Happy Holidays

from all the team at Wolters Kluwer

'Twas the night before Christmas......ʼTwas the night before Christmas, when all through the houseNot a creature was stirring, not even a mouse.The stockings were hung by the chimney with care,Hoping ʼtwas no FBT on the gifts that were there

The children were nestled all snug in their beds,While visions of Lego danced in their heads.And Mum in the home office at the end of a long dayHad just settled down to do the holiday pay

When out on the lawn there arose such a clatter,I sprang from the bed to see what was the matter.Out of the window I saw a Bright Line,Tore open the shutters and threw up the blind.

The moon on the breast of the new-fallen snowGave the lustre of mid-day to objects below.When, what to my wondering eyes should appear,But a Bundle of Taxes drawn by eight Policy reindeer.

And driven by a fellow, just a tiny bit sinister I knew in a moment it must be the Revenue Minister! More rapid than eagles his tax Bills they came,And he whistled, and shouted, and called them by name!

“Come Brightline! Now Offshore!Now mandatory, IRD number!On land sales! And residential!Withholding tax too, Ay Carambar!”To the top of the porch! To the top of the wall!Now pass them! And stamp them! Assent to them all!”

And then, in a twinkling, I heard on the roofThe prancing and pawing of each little hoof.As I drew in my head, and was turning around,Down the chimney the Minister came with a bound.

He was dapper and smart, not at all like an elf,And I laughed when I saw him, in spite of myself!A wink of his eye and a twist of his head,Soon gave me to know I had nothing to dread.

He spoke not a word, but went straight to his work,Passing that legislation, then turned with a smirk.And laying his finger aside of his nose,And giving a nod, up the chimney he rose!

He sprang to his sleigh, to his team gave a whistle,And away they all flew like the down of a thistle.But I heard him exclaim before he drove out of sight,“Merry Christmas to all, the Surplus is water tight!”

Watch workplace safety over Christmas!

One day in early December, Santa’s elves scaled the roof of the workshop to test-drive the toy helicopter drone they had been working on. Unfortunately, one of the elves fell off the roof and suffered a broken leg and concussion.

Santa is a bit worried now because he has had a call from Elf and Safety wanting to carry out an investigation into the accident.

What are the chances that Santa, as the employer, will be charged under the Health and Safety in Employment legislation?

Question

AnswerSanta may well face charges. An Auckland company was recently fined $50,000 and ordered to pay reparation of $10,000 after one of its workers fell from a roof he was working on without any fall protection in place. The Court criticised the personal protection gear provided to the worker as “woefully inadequate”.

With the new Health and Safety at Work Act 2015 coming into force in April 2016, now would be the ideal time for Santa to take stock of the health and safety procedures he has in place. The new legislation:• Increases the penalties for anyone conducting a

business if they fail to comply with the legislation• Creates new obligations for company directors and

partners in a partnership – effectively requiring them to exercise due diligence

• Moves offences into three categories, with varying degrees of penalty according to level of risk and harm

• Imposes an obligation on workers to take reasonable care of their own health and safety, and do nothing that would adversely affect the health and safety of others.

For more information on the new legislation and how it will affect employers, see http://www.business.govt.nz/worksafe/about/reform/questions-and-answers

In light of the workplace accident involving the elf falling from the workshop roof, Santa decides it’s time to be proactive. In addition to a thorough review of existing procedures and systems, he wants to appoint a dedicated first aid officer. Dasher, one of the reindeer employees, will carry out this role after gaining the appropriate qualifications. Santa proposes paying Dasher a weekly first aid allowance, in addition to her weekly remunerationHow are such allowances taxed?

Question

Because this is essentially a benefit allowance paid to compensate Dasher for taking on additional responsibilities, the payment is taxable as employment income. Santa will need to deduct PAYE on the allowance.

If Dasher incurs expenses while gaining her first aid qualifications (for example, Dasher might pay the fee for the course and get Santa to reimburse her), then anyreimbursement is exempt income to Dasher - and deductible to Santa as the employer.

Answer

First Aid OfficerDasher Deer

QuestionRudolph made a $100 donation to the St Nicholas Mission Christmas lunch. Rudolph has derived $2,000 in income from selling surplus toys on ElfTrade during 2015. After applying a $3,000 loss brought forward from a previous year, his 2015 tax return results in nil taxable income. The Inland Revenue website states that you cannot claim donations more than the amount of your taxable income. Could you please clarify whether it’s Rudolph’s current year income or total taxable income after applying the loss which is used?

AnswerThe total amount of qualifying donations cannot exceed a person’s taxable income for the year.

A person’s taxable income is arrived at by subtracting any available tax loss from their net income. (Net income is the amount of the taxpayer’s annual gross income less annual total deductions.)

In Rudolf’s case, the losses brought forward from the previous year have resulted in nil taxable income for the 2015 year, so Rudolf cannot claim any tax credit for his donation to the St Nicholas Mission Christmas lunch.

Santa Inc also makes a $100 donation to the St Nicholas Mission Christmas lunch.

Santa Inc has net income of $2,000 for the year (after deductions) but after applying a $3,000 loss brought from the previous year, the company has nil taxable income. Can Santa Inc claim a tax credit for the donation?

Question

The tax credit is available only to individuals, not companies.

The corresponding concession available to companies is a deduction, which is limited to a company’s net income. Santa Inc can therefore claim a full deduction for the $100 donation because it has net income of more than that amount.

Answer

Charitable donations

Rudolph and Vixen purchased a sleigh in April 2013 for use in their cartage business. Now the couple want to pare down that side of the business and use the sleigh for personal travel only. For income tax purposes , what is the proper way to change an asset from business to private use?

