Trust law changes: New Zealand. What are they, and how will they affect you and your trust?

The main changes are:

• Trustees will now have some mandatory duties to fulfill
• Trustees must disclose certain information to all the beneficiaries - no more opacity!
• Trustees are being given more flexible powers
• It should become cheaper to setup and run a trust
•  You might be able to remove and appoint a trustee and not have to get the courts involved
• Trust lifespan will be up to 125 years
• Some beneficiaries could become settlors!

Here is the jargon: Section 67 of the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 enacts an amendment to section HC 27 of the Income Tax Act 2007.

That amendment provides that when a beneficiary of a trust is owed an amount by the trust, the beneficiary does not become a settlor of the trust if –

• a. the trustee pays to the beneficiary in the income year interest on the amount owing at a rate equal to or greater than the prescribed rate of interest:
• b. the amount owing at the end of the income year is not more than $25,000.

This amendment comes into force on 1 April 2020, and does not have retrospective effect.

How do you know if one of your beneficiaries is owed more than $25,000 by the trust? The trust will need a balance sheet, at the very least, to track this.

What should you do if this is the case?

1. Pay out the beneficiary (check with your lawyer first), or
2. Pay interest to the beneficiary for the use of their money, as described above

* See a link to our blog articles on this subject here
^ The information on this page has been kindly reproduced by permission of Rainey Collins. This does not constitute an endorsement of EpsomTax.com Limited by Rainey Collins. EpsomTax.com Limited cannot provide legal advice. Please contact Rainey Collins for more information on what this means for your trust.

IRD is till working out the tax treatment of cryptocurrency. But it has made up its mind on some things. You can read all about it here. The main points so far are:

• For tax purposes, cryptocurrency is property, not currency. This means foreign currency gain or loss provisions do not apply.
• Cryptocurrency received as payment for goods or services is business income, which is taxable. This is seen as a barter transaction and you’ll need to calculate the value of the cryptocurrency in NZD at the time it’s received.
• Cryptocurrency is considered property for income tax purposes. So that means that the proceeds you make from selling it are very probably taxable.

NZ Police in association with City of London Police have just released a warning. See below for the PDF.

Apparently, fraudulent websites alleging to offer cryptocurrency investments are dishonestly using the image of Martin Lewis, the founder and editor for moneysavingexpert.com, as an endorsement for their companies. However, Martin doesn't do adverts.  See his blog post for more info here. These sites are also falsely stating that Dragons Den back their schemes.

Our advice:

1. Don't assume it is authentic just because it looks good
2. Don't rush into any investment, including cryptocurrency
3. Consult a financial advisor

More info is available at NetSafe, especially re scams. And, just for the record, we don't claim any endorsement by Martin Lewis, his website, NZ Police, City of London Police or NetSafe. Any copyrights belong to their legal owners. We are merely making you aware of what is going on out there.  Keep safe!

Here are the main steps involved, and an approx. % showing how far through we are at each point. The chart starts at the bottom, and the top is 100%, tax returns filed and assessed by IRD!

Here is a detailed description of each part of the process

1. First, we email you a link to the online tax questionnaire. We ask you to complete this within 7 days of receipt.
2. We send you an invoice via Xero.com for 50% of the job. (Some small jobs are billed 100% up-front).
3. We'll then send you a copy of your completed questionnaire, along with a checklist and further instructions
4. You then either email your info to mytaxinfo@epsomtax.com or send it via courier (let us know and we'll send you a bag to return to us. You just call the courier on their toll free number, and they collect it from wherever you tell them to).  Once we receive your info, we then scan it and courier it back to you after the tax returns are filed.
5. ​By now, it's the first of the month, you've sent us all of your info, and we then copy this to secure online storage.
6. We start coding your info up to trial balance stage; the second 50% invoice is issued, usually a 14-day account.
7. Financial statements are compiled.
8. A checker reviews the draft financial statements and any adjustments made. 
9. Drafts are then sent to you for review (see how to understand your financial statements), adjustments made, and then we send you the final version of the financial statements. 
10. Next, tax returns are queued to be filed online with Inland Revenue and checked again by the filing and checking team.
11. We send you a copy of these returns for your records and for you to sign and return back to us.
12. IRD processes the returns.
13. About a month later, we process the donation tax credit forms.

