"The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will." -Vince Lombard
Thank you to all our clients for your business during 2011. May 2012 be a better year for all of us.
In the meantime we hope that you will be able to take some time off and enjoy a well deserved break over the holiday season.
Our office will be closed from the end of 23rd December and re-open the 18th of January.
The Holidays are upon us but here are some things you need to know
Christmas Gifts for Staff â
Jeff and Pat run a hotel business through their company Blue Co. The company gives WestÂfield vouchers of $150 to its employees as a Christmas bonus. How should this expense be treated for tax purposes?
Fringe BeneÂfit Tax
FBT would usually apply to gift vouchers that cannot be exchanged for cash.
De minimis threshold
There is a de minimis threshold that applies to unclassiÂfied beneÂfits, so - depending on whether the employer provides any other fringe benefiÂts to staff- during the year, and depending on whether FBT is paid annually or quarterly - the gift vouchers may not be subject to FBT.
For employers paying FBT on a quarterly basis, no FBT is payable provided that:
Â· the total taxable value of unclassified benefiÂts provided in the quarter to each employee does not exceed $300; and
Â· the total taxable value in the last four quarters, including the current quarter, of all "unclassified benefits" provided by an employer, or an associated person, to all its employees does not exceed $22,500.
For employers accounting for FBT on an annual or income-year basis, the total taxable value of unclassiÂfied beneÂfits must not exceed:
Â· $1,200 per employee pa; or
Â· $22,500 per employer pa
The costs incurred by an employer in providing a fringe benefit are deductible if the basic criteria for deductibility in the general permission are met - ie, the expenditure or loss must be:
- incurred by the person in deriving the person's assessable income, excluded income or both; or
- incurred by the person in the course of carrying on a business for the purpose of deriving the person's assessable income, excluded income or both.
Gifts of food or wine
In addition to the WestÂfield vouchers, Blue Co decides to give Christmas gifts of bottles of wine to the staff, as well as some wine to suppliers. How should this be treated for tax purposes?
Gifts to customers or suppliers
Any gift to a customer or supplier which is in the nature of "entertainment" - such as food and wine - will be subject to the entertainment regime. The deduction to the company will therefore be limited to 50%.
Gifts to employees
Gifts in the form of entertainment (eg, wine or food) given to employees are subject to FBT because the employee can enjoy the gift when he or she chooses. The benefit will be an unclassified fringe benefit and will therefore not be subject to FBT if the de minimis rule applies. (For further on the de minimis rule, refer to the earlier question above âChristmas Gifts for Staffâ.)
GST Filing dates over the Christmas Period
Jeff always does the companyâs GST returns but gets stumped by the rules surrounding payment dates over the Christmas period. What are the rules exactly?
The usual rule is that GST returns are due (and GST is payable) by the 28th day of the month following the end of a taxpayerâs GST period. For example, if a GST period ends on 30 September, the GST return is due by 28 October. The due date carries over to the next working day, if the stipulated date falls on a weekend or public holiday. There is an exception for returns due over Christmas. For the period ending 30 November, the due date is 15 January. As 15 January 2012 is a Sunday, the return and payment date is Monday 16 January 2012.
Even When Holidays are not upon us here are some things you need to know
Talk to us about shareholding changes
Weâve recently experienced a case where a client decided to make shareholding changes in their company, has gone online to the Companies Office website and made shareholding changes. Actually, it wasnât such a smart idea as it turns out. Changing shareholding in your company without talking to us first can have dire tax consequences. These consequences can be far reaching. Continuity of losses carried forward can be affected, imputation tax credits can be lost forever, and under the new Look Through Company regime the flow of losses will be affected. Moral of the story? Talk to us when youâre contemplating share changes. Even better, get us to be your Registered Office. In fact, we do this for most of our clients. Weâll file your annual return for you, and weâll make sure you comply with all of your statutory records requirements under the Companies Act. All for a minimal fee.
Abolition of gift duty and Residential Care subsidies
The Taxation (Tax Administration and Remedial Matters) Bill has been passed by Parliament and was given the Royal Assent on 29 August 2011. The Act contains the provisions for the abolition of gift duty. Some commentators have suggested that now gift duty is abolished consideration should be given to forgiving all remaining debt in one go. However, if this is done it may affect a person's entitlement to residential care subsidies in the future.
If a person requires residential care, they are subject to a means assessment to determine their entitlement to a subsidy for the cost of the care. The means assessment looks at the assets and income the person has available to them to meet the cost of their care. If the person who requires care, or their spouse or partner, has `deprived' themselves of any income or property, the means assessment can be completed as though the deprivation had not occurred. The result of this is that the amount which it is considered the person has deprived themselves of will be added back in the means assessment, and may affect a person's entitlement to the subsidy. The term "deprivation of property and income" is defined in the Social Security (Long-term Residential Care) Regulations 2005 and includes:
Â· Any gifts made in any 12 month period, which is more than 5 years before the date of means assessment, to the extent the total value of gifts in each period exceeds $27,000.
Â· Any gifts made in any 12 month period that is within 5 years of the means assessment, to the extent the total value of gifts in each period exceeds $6,000.
Â· The disposal of any property within 5 years of the means assessment, for no consideration or a consideration less than market value.
Â· A failure at any time to exercise any right or entitlement to demand a payment.
Â· A waiver of a right at any time to receive any entitlement of payment.
Â· An investment at any time in non-income earning assets.
Therefore, a couple, where only one of them ends up in care, can gift up to $27,000 ($13,500 each) in total in any 12 month period, which is more than 5 years before the means assessment, without it affecting their entitlement to the residential care subsidy. Furthermore, a couple, where only one of them ends up in care, can gift up to $6,000 ($3,000 each) in total in any 12 month period which is within 5 years of the means assessment, without it affecting their entitlement to the residential care subsidy. Any gifting over these amounts can affect a person's entitlement to the residential care subsidy.
When assessing the value of property and income that has been deprived, it is the deprivation by both the person who requires the care, and their spouse or partner, that is counted. For example, if the person requiring the care, and their spouse or partner, have each gifted $27,000 in each 12 month period within 5 years of the means assessment, the person requiring the care will have deprived themselves of $240,000 ($54,000 - $6,000 x 5 years). This $240,000 will be treated as if it was still available to the person. This could cause serious difficulty among family members. If, for example, parents had gifted this $240,000 to their children but were now still considered to have access to this sum to pay for their residential care, where is the money going to come from? The important point is that if a person gifts the remaining debt they are owed in one go, as suggested by some commentators, this can affect their entitlement to a residential care subsidy in the future. Those persons who do not want their gifting to affect their entitlement to residential care subsidies should continue with their existing annual gifting programmes making sure that they keep within the above limits. This will require a couple to gift only $13,500 each per annum. It has been common to gift $27,000 each per annum. This was because gift duty did not apply to gifts totaling $27,000 or less per annum. However, for rest home subsidy purposes, couples are assessed jointly so this $27,000 limit applies to the couple, not each individual.
The Social Security Act gives Work and Income New Zealand (WINZ) broad powers in assessing a personâs entitlement to a residential care subsidy. Exactly how these powers will be exercised going forward remains to be seen, however with the abolition of gift duty, WINZ will become much more active in the enforcement of the powers they have.
Although every effort has been made to ensure the accuracy of this newsletter, the information is necessarily generalised. Clients are therefore requested to seek specific advice and not rely solely on the above, if they are interested in any matters mentioned.
Paul Enoka Chartered Accountants Ltd
PO Box 31-348 Lower Hutt 5040 ,New Zealand
Phone (04) 939-7977