McLEAN AND CO. Chartered Accountants

Accounting          Taxation         Business Advice and Development Assistance           Audits                             

 P.O. Box 10 , Clive         133 Main Rd, Clive           Tel. (06) 8700952          Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  APRIL 2010
 
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  

 

NEW CLIENTS

We are happy to accept new clients.  We would be happy to assist colleagues and acquaintances as new clients.

 

INDEX

  1. The Redundancy Tax Credit

  2. Applying for Instalment Arrangements Online

  3. New Secondary Tax Rates from 1 April 2010

  4. Tax Statistics Available Online

  5. Trustees Obligations for Investing

 

 

THE REDUNDANCY TAX CREDIT

WHAT IS IT?

Currently, income earners can be overtaxed when their redundancy payments push them into a higher tax bracket.

If these payments are taxed at a higher tax rate, without taking into consideration your personal tax rates before and after redundancy, you may be over taxed.

The government has passed legislation to make taxing redundancy payments fairer to people who are pushed into a higher tax bracket when they receive the lump sum payment.

A simple tax rebate (the redundancy tax credit) has been introduced that will apply to redundancy payments paid on or after 1 December 2006.

 

WHO CAN APPLY?

The redundancy tax credit is generally allowed on a redundancy payment that is:

  • paid to an employee whose employment is terminated because the position is surplus to the requirements of the person's employer, and
  • compensation for the person's loss of employment.

 

WHO CANNOT APPLY?

Some payments do not qualify for the redundancy tax credit.    The redundancy tax credit is not allowed for a payment for:

  • retirement from employment
  • loss of seasonal employment arising from a normal seasonal work cycle
  • a contract of employment for a fixed term, or for the duration of a project
  • employment for a period following notice of termination of employment
  • a redundancy payment paid, directly or indirectly, by an employer who is "associated" (see below) or related to the employee.

Associated Rules

The tax credit is not allowed for a redundancy payment paid, directly or indirectly, by a person who is "associated" or related to you.   Payments that may not qualify for the tax credit include redundancy payments paid directly or indirectly by:

  • a company to its director, or to a shareholder-employee
  • an employer who is a close relative of the employee, or spouse, or civil union or de facto partner
  • a partnership to any of its partners
  • a trustee to an employee who is also a beneficiary or a settlor of the trust.

 

NEW SECONDARY TAX RATES FROM 1 APRIL 2010

New secondary tax rates and thresholds from 1 April 2010:

Income threshold Rate Tax code
(no student loan)
Tax code
(with student loan)
$0 - $14,000 12.5% SB -
$14,001 - $48,000 21% S S SL
$48,001 - $70,000 33% SH SH SL
$70,001 and over 38% ST ST SL

If any of your employees have more than one job they may want to check their tax code is correct.   They can work out if they're on the right code by using out work out your tax code decision tree. If they want to change their tax code they need to complete a Tax code declaration (IR 330) form and give it to you. You'll need to update your Employer monthly schedule (IR 348) with their new tax code and calculate PAYE at the correct rate.

Use our PAYE calculator to calculate your PAYE, go to "Work it out".

 

APPLYING FOR INSTALMENT PAYMENT ARRANGEMENTS ONLINE

If you think you may have financial difficulty paying your tax IRD  now have a new service where you can apply online for an instalment arrangement.

You can find the Instalment arrangement proposal under "Get it done online".

This is what you'll need to do when you apply:

  1. Fill in your IRD number, name and contact details.
  2. Propose an instalment payment plan, including payment amount, frequency and start date.
  3. Include your weekly income after tax.
  4. Tell IRD about the financial or personal circumstances that have led you to apply to pay off your debt.

IRD will email you within three working days to say if they have accepted your proposal or if they need more information.

 

TAX STATISTICS AVAILABLE ONLINE

A range of statistics about tax revenue and social entitlements is available on the IRD  website.

The statistics include data about customers, revenue collection, donation rebates, Working for Families Tax Credits entitlements, child support, GST turnover and filing, and income distribution by income bands.

They cover the years from July 2001 to June 2008, and customer data is available from April 2001 to March 2008. The figures will be updated every year and the current tables were published on 1 December 2009.

View the tax statistics.

 

TRUSTEES OBLIGATIONS FOR INVESTING

Trustees must be particularly careful when investing trust assets.  They must invest the trust's assets according to the Trust Deed, any statute and general law that is in place and also in accordance with any court order.

Generally a trustee must:

  • act in the best interests of both present and future beneficiaries

  • act impartially and fairly

A trustee should also take advice in areas where the trustee does not have any expertise, such as investments.  Section 13B Trustee Act 1956 states "A trustee exercising any power of investment shall exercise the care, diligence and skill that a prudent person in business would exercise in managing the affairs of others"

If the trustee has special skills from their profession, employment, or business, a higher duty of care is imposed. Section 13C Trustee Act 1956 states "the trustees in exercising any power of investment, shall exercise the care, diligence and skill that a prudent person engaged in that profession, employment, or business would exercise in managing the affairs of others"  These are high standards for trustees to meet.

It is important to note that prudent decisions are measured by how investment decisions are made by the trustees rather than the results of the investment decisions made.

An Investment Strategy should take into account the following:

  • Objectives for the Trust.  What are the trust funds required for? How much is required? Whan are the funds required?

  • The Risk Profile of the Trust.  Unless authorised by the Trust Deed, trustees must not make speculative investments.  This does not mean that trustees cannot make investments that may carry a degree of risk, but the degree of risk must be reasonable and in keeping with the trust's objective and risk tolerance

  • Capital growth and income requirements thatrmeet the needs of the beneficiaries

  • Liquidity needs for the Trust

Beneficiaries may request access to Trust documentation.  The investment strategy will show benedficiaries that the trustees are very clear about their investment obligations.

 

 

McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE
FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE

FOR PROPERTY INVESTMENT AND TAX INFORMATION PRESS HERE

FOR FRANCHISE INVESTMENT AND TAX INFORMATION PRESS HERE


The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
  • All text must be copied without modification and all pages must be included.
  • This document must not be distributed for profit.    

 

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