​

As a rough guide, from the date of invoice issuance to you having the draft financial statements in your hands, we aim for 8-9 weeks, subject to this disclaimer: these timeframes are indicative only and at peak times of the year e.g. May-October, it will often take longer.  

Before Processing Starts

• 2-3 weeks before - tax questionnaires sent out via email
• 1 week before - 1st invoice sent out via email

Processing Month
We'll advise you in February via email when this is.

• 1st of the month - all data should be provided by you by this date; processing starts
• 3-4 weeks later - work completed to draft stage; second invoice issued
• 7 working days later - 2nd invoice paid, draft financial statements sent to you for review
• 7 working days later - changes made as required, confirmation received from you to file with IRD
• 1-2 weeks later - tax returns filed
• 1-12 weeks later - IRD processes returns.

We trust this helps take some of the mystery out of the process. Please contact us with any questions!

Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
COMMON QUESTIONS ABOUT YOUR TAX RETURNS
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS

According to Wikipedia*, "phishing is the attempt to obtain sensitive information such as usernames, passwords, and credit card details (and money), often for malicious reasons, by disguising as a trustworthy entity in an electronic communication.[1][2]"

Quite often they look like a legitimate email from IRD (about a tax refund, or warning of tax owing), or an email from a provider like Office365 or Apple. More info here at netsafe.org.nz*. 

There are often several clues; please see the copy of example emails below.

• IRD will never email you to tell your account has been hacked, that you owe tax, that you are due a tax refund, that the Police are after you, blah blah blah. 
• Phishing emails often have spelling mistakes or unusual grammar (although not always)
• The email address is not one that matches the organisation, or it is close but not quite right e.g. it is from ird.co.nz instead of ird.govt.nz; e.g. we received a message supposedly from Microsoft, but the email address was messagealert@ another organisation

Here is one phishing email we received recently. It looks rather convincing, but there are a couple of clues in the email that it is not from a legitimate source

1. Grammatical error in the opening line: "receive" instead of "received"
2. Email address is odd
3. We were not expecting anyone to send a confidential document, so this is out of character
4. Unusual grammar in the body: "secured document" instead of "secure document"
5. Odd closing line: "We hope to continue serving you"

Here is another example of a phishing email.  Note again the clues that it is not "legit":

• email address is not from Apple
• email shows it is sent "on behalf of" someone else
• grammatical errors e.g. "problems with your account Apple", "if you ignored this email", "disabled the next 48 hours.. .", space between account and the exclamation mark
• incorrect use of capitals e.g. "Officially Permanently"

• Be cautious about emails asking you to update or verify your details online
• Be cautious of emails saying you’ve won prizes from competitions that you don’t remember entering
• Be cautious of emails that try to get you to act quickly by threatening you with legal action or loss of an account
• Ignore any emails asking you to provide personal information like passwords, or banking information
• Remember legitimate organisations like banks will never ask you to send them your password
• Only open email attachments when you’re expecting them, even if you know who the sender is
• If you’re unsure if an email is from a legitimate organisation, you can contact them to ask. If you do contact them, make sure you go through their official contact channels – don’t use the phone numbers, websites or email addresses included in the email

See more tips on this page at netsafe.org.nz

What should I do if I need help or advice?
You can contact Netsafe:

• Email queries@netsafe.org.nz
• Call them toll free on 0508 NETSAFE (0508 638 723)
• Online report form at netsafe.org.nz/report

Their helpline is open from 8am – 8pm Monday to Friday and 9am – 5pm on weekends.

* We have quoted information from Wikipedia (licence terms) and Netsafe (licence terms). Use of this information does not constitute an endorsement of EpsomTax.com by either organisation. This information is not provided for commercial purposes, but strictly in an attempt to help promote community awareness of fraud and how to prevent it and protect yourself.

Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?

Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.

If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.

So, how do you know whether you are considered a property speculator, dealer or investor?  Click here for the IRD definition

Things to consider in answering the above question:

• what was your intention when you bought the property?
• what pattern have you established in terms of property transactions?
• are you (and if so, how) associated with a developer, builder or property dealer?
• will the Bright-line Test* apply?
• will you be affected by rezoning?

​How do you know if selling your home will be taxable?  Think carefully about the answers to these five questions.

“Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?”  No.  The amount of time you hold the property is immaterial.  It’s your intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.

“Right-o.  So, is there some sort of level?  That is, my first couple of properties are tax-free and then I pay tax after that?”   Ahhh… no.  Again, it’s intention, patterns and associations – not numbers of properties sold.

“Great.  It looks like I will have to pay tax then.  How do I figure that out?”  The IRD have a great resource here – or you can contact us.

* For a definition/more info please see this article at the IRD Tax Policy website

As a result of changes imposed by Google, we will soon be acquiring an SSL certificate for our website.  The host, weebly.com, is rolling this out to all sites.  Meantime, if you wish to check our credentials, you can do so here.​

For more information, please contact us

Why is a chattels valuation necessary?
Typical valuations assign a valuation to chattels of $10-15,000. However, they often miss many depreciable items, such as driveways, fences, decks, paths, hot water cylinder, letterbox, garage door motor etc. 

When you obtain a chattels-specific valuation, typically the value of the chattels for a new home is $45-50,000+ and for one built in the 1980’s $25-30,000. Even if your chattels valuation comes out at only $30,000 then the value for the tax refund will be around $10,000. The higher the chattels value, the more depreciation can be claimed, which means less tax to pay or larger tax refunds. 

Are there any exceptions?
The only exception to the chattels valuation, is if it was a rental already owned by you or another entity you controlled, and you had already filed a tax return for that property at least once. In that case, we can’t “re-value” the chattels. 

​What will it cost and who does this?
We know of only one firm: ValuIt. Visit their website www.valuit.co.nz or call 0508 482 583 to book a valuation. Please note, we receive no financial incentive or otherwise for recommending them. However, we encourage you to do this without delay, as they are very busy and it can often be 2-3 weeks before someone can get to see your property.

Further reading
Depreciation: Simple Overview (video)
6 Minutes on Depreciation (video)
Depreciation Clawback and Your Rental Property
Depreciation of Chattels in Your Rental Investment Property
​Valuation of Chattels - Why Necessary

First, open your sheet on your iPhone or iPad. 
Next, touch the three dots at the top right-hand corner

Then, choose Send a Copy
​Touch Excel

Lastly, email to us or share to your Google Drive or Dropbox.com, then share to office@epsomtax.com

This page is not in alphabetical order, but in order of Top Questions first:

Q: When does my tax return have to be in i.e. filed with IRD?
A: If you have an Extension of Time to file, the date is 31 March. If you are linked to a Tax Agent or Accountant, then usually you will have this extension.  Note that the IRD must receive your tax return by this date i.e. if you post it on this date, it will be late.

Q: Cool, so I can send my info to you guys about the middle of March and that will be ok then? That gives 2 weeks to get it sorted, right?
A. Sorry, but no. In order to get the figures right, there is a process of many eyes checking your financial statements/tax return/s. So we recommend that you allow 5-6 weeks at least for us to collate, code, compile, check and file your financial statements and tax returns.

Q: I didn't earn any income last year, but I am a shareholder in a Look Through Company. Do I have to file a tax return?
A: Yes.  You will have income or loss from the LTC and this has to be declared to Inland Revenue via a personal tax return.

Q: My rental is running at a loss. Why don't I get a tax refund anymore?
A: You can blame the government for that. They changed the rules so that losses from rental residential property, are "ring-fenced". That means they can only be offset against profits from the same kind of income.  Read more here. What do do about it? Read about our recommended strategies here.

