Payday filing is compulsory from April 2019 and all employers will have to switch to payday filing by then.

What is it?

Currently, employers file employee earnings and PAYE information with Inland Revenue every month, regardless of how frequently they pay their employees. Under payday filing, this information will be reported to Inland Revenue every time the employees are paid.

This means that employers will need to submit an employment information schedule after every payday and not every month as being done now. So, if they pay weekly salaries and wages, the employer will have to submit the earnings information weekly to the IRD.

Inland Revenue believes that if it collects payroll information more regularly, it will help offer increased certainty about employees’ tax obligations and entitlements.

How to register and file?

A New Zealand employer paying more than $50,000 PAYE and Employer Superannuation Contribution Tax (ESCT) per year will file electronically through a payroll software or myIR from 1 April 2019. Online filing can be done in three ways:

• direct from the payroll software, or
• by file upload in myIR, or
• on-screen in

A payroll software is probably the easiest because this allows the payroll information – including salary, wages, PAYE and other deductions – to be automatically sent to Inland Revenue at the same time as the employees are paid.

Also, if you file direct from a payroll software, the IRD need not be contacted to register for payday filing — just make the first submission and you will have begun payday filing. This can be done before 1 April 2019.

If either of the myIR options are used, registration is required. You will need to call Inland Revenue on 0800 377 772. IRD will register and work through the process with you.

It lS to be noted that the due dates for paying and submitting the IR345 remain the same – employers still need to submit an employer deductions form (IR345) and arrange payment.

Offshore persons applying for an IRD number

Previously offshore persons (individuals and non-individuals) applying for an IRD number needed to provide evidence of a functional NZ bank account or confirmation that an approved entity had completed Customer due diligence for the person.

The Commissioner now has discretion to issue an IRD number where a person cannot meet these requirements, as long as the CIR is satisfied about the offshore person’s identity and background.

More information about the process to follow can be found at w.ird.govt.nz (search keyword: offshore).

Lifetime Retirement Income

In a first for New Zealand, a unique type of scheme is on offer in which insurance and income are combined to provide regular income for life when someone pass the age of 60. The package has been designed by Lifetime Retirement Income (Lifetime) with one of its founders being the former Finance Minister, Michael Cullen, who was responsible for setting up KiwiSaver.

How does it work?

Many retirees have built up a nest egg or savings by the time they are in their 60’s and are often looking for a different types of investment option to suit their particular circumstances. Under this scheme, investors place all or some of their savings with Lifetime (minimum is $25,000 and maximum is $ 1m). Lifetime then provide certainty of a fortnightly fixed amount, based on the size of the investment.

Lifetime achieves this by investing the investor funds in a growth balanced fund. All investment returns are credited to the investor’ s accounts after tax, fees and fortnightly income payments have been deducted. The annual income credited to the account is a percentage of the initial investment and the rate is based on the investors age when they decide to take income payments. The rate progresses from 4.5% at age 60 to 7.5% at age 90. The table can be found at www.lifetimeincome.co.nz

For example, if $100,000 is invested at age 67, the annual rate is 5.2% and the investor will receive $5,200 each year paid at the rate of $200 fortnightly. This will continue for life.

Some or all of the investment can be withdrawn if needed at once. In the case of death, the remaining capital passes to their estate.

Please get in touch with us or your investment advisor to discuss this or any other retirement investment options.

ACC Levies

Everyone in New Zealand who is in business must pay ACC levies which cover the cost of injuries caused by accidents. While everyone who works or owns a business in New Zealand pays levies, it covers all persons in New Zealand who suffers an injury whether that injury happens at work, home, on the sports field, or out and about.

ACC levies are made up of three types of levy as follows:

Earners’ levy

Everyone who earns a salary in New Zealand pays the Earners’ levy which helps cover the cost of accidents that happen in your everyday activities outside work. It is a flat rate, currently $1.21 per $100 (excluding GST), of your liable income which has a ceiling.

Work levy

This levy goes into the Work Account to fund injuries that happen at work, and it is different for every business. Some jobs have more risks than others, so some industries pay higher levies than others.

Working Safer levy

This levy supports the activities of WorkSafe New Zealand, and is a flat rate – currently 8c per $100 of your liable payroll or income.

