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ABOLITION OF GIFT DUTY

As of 1^st October 2011 gift duty has been abolished.

Gift duty (which incidentally is one of our oldest taxes at 125 years old) was a tax applied to gifts made by individuals where the value of the gift exceeded $27,000 in any twelve month period.

The abolition of gift duty will be particularly relevant for those with Trusts as without the need for a gifting program, setting up and maintaining a Trust will now be much easier.

Previously assets would be sold to a Trust at market value in the form of a loan.  This loan would then be gifted away at $27,000 per year until the loan is repaid leaving the asset fully owned by the Trust.

Under the new program assets can simply be given to the Trust, and for those with existing gifting programs this includes the balance of current loans.

There will be some instances where forgiveness of debt will still be necessary such as those transferring commercial enterprises which may have depreciation implications.  In other situations, there may be good reason for some debts of the Trust to be retained, particularly where the donor is not a beneficiary.

It is important to point out that although gift duty has been abolished and your gifting program may cease to continue that other Trust administration such as accounts and annual minutes must not be overlooked.  It is necessary for the Trust to be maintained correctly and also to demonstrate that the Trust is not a sham.

As with most changes where tax legislation is concerned it is possible that there could be knock on effects that may advantage or disadvantage you so it is always advisable to seek professional advice before completing any significant gifting.

LOOK-THROUGH COMPANY DEADLINE

The deadline for QC and LAQC companies that wish to transition into an LTC (or partnership) have until 30th September 2011 to submit their elections.  Contact us now if you have any questions about your company status.

CAPITAL GAINS TAX - DON'T PANIC

Labour announced their proposed Capital Gains Tax this week. It has caused a lot of concern and discussion. But here are a few reasons not to panic -

Labour are not in power, and on the current polling, will not win the next election

The family home - even if it is owned in a Trust - will be exempted

The tax will be a flat rate of 15%, paid only on the sale of an asset

It is likely that the opening value of an asset will be established at the date the tax is introduced. In other words, it will not be a tax on the gain since the purchase date - it will only be the gain between the sale date and the date the tax is introduced

The details have not been released yet. It may never happen.

Having said all that, Labour have signalled that they intend to increase taxation on higher incomes, and on the gain made on the sale of assets. This will apply to all assets - not just investment properties. It will be very damaging to small investors in the sharemarket, who will probably be forced simply to pull out their money, and look for other forms of investment. Also, business sales will be taxed.

Keep it in mind - but don't panic. 

BUDGET 2011- CHANGES FOR BUSINESS

Kiwisaver - Employer contributions to increase from 2% to 3% from April 2013. Minimum employee contributions will be raised to 3% from the same date.

Tax free status of employer contributions to end from 1st April 2012

Government contribution cut to $520 per year (from $1020) from 1st July 2011

Holiday Homes - changes flagged to tax treatment of assets used for both private and business purposes

Farming - review of options for valuing livestock for tax purposes.

Working for Families - abatement threshold reduced to $35,000 per year. Abatement rate increased to 25% (from 20%). This means that, once earnings increase, WFF payments reduce faster. These rates will increase incrementally over the next 7 years.

GIFT DUTY ABOLITION

Gift duty is to be abolished with effect from 1st October 2011. For Trusts, this means that lengthy gifting programmes will no longer be required. For those who are owed money by their Family Trust, they will still be required to complete their gifting programme, but as there will be no upper limit, presumably this means that the programme can be completed with one more transaction.

QUALIFYING COMPANY REFORMS

LAQC’s will cease to exist with effect from 1st April 2011. An existing LAQC will become a QC on 1st April 2011. LAQC losses will no longer flow through to the shareholders. But a new entity, called a Look Through Company (LTC) is to be established, which will be an ordinary company, but with special tax rules - both losses and profits will flow through to shareholders, there will be loss limitation rules, more onerous exit rules, and the possibility of a tax liability on the sale of shares. IRD will allow a current LAQC to elect to change its status to an LTC (or to a limited partnership, ordinary partnership or to operate as a sole trader) without any tax consequences, but there will only be a 6 month window (from 1st April 2011) to do so. Any existing companies wishing to become LTCs that are not LAQCs will need to do so before 1st April 2011. If you wish to change the shareholding in an existing LAQC, with a view to transitioning into an LTC or partnership, this also needs to be done before 31st March 2011.

DEPRECIATION OF CHATTELS - COMMERCIAL PROPERTY

IRD has made the decision to substantially leave the situation regarding the depreciation of commercial property chattels alone. Essentially, this means that chattels that form part of the building are not depreciable, but building fit outs and other chattels can be depreciated at higher rates, as before.

NEW RULES FOR ABSENTEE LANDLORDS

From 1st October 2010, if a landlord is going to be out of New Zealand for 21 days or more, they are required to appoint an agent to act on their behalf. The name and contact details of the agent must be passed to the tenant, and also to the Bond Centre, as they will be acting for the landlord during their absence.