Q: I don't see any impact of the LTC losses to the final tax figure?
A: You'll see your LTC losses (if applicable) shown in box 19E (on the personal tax return, or IR3).

Here is a typical Profit & Loss report. You can see the Profit hi-lighted in yellow, and the Expenses hi-lighted below (also in yellow). Then at the bottom, you can see that the result is a Loss - which is why it is written in parentheses (brackets).  

This loss amount (or negative amount) is then put on your tax return. It offsets other rental income you have received.  In this sample, assuming the person is being taxed at 33c in the dollar (ie they earn over $70,000 per year), then they could offset the loss of nearly 11k against other rental income (or if they have none, then this loss would be carried forward to future years).

All sources of income are added, e.g. wages, interest, dividends. Next, all sources of loss are added, e.g., LTC losses.  Then tax is calculated on the sum of all of these figures.  After that, tax that you have already paid is deducted, e.g., RWT, PAYE, provisional tax. The resulting figure is either a debit (tax to pay) or a credit (a tax refund).

Q: Why does the IR3 (personal tax return) you sent me show a dividend of nearly $500 from Entrust (formerly the Auckland Electricity Consumer Trust or AECT)?  I only got about $300-something?
A: The Entrust dividend is shown on the tax return as follows

• gross dividend
• less dividend imputation credits
• less dividend withholding tax

Using this formula, we arrive at the $300-something you received. You can see the exact breakdown here

Q: Why does the tax return show this? I wanted the refund to be credited to my bank account?

A: That's exactly what this means.  It says, in effect: "do you want to receive the refund in cheque format?"  The answer is "No."  IRD only gives one other option, and that is a refund to your bank account.

Q: Does my LTC get a refund as well as me?
A: No. If you have an LTC, the refunds go to you. The company is Looked Through at tax time, hence the name Look Through Company.

Q: Is the amount shown as a refund what we're going to get?
A: Probably. All returns filed are subject to review by IRD, and sometimes they don't agree with our calculations. There are a number of reasons for this:

• debts or credits we may not be aware of
• keying errors by IRD/ourselves
• other factors

However, don't panic. All errors, wherever they are made, can be easily rectified.

Q: What's an IR3 form? What's an IR526?  How long does it take to file a return?
A: That is what the personal tax return form is called: an IR3. (If you are not NZ tax resident, the form is an IR3NR). The actual filing online takes about half an hour. Then IRD processes it, which can take anywhere from 1 week to 12 weeks or longer.  Once they’ve processed it, you then receive your tax refund.

The IR526 is the donations rebate form; it has to be processed separately. Note that you can now login to myIR and upload your own donations during the year, and IRD will process them once your personal tax return is done.

Q: I own a rental property, or I'm self-employed. Why is ACC sending me a bill?
A: If you received rental income in NZ and you didn't use a property manager, ACC can still charge you. And if you are self-employed, you have to pay ACC Employer and Earner Levy

These questions are based on questions asked by customers. We'll be adding more examples to this page as they occur.

Other FAQs you might have:
RENTAL PROPERTY: WHAT RECORDS DO YOU NEED TO KEEP?
USING ACCOUNTANCYONLINE.CO.NZ/MY TAX QUESTIONNAIRE
HOW DO I DOWNLOAD TRANSACTIONS FROM MY BANK'S ONLINE INTERNET BANKING?
WHAT IS XERO.COM?
WHAT'S THE PROCESS FOR MY TAX RETURNS?
COMMON QUESTIONS ABOUT YOUR FINANCIAL STATEMENTS

What does this have to do with your tax? Well, we might have asked you to supply information, clarify a request etc etc. We know you're busy!  But we don't hear from you promptly. Instead, it drags on and on.

Frankly, that doesn't help you, us, anyone!

So, what we ask is this
1. stop for a moment,
2. send through the info,
3. get their tax refund sooner!

Moral: Stop and sharpen your axe. Work smarter, not harder!