ACC invoices

Whether one is self-employed, a contractor, or has staff, they are likely to receive an invoice from ACC between mid-July and mid-August.

The calculation of levy is based on the Business Industry Classification (BIC) code which is collected by Inland Revenue when filing a tax return or registering for GST who then pass this on to ACC. ACC uses this BIC code to invoice levies based on the business activity chosen.

Where there is a common shareholding of 66% or more between two companies, the tax loss of one company can be offset against the profits of the other company for tax purposes.

More commonly, however, the preferred option for offsetting the loss is for the profit company to make a subvention payment to the loss company. A subvention payment is where the profit-making company makes a payment to the loss-making company. The profit-making company reduces their profit by the amount of the payment while the loss-making company reduces their loss by the equivalent amount. This is because loss offsets lead to a situation where the loss company ends up having retained losses carried forward in the financial accounts with no tax losses and the profit company having retained earnings with no imputation credits. Also, if the loss company makes a profit in subsequent years, it would have imputation credits with no retained earnings to attach them with.

It has been proposed that from the 2018 income year, the imputation credits of the loss company be allowed to transfer to the profit company (which has unimputed retained earnings). However, as expected, there are restrictions on such transfers including:

Minor Errors in Tax Returns

There is currently the option to amend the previous year’s tax return if the amount of tax difference involved is less than $500.

From 1 April 2017, however, a taxpayer will be permitted to correct minor errors in the following year’s tax return without penalty, if it does not exceed $1,000.

Accrual or Cash Accounting

It is often assumed that accounts are to be prepared on an accrual basis and not a cash basis for tax purposes.

The only exceptions to this being where individuals offer personal professional services such as barristers sole and doctors. But is this always correct?

It is quite common, for example, for doctors to run their business by employing others eg nurses, technicians or even partnering with doctors, and derive their income as a practice. Is these cases, accrual accounting will certainly apply because business income is derived from other members of the practice.

But what about other small businesses such as lawn mowing or gardening enterprises which are operated as sole traders. They provide services (not products) and derive taxable income from their own personal effort? Should they be permitted to account on a cash basis?

According to IRD’s latest interpretation statement, IS 16/06, cash basis reporting for tax purposes may be appropriate in the following cases:

Enduring Power of Attorney

An Enduring Power of Attorney (EPOA) is exactly what it says it is – it is enduring. Unlike a will, an EPOA does not automatically get revoked or replaced if a new EPOA to a different person is made at a later date.

It is quite common, for example, for a husband and wife to give each other an EPOA and then forget about it. If later on, they were to divorce or separate legally, the EPOA will still remain in force at law until it is revoked.

There are some important things to note regarding revoking EPOAs:

Reports required for Charities

Following the introduction of new legislation, new types of financial reports are now required by the Charities Services.

The financial reports are based on financial reporting standards that have been prepared to assist several groups of people make informed decisions. Most often, these groups include the governance group, members, funders, and donors.

The reports required by the Charities Services will include the following:

Financial statements – these provide information about the activities, transactions and balances of the charity and will include a statement of profit or loss which shows revenue and expenses, and balance sheet which lists all the assets and liabilities.

Performance reports – these contain financial and non-financial information such as mission or purpose and what the charity does.

In addition, reports need to include information about all the different parts of the charity which may contain:

Important: This is not advice. Clients should not act solely on the basis of the material contained in the Client Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client Newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval. 01/2017.

The first of many changes that the IRD is making over the next few years to make tax simpler starts in early 2017.

To make it easier and quicker for taxpayers to file and amend GST, the IRD is improving the GST service through myIR online. The new GST return form is expected to replace the current online GST return in January 2017. Some of the things users and administrators will be able to do include requesting an:

•  amendment to a GST return after it has been filed; and
•  instalment arrangement – in most cases, the confirmation will be sent straight away if the arrangement is approved.

In addition, if the taxpayer is on a tax agency list, the tax agent will be able to:

•  manage and file clients’ GST returns.
•  include attachments, such as an invoice for an asset, to support a GST claim which is not the case at the moment.

transfer GST refund to another GST account or to an existing GST debt.

