Monday, April 4, 2011

Dear All

APRIL NEWSLETTER & ANNUAL QUESTIONAIRES

Please find attached the March/April newsletter which covers business travel and
depreciation changes plus a couple of other matters that you may find of interest.

Another new tax year has started so it is time to finalise the last tax years pieces of
information, along with the newsletter are your annual questionnaires (if applicable) and
as always it is much appreciated if these are completed.

Looking ahead to the rest of April and beyond some key dates are noted below:

 7th April 2011 - Terminal Tax for 2009 is payable

 20th April 2010 - PAYE for March is due for filing and is payable on.

 7th May 2011 - Final Provisional 2011 Tax Instalment is due on for the majority
of people.

 7th May 2011 - GST for February & March is due for filing and is payable on.

From 1st April, new PAYE calculations for payroll, minimum wage increase and
changes to the holiday act mean an upgrade to your payroll is necessary. Payroll
providers are now issuing upgrades for their payrolls, if you are not on a subscription
model please contact us for an upgrade price. If you are not sure on the changes look at
http://dol.govt.nz/er/actchanges/ for more information.

Page 1 of 2 P.T.O
The last twelve months have been full of change not only with taxes and software but also
here at Simply Numbers. Since February you may have noticed a new voice answering the
phone - Tanya. Tanya has joined the team as another Chartered Accountant and I am sure you
will meet her next time you pop into the office.

Tanya has a young school age daughter; consequently she works ‘mummy’ hours during the
week. Her husband runs a local business and she has previously worked both as an accountant
for local business and for other accountancy practices, she is also familiar with both MYOB
and QuickBooks products. I hope that you find her a welcome addition to the team! Her email
address is Tanya@simplynumbers.co.nz if you want to contact her directly.

In our last newsletter we introduced our facebook page, we will be updating this regularly
from April onwards, and we also have twitter which we are also updating regularly. So please
‘like’ or subscribe so that you are notified of our updates.

For those wondering how the LAQC changes affect you we are presently reviewing all
LAQC’s and will be contacting you directly to discuss your needs and identify the best
structure for you in the next few weeks.

We hope you are all keeping well, let me know if you need any information or support and we
look forward to working with you over the next 12 months.

Yours faithfully

N Hanshaw

Page 2 of 2 P.T.O
 Simply Numbers
26 Arrowsmith Avenue
P O Box 1988
Taupo

simplynumbers@ihug.co.nz
07 377 2248

March 2011

Client Newsletter

Travel Expenditure
Travel expense, like any other expense, is deductible for tax purposes provided it is incurred in the course of business.
Travel including accommodation and meal expenses must be connected to the income-earning process of the taxpayer for it
to be deductible.

Holiday or Business?
The most common form of travel expenditure is overseas travel. Often taxpayers tag a holiday to an overseas business trip.
If the principal purpose of the trip is business, then airfares and all business-related expenses are fully deductible.
Expenditure relating to the holiday component of the trip is not deductible. A mere allocation on a percentage basis is not
normal – records of the trip must be kept, such as the itinerary, places of business visited, actual business conducted, items
of expenditure etc. Any element of private expenditure must be treated as drawings when analysing the expenses for
accounting at year end.
If business is merely incidental to a holiday trip then airfares may not be deductible. There has to be a nexus between the
trip and the production of income for business portion to be deductible. Where overseas travel to conferences, trade fairs etc
relate to the business operations, then such travel is deductible. Often the taxpayer is accompanied by their spouse on such
trips. If the spouse is assisting the taxpayer in presenting a paper or expected to attend the function, then usually the
spouse’s travel expenses may also be deductible.

Purpose of the business trip?