Question

QuestionEmily Cratchit is getting married to Ebernezer Scrooge next August. Emily has always wanted a winter wedding, and Ebernezer is rapt because he has managed to get substantially reduced rates on the wedding venue during the off-peak season.

Emily receives working for families tax credits (WFFTC) for her two children from another relationship (with Bob). She and Ebernezer have been seeing one another for two years but only moved in together in December. The arrangement they have is that Emily pays all the house-hold bills while they live in Ebernezer’s mansion. When is Ebernezer’s income counted for WFFTC purposes? Ebernezer has read somewhere that you have to be together for 3 years before you’re considered to be in a de facto relationship.

Change in use Working for families tax credits

AnswerFor the purposes of WFFTC, Ebernezer’s income would be counted from the point that he and Emily entered into a de facto relationship.

A de facto relationship is a relationship in the nature of marriage – but working out whether two people are in this sort of relationship is not always straightforward. Unlike the laws around relationship property, there is no minimum time that a couple must be together in order to be de facto partners. Inland Revenue may look at such factors as whether the couple have an emotional commitment to one another and whether they have some degree of financial interdependence.

Inland Revenue would probably consider Emily and Ebernezer to be in a de facto relationship from the time they moved in together in December.

“Bah,” said Scrooge, “Humbug.”

AnswerWhere an asset moves from being used to derive income to being used for private purposes, from an income tax perspective this is treated as a disposal at market value. This is because the asset is no longer used as part of the business. The deemed disposal triggers a requirement to calculate any depreciation recovery income. Any on going expenditure in regard to the sleigh would become non-deductible.

The teenage calves can’t wait to take the family sleigh for some night rides once they finish their exams!

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QuestionMr and Mrs Claus own the house they live in. They have bought a new crib in the Catlins with the aim of moving there permanently to get away from it all. They plan to transfer their house to a look-through company (LTC) and rent it out for megabucks.

Would the LTC be subject to the new bright-line test if the LTC sold the house within two years?

AnswerYes it would, so the sale is taxable.

There is a main home exclusion that applies if the land has been used predominantly as the owner’s main home. Inland Revenue have noted that this exclusion could apply to LTC owners. However, Mr and Mrs Claus cannot make use of this concession because, once the house is transferred to the LTC, they will be living the good life in the Catlins.

Now the only difficult question is whether to buy long life or fresh milk at the Owaka Four Square.

QuestionMrs Claus’s elderly aunt, Mary Christmas, died last month. In her will she left her apartment to Mrs Claus. Mrs Claus wants to take advantage of the red-hot property market and seals a deal to sell it before Christmas.

Would the bright-line test apply to this sale?

AnswerNo. The bright-line test does not apply to land inherited under a will. Mrs Claus can sell her aunt’s property without having to worry about tax.

Santa’s Christmas stocking may be rather full this year!

Bright line test

Reminder about Christmas tax datesRemember – different rules apply over the Christmas period for filing and payment of tax:

• GST returns and payment for the period ended 30 November are due on 15 January 2016

• Provisional taxpayers with a standard balance date using the standard or estimation option have their second provisional tax instalment due on 15 January

• Provisional taxpayers with a standard balance date using the ratio option have their fourth provisional tax instalment due on 15 January

• Large employers (ie annual PAYE of $500,000 or more) must file and pay their employer deductions and employer monthly schedule by 15 January

• FBT quarterly filers have their return and payment due on 20 January

CCH / TEO / CROWE HORWATH

Question & Answer ServiceThe CCH/TEO Question and Answer Service is an online service that provides quick answers to your tax, company, employment, property and business law questions. The service covers a broad range of business compliance issues, providing fast answers to your tricky, complex or niggling questions.

Your questions are answered by our panel of Crowe Horwath/TEO Training tax specialists and CCH legal analysts, freeing up your time for other client services.

Who will benefit from the service?Busy commercial professionals, such as accountants, lawyers, tax advisers and employment advisers.

What areas does the service cover?Legal, procedural and compliance issues relating to areas in which we publish commentary, namely:

What medium do I use to ask the questions? How will they be answered?You can ask questions online by clicking on the Q & A Service login button on our website and submitting your query. We will respond to you by email.

Who will answer the questions?Our panel of Crowe Horwath/TEO Training tax specialists and CCH legal analysts specialising in company, employment, health and safety, property and business law. If necessary, we will call on the expertise of outside professionals.

• personal income tax• corporate tax• GST• duties

• trusts• business law• company law• conveyancing law

• employment law• health and safety

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Best Wishes for a happy and successful 2016

from all the team at Wolters Kluwer

CCH Publishing Account Management TeamGrant Cartwright | Call 03 425 9328 | Email: gcartwright@cch.co.nz | National Major AccountsSunshine Metro | Call 09 488 2764 | Email: sunshine.metro@cch.co.nz | Auckland CBDTrish Glover | Call 09 213 2314 | Email: trish.glover@cch.co.nz | Auckland West & South, Waikato, Taranaki, Taupo & Hawkes BayBen Haarmann | Call 09 213 2311 | Email: ben.haarmann@cch.co.nz | Auckland North, East & South East, Northland, Tauranga, GisborneWendy Lawson | Call 03 421 7929 | Email: wendy.lawson@cch.co.nz | South Island excl Nelson/MarlboroughSarah Innes | Call 04 979 8976 | Email: sarah.innes@cch.co.nz | Wellington, Manawatu, Nelson/Marlborough

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