There is more information on this topic on IRD’s website at www.ird.govt.nz

Entertainment Expenses

A recent IRD article in August 2016 stated that entertainment expenditure in relation to the cost of giving gifts of food and wine will not be fully deductible.

This appeared to be different from their earlier statements in December 2011 and February 2012 where it stated that “…you can generally claim 100% of the costs of gifts, such as food, wine or event tickets, as an expense”.

The Commissioner has cleared the confusion and confirmed that the August 2016 statement is correct and will apply that from 1 September 2016.

This means that spending on things like chocolates or a bottle of wine to give as gifts to customers, clients or suppliers will be limited to 50% deductibility.

If the items are purchased as a gift basket or together with other items that are not food and drink, the expense must be apportioned between fully deductible and not fully deductible.

Registered Charities

From 1 April 2015, new reporting standards came into effect that impact registered charities and the types of financial reports they prepare.

Prior to this date, there were no minimum standards on the content or the quality of charities financial statements. All registered charities now having to prepare financial statements that comply with these new standards and file these with the Charities Services together with an Annual Return.

Criteria for tiered reporting

There are over 27,000 registered charities in New Zealand whose size and activities vary widely. To ensure each charity only prepares financial reports that cater for the size and the complexity of their entity, the charity uses their annual expenses to determine which one of four different reporting tiers they need apply.

The annual expenses uses a threshold approach based on the previous two financial periods to work out which Tier they fit into.

For example, if the annual operating expenses are less than $125,000 in the financial years ended 31 March 2014 and 31 March 2015, the charity will be entitled to use tier 4 regardless of whether the annual operating expenses for the year ended 31 March 2016 were above or below $125,000 and so on.

When do the compliance of new reporting standards apply?

Although the standards came into effect on 1 April 2015, they only apply to the first full financial year that starts on or after 1 April 2015. The filing requirement is within 6 months of balance date. So, if a charity has its first balance date on 31 December 2016, it will have to file its first financial statements by 30 June 2017.

Christmas shut-down and holiday pay

Annual holidays

An employee is entitled to four weeks’ paid annual leave after one year of employment. If the employee leaves before completing a full year service, annual holiday pay is calculated at 8% of their year-to-date gross earnings less any holiday pay already received. The employer can also use the 8% (of gross earnings) option for a casual employee or someone with a fixed-term employment agreement. The employer has to give its employees at least 14 days’ notice before an annual closedown.

Cash-up holiday pay

Some employees may want to “cash in” their annual leave entitlement. The Holiday Act 2003 allows them to “cash in” up to one week of their annual leave entitlement if the employer agrees. The payment should be treated as an extra pay or unexpected bonus, and PAYE should be deducted accordingly. Employers need to calculate the PAYE using the rates for extra pay and make normal deductions for the student loan or Kiwisaver.

Public holidays

In addition to annual leave, employees are also entitled to 11 public holidays each year, if the public holidays fall on the days they would normally work. They are entitled to be paid their relevant daily pay or average daily pay for the public holiday.

There are special arrangements for Christmas (Christmas Day and Boxing Day) and New Year (1st and 2nd January) holidays where these holidays fall on a Saturday or Sunday.

If the Saturday or Sunday is not a normal working day for the employee – the holiday is transferred to the following Monday or Tuesday;

If the Saturday or Sunday is a normal working day for the employee – the holiday remains at the traditional day and the employee is entitled to that day off on pay.

If an employee works on a public holiday they must be paid at least time-and-a-half for the time worked. If the public holiday falls on a day they would normally work, the employee is also entitled to an alternative paid holiday.

From 1 October 2016, non-resident businesses that supply remote services (including online services) to customers resident in New Zealand will be required to register for New Zealand GST and charge GST on those services.

Remote services can include:

• digital content such as e-books, movies, TV shows, music and online newspaper subscriptions;

• games, apps, software and software maintenance;

• online gambling services;

• website design or web publishing services; and

• Legal, accounting, insurance or consultancy services.

GST-registered New Zealand businesses won’t be charged GST on remote services purchased from non-resident suppliers if the supply is part of their GST-registered business activities, and before or at the time of purchase they:

• inform the supplier that they’re GST registered; and
• They give the supplier their New Zealand GST registration number or business number.

If your business does not inform the non-resident supplier that you are GST-registered, they will charge GST.