If the business trip is in relation to purchasing a capital asset e.g. a farmer may make a trip to buy a tractor, the travel cost
must be capitalised to the fixed asset cost which is then subject to depreciation. Where such travel costs result in the failure
to purchase a fixed asset, it is likely not to meet the nexus test for the income-earning process in which case it becomes
black hole expenditure. However, if the travel is to gain knowledge of the market or to investigate expanding operations,
then the travel cost may be deductible.
As is the case with the deductibility of most expenditure items bordering on grey areas, the above serves as a guideline only
and you should seek advice from your advisor.

Depreciation on Buildings
From 1 April 2011 depreciation on most buildings will be eliminated as per the legislation enacted following the budget
announcement in May 2010. A new Schedule 39 is in the Income Tax Act which lists the types of buildings on which
depreciation may continue to be claimed as they are deemed to have a useful life of less than 50 years.
Some of the items in Schedule 39 are:
 Carports (hired out to householders);  Plastic hothouse and PVC tunnel houses;
 Portable Huts;  Glasshouses;
 Cool-stores and freezing chambers;  Buildings affected by acid;
 Slaughterhouses on farms;  Milking sheds;
 Wintering barns and simple loafing barns;  Temporary buildings
Some of the assets in Schedule 39 do not exactly agree with the IRD Depreciation Table. For example, the IRD table deems
all “barns” to have a useful life of less than 50 years, and are therefore depreciable, but Schedule 39 deems only “wintering
and simple loafing barns” as depreciable. There is no comment on where the “drying barns” or “hay barns” stand. Similarly
the IRD Table allows depreciation on “dairy sheds and yards” whereas Schedule 39 allows only on “milking sheds”.
The IRD is aware of these discrepancies and attributed it to the lack of time in the Budget legislation. Amendments are
expected shortly, so watch this space.

IETC (independent earner tax credit)

The IETC is a tax credit for individuals whose annual net income is between $24,000 and $48,000. Taxpayers are entitled
to an IETC for any of the months during the period 1 April 2009 to 31 March 2010 if they:
 are a New Zealand tax resident;
 are not entitled to Working for Families Tax Credits (or received an overseas equivalent) – this includes their partner;
 didn’t receive an income-tested benefit;
 didn’t receive NZ Super or a veteran’s pension or a foreign pension or benefit, or an overseas equivalent of any of the
above benefit.
If the taxpayer doesn’t meet the above criteria for even one day of any month they won’t be entitled to IETC at all for that
month.

Formal Written Agreements for Family Arrangements

A recent High Court decision highlights the importance of having carefully worded signed agreements for family
arrangements to avoid misunderstandings. In this case, a son allowed his mother to occupy a property of his. She occupied
the property for 7.5 years. No rent or outgoings were paid for by the mother but she did purchase chattels and maintained
the gardens. The son and mother fell out and the son served a Notice to Quit the property.
The mother sued the son. Since she had only been given an “indication” from her son that she could live at the property for
the rest of her life and did not have a legally binding agreement, the court found it to be “an unenforceable promise”. If the
mother had had a formal written agreement setting out the basis on which she could occupy the property, no court case
would have been required.
An agreement of this nature should include the basis of the right to occupy ie permanent or temporary, whether there is a
requirement to contribute to the maintenance and the outgoings of the property and what alterations are allowed to be made
to the property. A formal written agreement would protect everyone involved in such a family arrangement.

Redundancy tax credit extended

Although the May 2010 Budget repealed this tax credit from 1 October 2010, the Government has now extended to 31
March 2011. The intention to extend the credit is in response to the Christchurch earthquake where without the tax credit, in
some situations, people could be taxed too highly if they had worked part of the year.
The redundancy tax credit was originally introduced to provide some tax relief to those who received a redundancy
payment. In these situations, the payment often moved the person into a higher tax bracket. This was perceived to be an
unfair outcome and the tax credit rectified that situation. The extension will apply to all redundancies received before 1
April 2011. A Redundancy tax credit (IR524) form is required to be lodged with the IRD to claim for redundancy payments
received on or after 1 October 2010. It will be paid at the rate of 6 cents in the dollar to a maximum of $3,600 for each
redundancy payment.

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. 188/2011.