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Wills
Ordinary Wills
In these modern times, most people have wills for personal possessions such as antiques, jewellery etc, since Family Trusts are quite prevalent and they often own real property such as land, buildings, shares etc.
A Family Trusts is not terminated at the death of the person who created it (usually the settlor as defined for tax purposes) and therefore its assets do not form part of the estate of the deceased individual. However, there are still many people from the older generation, i.e. parents of adult children who own substantial assets in their own names and have wills following the old tradition of leaving their estate to their children.
Although there is no estate duty or inheritance tax in New Zealand, consideration needs to be given to the position of the bequeathers.
It is very likely that the adult children would themselves have family trusts of their own and a gifting programme to gift away the value of their home and other assets. The annual gifting is only $27,000 per person and it would take a long time for a couple to gift the value of their home.
Instead of increasing the amount that the adult children have to gift, parents may want to update their wills, whereby they leave their estate to their children’s family trusts rather than the children themselves. The children will benefit from the inheritance as they are more likely than not be beneficiaries of their own trusts.
Parents may have concerns about the spouse/partner of a child in which case the adult child can set up their own personal trust to receive the bequest which has nothing to do with the spouse. If the relationship breaks down then the inherited asset will not form part of the relationship property as it is not personally owned by the adult child but is in a separate asset.
Living Wills
Living wills are quite different from ordinary wills. A living will is a directive by a person on how they wish to be treated medically should they become mentally impaired in the future.
It allows a person, while they have their mental competence, to make a healthcare choice on the procedure to follow, should they become mentally incapacitated.
Doctors recognise the clinical usefulness of such wills as they are ethically obliged to provide the necessities of life even where a patient is:
· In a persistent coma, or
· Suffering from an incurable and progressive state of illness and is in the final stage, or
· Never expected to recover from a severe injury and is on a life-support system.
A living will cannot be used to demand euthanasia, as this is not legal, but it can be used to refuse medical treatment in a situation where a person has lost his or her decision-making capacity, as our Bill of Rights allows this.
Lawyers have to ensure that the person making a living will -
· Is fully informed of the process,
· Has full mental competence and
· Has not been affected by undue influence or pressure
Once the living will is made, it is important that the person’s doctor, partner and close family members have a copy of it.
Payroll Giving
A new initiative coming out of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 allows employees to donate to donee organisations and receive immediate tax credits for payroll donations of 33.33 cents for each dollar they donate. From 6 January 2010, employers could choose to offer payroll giving to their employees.
1. Only employers who file both their employer monthly schedule (EMS/IR348) and employer deduction form (EDF/IR345) using ir-File could offer payroll giving to their employees.
2. If a tax agent is registered for Online Services then it can file EMS/IR348s and EDF/IR345s electronically for itself and its clients.
3. Payroll giving is voluntary. Employers can choose to offer it to their employees, who can in turn choose to donate using the offered payroll giving scheme.
4. Donations are collected by the employer and passed directly to the employee's chosen donee organisation.
5. Donations can only be made to approved donee organisations. A list of these donee organisations is available on the Inland Revenue website.
6. If employees choose to donate through payroll giving, they can't claim additional tax credits for these donations using the tax credit form IR526.
7. The IR526 will still be available for people who donate to donee organisations directly and not through a payroll giving scheme.
When someone makes a combination of donations, some by payroll giving and some straight to an approved donee organisation, the IR526 can be used to claim tax credits for the non-payroll giving donations (ie, those made straight to the approved donee organisation).
GST Refunds
What are your rights when the IRD withholds your GST refund?
If the IRD is withholding your GST refund, they must notify you within 15 working days of receiving your GST Return that they require further information before releasing it or that they are investigating your return.
If notification has not been sent to you within 15 working days, the refund must be released.
If the IRD requires further information, they have another 15 working days after the receipt of that information to either release the refund or request further information.
If the refund is withheld on the grounds that they are investigating it, the IRD is not under any time limit for requesting information from you. In such a case, the IRD may take as long as it is required to withhold the GST refund while they are conducting their investigation.
Tax Snippets
Allocation of beneficiary income in Trusts
From the 2010 income year, the period within which a trustee must allocate income to the beneficiaries has been extended from the six month period following the year-end. Trustees will now have the option of choosing the later of:
- the end of the six month period after balance date; or
- when the trustee files or is required to file the trust’s tax return to allocate beneficiary income.
The above option may not be available to trustees where the Trust deed has a clause limiting the beneficiary income allocation period to within six months of balance date.
Transfer dates for share purchases
It is interesting to note that the transfer date of shares may not be the date the shares are sold.
Legally, the shares are owned by the party whose name is registered in the company’s share register. For example, if both parties have agreed on a settlement, sign an unconditional agreement of sale and purchase, sign and deliver the share transfer to the registered office, the legal ownership will still not pass onto the purchaser until the purchaser’s name is registered on the company’s share register.
However, for tax purposes, the effective date of transfer is the settlement date.
Cash basis holder
Until 31 March 2009, only a natural person had the cash basis status for accruals, subject to certain rules and thresholds being met. However, from the 2010 income year, the cash basis status is no longer limited to individuals but also extended to trusts and companies meeting the same thresholds.