Charitable organizations and student loans

Approved  charitable organizations that have a student loan borrower that is, or will be, working overseas as a volunteer (or for token payment), can apply to have the borrower treated as being physically in New Zealand to keep their entitlement to an interest-free student loan.

It is important to note that entitlement to an interest-free loan for the student loan borrower only applies when the work they undertake is to:

• relieve poverty, hunger, sickness, the ravages of war or natural disaster; or
• Improve the economy or raise educational standards, in a country that is on the OECD list of countries receiving development assistance.

The maximum aggregate period this can apply is 24 months.

Property update

Investment property owners should be aware of regulations that have recently come into force and take accurate records of the additional expenses and responsibilities that have arisen as a result.

Smoke Alarms

All tenancies are required to have smoke alarms within 3 metres of the main entrance of any sleeping space from 1 July 2016. They have to be compliant with no faults, defects or damage and meet specified standards e.g. contain compliant batteries. The only responsibility of the tenants is to replace the batteries in residences. When a new tenant comes into a property, the landlord must ensure the battery is current at the start of the tenancy.

Insulation

This also took effect from 1 July 2016 for income-related rent tenancies e.g. Housing NZ and community housing. These tenancies must have ceiling and underfloor insulation that meets certain standards. The insulation has to cover the entire ceiling and underfloor areas. The landlord can obtain an exemption for insulation if he intends to demolish or substantially rebuild the tenancy within 12 months.

Building report

This is not a regulation but is relevant in the current context. If you sell your property and the buyer relies on a building inspection report. Be aware of the following:

• The building inspection report must be current and up to date;

• Was the report issued by a builder that has professional indemnity insurance?

• It may not include everything so need to check what is covered and what is not e.g. it may exclude the weather-tightness of a property;

• Was any remedial work undertaken after the date of the inspection report?

• The contract is between the building inspector and the vendor which means that if the builder has made an error in this report, the builder is not liable to the purchaser/owner unless it was re-addressed.

Please contact us for further information or if you have any queries.

Add Value to Your Business

In today’s business environment, competing on price has quite quickly become an ineffective strategy.

When a client wishes you to compete on price, typically you find regardless of the price you pitch, someone will be prepared to offer an even lower price. When that happens, the only winner tends to be the customer. Across many industries we are now seeing more business improve their competitive edge by stressing quality and value, and focusing less on price.

Adding value to your products or services is a way of improving the perception of your product or service offering often with no or minimal cost. Your customers then gain some additional advantage that they would not get elsewhere (without having to pay for it or by paying very little compared to its perceived value).

Differentiate the Product or the Process

When people buy from you, they are actually buying the differences they perceive about your business. That means you must differentiate yourself (or at least give the perception that your business is different).

Those differences could be that your business actually does offer a better, more unique product or service, or that the specific way you deliver the product or service brings better results for your customers, such as:

• Your business offers better value for the money

• Your products outperform the competition

• Your experience or knowledge within your business or industry outstrips your competitors

• You have received special accreditation in your industry

• You offer a unique guarantee that your competitors cannot match

• You offer customers a 24-hour service hotline, free delivery, several payment options, or more convenient opening hours

• You include a range of small additional services that your customers would otherwise have had to do pay for

• You have won service or product excellence awards

• Dealing with your business is more fun

It is important to review the way you do business occasionally to create and keep some differentiation even if it is only minor.

Important: This is not advice. Clients should not act solely on the basis of the material contained in the Client Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client Newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval. 05/2016.

When the Government introduced the “bright line” test for the sale of residential property from 1 October 2015, it required income tax be paid on any gains made from the sale if the property was bought and sold within two years.

Inland Revenue has published some policy information on the Residential Land Withholding Tax (RLWT) on its website with full details to be published soon too. However, RLWT came into existence from 1 July 2016 for certain residential property sales where the vendor is a foreign investor as defined.

The rate of tax is the lower of:

•  33% of the vendor’s gain on that property (i.e. 33% x (agreed total sales price – vendor’s acquisition price)); and

•  10% of the total purchase price of that property.

A conveyancer or solicitor involved in the transaction would be required to withhold as the withholding agent and pay the required amount to the Commissioner. There could be penalties for non-payment. The withholding agent will have to register as an RLWT agent with the Commissioner.

