue in this case, but events might conspire to make it so!
Please give us a call when you start THINKING about any land development project, before you START it, to ensure that all potential impacts are considered and risks reduced as much as possible.

New tax credit

The new voluntary payroll-giving scheme began yesterday, January 7 2010. The scheme provides a tax credit for gifts of money that are deducted from an employee’s pay through an employer’s payroll. Employees receive an immediate reduction in tax by way of the tax credit each pay period, eliminating the need to collect and keep receipts to claim tax relief on gifts of money at the end of the year. To participate in the payroll-giving scheme, a recipient organisation such as a charity or school must be a donee organisation (see www.ird.govt.nz/donee-organisations).
Employers are urged to make employees aware of the availability of the tax credit. Employees not participating in the scheme can still claim tax credits at the end of the year.
Employees are responsible for ensuring that the chosen recipient is in fact a donee organisation and for supplying relevant details to their employer to enable the gifts to be transferred to the selected donee.
Employers are responsible for ensuring that gifts are transferred to the chosen donees within a specifired period.

Welcome to a new year and to our new website. I hope you enjoy the visit. We’re going to be using this journal to keep you in touch with what we’re doing and informed about upcoming events as they will or might affect you.