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. 191/2010.
July / August 2010
Budget 2010
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Finance Minister Bill English delivered his second Budget this afternoon. In his speech, Mr English said that Budget 2010 has 4 main objectives:
· Lifting the long-term performance of the New Zealand economy;
· Reforming the tax system, to make it fairer, more sustainable and more supporting of economic growth;
· Delivering better public services; and
· Maintaining firm control of the Government's finances.
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Lifting the Economic Performance of New Zealand
The Government's focus is on accelerating the recovery and ensuring that the economy expands in a sustainable way. Mr English stated, in his Executive Summary of the Budget, that New Zealand's trend growth rate had gradually declined over recent years. A recent International Monetary Fund report noted that New Zealand's potential growth rate had halved over the past decade, falling to around 1.6% per year in 2009.
To deal with the root causes of this decline, the Government has committed itself to sustained improvements that will tilt the economy away from debt and consumption, toward savings, investment and exports. Mr English says that, as part of the Government's strategy to grow the economy, the Government will focus on:
· Creating a better regulatory environment for business;
· Improving New Zealanders' skills and education;
· Building quality infrastructure;
· Encouraging science, innovation and trade;
· Improving the performance of the public sector; and
· Reforming the tax system.
Reforming the Tax System
Reformation of the tax system is a centrepiece of Budget 2010. In his Executive Summary of the Budget, Mr English says that the Government's objectives are to:
· Encourage savings and productive investment;
· Ensure that the tax system rewards effort;
· Make the tax system fairer; and
· Attract and retain skilled people.
To support these objectives, the tax package introduced in Budget 2010 will address some of the more obvious anomalies in the current tax system. In his Budget speech, Mr English says that the tax package introduced today represents the most thorough and beneficial overhaul of the tax system in 25 years.
Mr English says that the tax package is also broadly neutral in terms of its impact on income distribution. The tax package is based around a shift towards lower and more uniform rates of income tax, more indirect taxation and broadening of existing tax bases. Mr English says that while higher income groups pay more tax and therefore receive larger personal income tax deductions, these groups also bear the impact of most of the tax base broadening. All household income groups will receive, on average, around a 0.5% to 1% increase in their real disposable income.
The tax package introduced today proposes:
· A cut to the personal income tax rates, with effect from 1 October 2010:
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Income
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Current Rates
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From 1 October 2010
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$0- $14,000
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12.5%
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10.5%
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$14,001- $48,000
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21.0%
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17.5%
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$48,001- $70,000
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33.0%
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30.0%
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Over $70,000
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38.0%
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33.0%
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· An increase to the GST rate to 15%, with effect from 1 October 2010 (currently, 12.5%);
· A cut to the company tax rate to 28%, with effect from the 2011- 12 income year (currently, 30%);
· A cut to the top tax rate for most portfolio investment entities (PIEs) to 28%, and a cut to other PIE rates to align with the new personal income tax rates, with effect from 1 October 2010;
· A cut to the tax rate for life insurance policy holders and widely-held savings vehicles to 28%, with effect from the 2011- 12 income year (currently, 30%);
· That no depreciation deductions be allowed for buildings with an estimated useful life of 50 years or more from the 2011- 12 income year. Mr English says that the treatment of commercial building fitout will be reviewed after the Budget and, if necessary, amended prior to 1 April 2011 to clarify the law on the split between buildings which will not be depreciable and separate assets which will continue to be depreciable;
· The removal of the 20% depreciation loading on new plant and equipment, for assets purchased from 21 May 2010;
· Changes to the tax rules applying to Loss Attributing Qualifying Companies (LAQCs) and Qualifying Companies (QCs) from 1 April 2011; and
· Changes to the GST rules to stop the use of “phoenix” GST fraud schemes.
The tax rate applying to trusts will remain at 33%.
Better Public Services
In his Executive Summary of the Budget, Mr English states that the Government is determined to focus on the high priority areas. Therefore, 75% of the $1.1 billion operating allowance (or around $800 million) has been allocated to improving health and education services and lifting science and innovation. Mr English states that most government agencies will see no additional funding for several years.
Budget 2010 allocates:
· An additional $2.1 billion to Health over the next 4 years, including $60 million to boost elective surgery and $93 million for disability support;
· An additional $1.6 billion to Education over the next 4 years, including funding for a 4% increase in operating expenditure for schools, $349 million for school property, $92 million for Early Childhood Education, and $48 million for Youth Guarantee; and
· $321 million to a range of science and R&D initiatives over the next 4 years.
Controlling the Government's Finances
Mr English says that the fiscal outlook has improved from last year. The projected operating deficit for the next financial year is $8.6 billion, or 4.2% of GDP. And it is projected to improve steadily in each subsequent year, and to reach surplus in 2015- 16.
Mr English says that the Government's long-term fiscal objective is to ensure that net debt is brought back to no more than 20% of GDP by the mid-2020s.
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Important: This is not advice. Clients should not act solely on the basis of the material contained in The Special Bulletin. 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 Special Bulletin 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. 192/2010
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