The RLWT is required to be withheld before any other amounts are disbursed in relation to the sale of the property. RLWT is not a final tax and is claimable as a tax credit in the vendor’s income tax return.

Employee share schemes (ESS)

Employers often provide benefits to employees in the form of employee share schemes (ESS).

Currently, these are classed as employment income but do not get taxed under the PAYE or FBT rules. Instead, employees file an IR3 individual income tax return to account for the tax.

From 1 April 2017, employers will be able to choose to treat ESS benefits as an “extra pay” and can choose whether or not to deduct PAYE from the ESS benefits. In most cases the value of these benefits must be included on the Employer monthly schedule (IR348/EMS).

Contact us if you want to discuss your particular circumstances.

Inland Revenue websites and social media pages

The Inland Revenue Department has prepared information setting out the conditions of use for their websites and social media pages. These are set out on their website. The information relates to the following web and online services owned and operated by Inland Revenue:

•  www.ird.govt.nz

•  www.kiwisaver.govt.nz

•  www.whatstax.govt.nz

•  www.changingforyou.ird.govt.nz

•  Twitter:@NZInlandRevenue

•  Youtube: InlandRevenueNZ

•  Facebook: Student Loans NZ – Inland Revenue

If you access or use any of these websites or social media pages, it is important that you are aware that you are considered to have consented to the Inland Revenue Department’s conditions of use.

LEADERSHIP

A world-wide study of 15,000 failed businesses indicated that ineffective leadership was present in 70% of business failures.

In today’s economic climate, we are seeing an increased focus on business owners to improve and sharpen theirs and their employee’s leadership skills.

But what is leadership and why the increased focus?

What is leadership

Leadership is the art of motivating people to act. It includes:

•  Managing with energy and enthusiasm

•  Giving employees a sense of purpose and direction

•  Planning for success

•  Dishing out praise and encouragement

•  Creating opportunities for employees

•  Demonstrating confidence and faith in employee’s abilities

•  Encouraging and setting achievable tasks

•  Developing a collective vision

What Leadership Is Not

• A position: Almost anyone can be elected, selected, anointed, self-appointed, promoted, or succeeded.

• A personality: Giving too much power to one individual is detrimental to the leader, to the followers, and to the cause. Build collective leadership, not personality cults.

• Being indispensable: Effective leadership is being dispensable. The mark of a true leader is demonstrated by the fact that the show must and can go on without them.

• Blaming others: Leadership primarily is about taking responsibility for the decisions you make or fail to make. The speed of technological, social, and economic forces is compelling employers to target leadership as a way to keep up.Some of the local challenges from employers include:

• Global businesses entering local markets

• Growth of strategic alliances amongst organisations that were previously competitors

• Acceleration of information and customers access to it

• Daily innovations in technology

• Changing demographics of both customers and the workforce

• Flattening of organisation, increased workloads and expanding skill requirements.

With customers increasingly having a wider range of businesses that they can do business with, everyone in the organisation must take responsibility for taking responsive actions when required.

This means that employers need to encourage leadership everywhere in their organisation. Leadership is about understanding what is happening, and developing and implementing an appropriate response.

Watch this space as we will be touching on various aspects of leadership and its importance to personal growth, the growth of team members and setting a growth platform for your business in the coming months.

Important: This is not advice. Clients should not act solely on the basis of the material contained in the Client Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client Newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval. 04/2016.

The Government has announced that New Zealand will sign up to the global automatic exchange of information (AEOI) with effect from the 2018 year. The AEOI is modelled on the US Foreign Account Tax Compliance Act (FATCA). To date, 97 countries have signed up to the AEOI.

New Zealand financial institutions will have to determine the tax residence of their account holders from 1 July 2017 with the first reporting due in mid-2018. They will need to report foreign account holders to countries that have signed up to the AEOI. It is worth noting that as the aim of AEOI is to correctly identify customers for anti-money laundering rules, a financial institution is broadly defined and may capture private NZ companies and trusts.

Inland Revenue has also confirmed that it will automatically and retrospectively (reportedly after 1 Jan 2010) exchange tax rulings. Inland Revenue will share details of all private taxpayer rulings and unilateral transfer pricing rulings. This is to counter harmful tax practices and give tax authorities greater flexibility to move against such structures.

The exchange will be with countries who have signed Double Tax Agreements with New Zealand – NZ has over 50 tax treaties and tax information exchange agreements. This will mean foreign tax authorities will now have access to businesses’ commercial information provided in support of rulings. Although the AEOI will override NZ’s privacy legislation, Inland Revenue can suspend AEOI with another country if there is substantial non-compliance with information confidentiality and safeguards.

Both changes were recommended as part of the OECD’s tax base erosion and profit shifting work.

Phishing scams

Phishing scams are attempts by scammers to trick you into giving out personal information such as your bank account numbers, passwords and credit card numbers.

A scammer contacts you pretending to be from a legitimate business such as a Government Department, bank, telephone or internet service provider. You may be contacted by email, social media, phone call, or text message.

A recent phishing scam has seen individuals and firms being contacted by individuals implying they are talking with a representative from Inland Revenue. The scammer asks for their IRD number or to confirm personal or bank details often under the pretext that a tax refund is due from Inland Revenue, that Inland Revenue need to verify your bank details or that due to a technical error your bank details have been wiped from Inland Revenue records.

Alternatively, the scammer may alert you to “unauthorised or suspicious activity on your account”. You might be told that a large purchase has been made in a foreign country and asked if you authorised the payment. If you reply that you didn’t, the scammer will ask you to confirm your credit card or bank details so the “bank” can investigate. In some cases the scammer may already have your credit card number and ask you to confirm your identity by quoting the 3 or 4 digit security code printed on the card.

If you provide the scammer with your details online or over the phone, they will use them to carry out fraudulent activities, such as identity theft or to access your bank accounts.

Protect yourself and never provide your personal, credit card or online account details. Make an independent check with the organisation they are calling from using their main website or phone their head office to confirm the caller is genuine before calling them back. If you receive a call from someone claiming to be from Inland Revenue and you are concerned about any aspects of the conversation, ask for their name and contact number and contact us.

Use-of-money interest (UOMI) rate change

Use-of-money interest (UOMI) is not a penalty. The purpose of UOMI is to:

(a) Compensate the CIR for the loss of use of money through taxpayers paying too little tax, and to compensate taxpayers for the loss of use of money through their paying too much tax; and

(b)To encourage taxpayers to pay the correct amount of tax on time.

Rates are reviewed regularly to ensure they are aligned with market interest rates.

Effective 8 May, the UOMI rates on underpayments and overpayments of tax changed. The new rates are:

•  Underpayments – 8.27% (down from 9.21%)

•  Overpayments – 1.62% (down from 2.63%)

Marketing Tips

Whether you sell services or goods, every business can benefit from an increased focus on marketing.

Tip 1: Find and develop your Unique Selling Advantage.

Why should I buy from you? What can you offer that differs from others? Remarkably, 90% of businesses cannot answer that question clearly or convincingly. If you want your business to grow, determine what you offer that the others cannot.

It can be lower price, longer warranty, wider range, extended trial periods, quicker, better quality, etc… It should be used in all your communications as it tells everyone what makes your business special and why they should shop with you.

Tip 2: Ask your Customers what they want.

What need, want or desire are you filling in your customer’s mind? Have you ever asked yourself what your customers really want or need in the product or service you offer?

Over 90% of businesses incorrectly think the customer’s sole focus is price – and occasionally service. If customers only wanted the “lowest price”, there wouldn’t be a wide variety of cars, houses, foods or clothing, etc… available. Customers often equate low price with low quality when what they are really looking for is what they perceive to be good value.

How do you find out what your customers consider valuable and important to them? Ask them! The answers may surprise and may not be what you expect.

Tip 3: Tell your Customers the “Reason Why”.

Whenever you make an offer, ask for a sale, reduce your price or make any other proposition to your customer – always tell them the reason why. The more factual, credible and believable the reasons, the more likely they are to spend with you.

Tip 4: Have “Add-ons”.

Don’t just make one-off sales. It is five times easier to sell something else to an existing customer than to convert a new one. The first sale is just a start. Every business can profit from repeat and add-on sales. Do it consistently and always test a few approaches until you find one that works best.

Succession Planning

Even though you may not be contemplating selling your business any time soon, please take a moment to read our special newsletter on succession planning. It covers off some important issues that every business owner should consider on a regular basis.

Important: This is not advice. Clients should not act solely on the basis of the material contained in the Client Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client Newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval. 03/2016.

The bright-line test introduced last year requires income tax to be paid on any gains from property purchased and sold within a two year period, though there are some exceptions.
The objective is to improve compliance with the current residential land sale rules and ensure that property owners pay their fair share of tax on gains made from residential property sales.
To assist with the application of the legislation, many terms were defined in the enacted Taxation (Bright-line Test for Residential Land) Act, the more important ones which are explained below.

1.    Exceptions include the sale of an owner’s main home (as defined), inherited property, or property transferred in a relationship settlement.

2.    The start and end of the two-year bright-line period starts when a person obtains registered title for the property and ends when the person enters into an agreement to sell the property.

3.    All existing property will be ‘grand parented’ ie any sale of property purchased before 1 October 2015 will not be subject to the bright-line rules.

4.    Losses arising under the bright-line test will be ‘ring-fenced’ meaning the losses can only be used to offset gains from the sale of another property. The Act also includes an anti-avoidance rule to prevent companies or trusts being used to circumvent the test.

5.    There is an additional rule for ‘off the plan’ purchases – if a bare section in a planned subdivision capable of having a dwelling erected on it is sold within the relevant 2-year period, the bright-line test applies. The period for ’off the plan’ sales apply from the entering into of the contract to buy until the entering into of the contract to sell.

6.    Where an investment property is transferred under a relationship settlement to one party and that party then sells within two years of its purchase, it will be subject to the bright-line test as it would have been owned by that party, either jointly or solely, for two years.

7.    Where an investment property is purchased for a mixed use, for example a small dwelling on the top floor which is rented out and a larger ground floor shop from which business operations are carried out and is subsequently sold within the two years, the gain will not be subject to the bright-line test because the property was predominantly used as business premises.
8.    Farmland is not included in the bright-line test but a lifestyle block is which is not capable of being farmed as an economic unit due to its small size.

Employing the Right People

While deciding to employ others to work in a business can become a necessity if the business is to survive and grow, it is nevertheless a big step for any business. And at this critical time, these are some questions you need to ask about the type of person that is needed:

• How much work there is?
• Is there a deadline for this work – when does the work needs to be completed?
• What are the different types of staffing options and what suits my business?
• Do I need an employee or a contractor?
• What are the rules are around the different employee types.

Overview of different employee types

Type    Suitable when:

1. Permanent     there is ongoing work which is expected to continue indefinitely, whether it is full-time or part-time. Wages and conditions of work must be formalised in an employment contract.
2. Fixed Term    hiring for a specific period eg to cover the workload of an employee on maternity leave or for a specified project. The fixed term agreement must clearly state the dates and reason for the employment.
3. Casual    a business needs extra help with uncertain hours to which casual workers are most suited. Although only hired when needed, they are still entitled to paid leave which is usually added at 8% to their wages.

Employees vs Contractors

Employees
Employees are people who work for you. You provide them with an employment agreement and the equipment they need to do their job. Employees are entitled to a range of minimum standards, including holiday pay, receiving at least the adult minimum wage and paid public holidays with time off. Employers also pay less obvious costs involved such as recruitment, training & development, office space and equipment, KiwiSaver contributions, ACC levies, FBT etc…You are responsible for registering as an employer with Inland Revenue and telling them the employees’ start date, deducting PAYE from their salary/wages and paying it to IRD, and paying annual ACC levies.

Contractors
Contactors are self-employed. They control what work they accept. They have special skills or knowledge which the business may need for a limited time to complete a specific piece of work. Contractors sort out their own obligations with Inland Revenue and ACC, and provide their own equipment to complete the work they’ve been signed on to do.
Which is best?
Be clear about your expectations and what is suitable for the role and then determine which option is best. Don’t be tempted to use a contractor simply to avoid financial commitments particularly where appointing a permanent employee could take your business to a whole new level. The following sets out the important differences between the two.

 

Important: This is not advice. Clients should not act solely on the basis of the material contained in the Client Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client Newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval. 01/2016.

Client Newsletter [April & May 2016]