April's Tax Talk

Family trusts

I have been called upon on two occasions since Christmas where the Ministry of Social Development has called for a full set of financial statements for a family trust, where one of the settlors has applied for a Residential Care subsidy.  This once again highlights that family trusts are increasingly coming under the microscope.  If you want to use your trust correctly, then it's important that all documentation be correctly completed, along with the financial statements that needs preparing annually.  The days are over where you could just go to your solicitor, get them to draw up a trust deed,put your family home into it and do nothing after that.  Those with trusts need to consider if they want to continue with their trusts, putting in the time, effort and expense to get things right, or is now a good time to wind it up.

Warning about overseas pensions

For those of you who get an overseas pension and never bother to declare it in your tax return, this is a subtle warning that perhaps you may want to consider doing so from this year onward.  Inland Revenue have made it known that they will be looking closely at overseas pensions.  They were slightly embarrassed just recently when the government asked them how many taxpayers had overseas pensions. The figure that they quoted was a lot less than the figure the government had, through the technology of information sharing with other governments. In my role as an accountant, I'm seeing more information sharing between government departments, New Zealand and other countries. Gone are the days where you could hide in a overseas tax haven.

The net has been widened on who is a New Zealand tax resident

While the actual tax legislation has not changed, the Inland Revenue has changed its interpretation of the wording in the legislation.

Emphasis is now placed on whether or not a person has a dwelling available to them in New Zealand. If they do, then this will more than likely satisfy the 'permanent place of abode' test.

This represents a significant shift from the historical position and as a result has widened the net of who is a 'tax resident'. Tax residency determines whether an individual will be taxed only on their New Zealand sourced income or on their worldwide income.

An individual is treated as New Zealand tax resident if:

 

  • They have a permanent place of abode in New Zealand; or
  • They are present in New Zealand for more than 183 days in total in a 12 month period (the individual is treated as being resident from day 1).

 

A person will generally lose their New Zealand tax residency if they are outside New Zealand for more than 325 days in any 12 month period and cease to have a permanent place of abode.

Historically, whether a person had a permanent place of abode or not could be quite ambiguous.  There were a number of factors that needed to be considered (such as family and financial connections, location of personal possessions, memberships etc) with little guidance on how many, or which factors gave rise to an individual having a permanent place of abode.

New interpretation

The Inland Revenue's view now is that you only need to consider permanent place of abode if the individual has a dwelling in New Zealand.  If the individual does have a dwelling in New Zealand you still need to consider other factors to determine whether a permanent place of abode exists. for the complete article click here...

By Dennis O’Grady

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Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for May’s article!

TAX DATES TO REMEMBER

 

  • 7th April 2015 - Terminal Tax Square Up for taxpayers under a registered tax agent…
  • 20th April 2015 - monthly employers PAYE payment…
  • 28th April 2015 - Bi monthly GST Return for Feb/Mar 2015…
  • 28th April 2015 - Six monthly GST Return for Oct/Mar 2015…
  • 7th May 2015 - Third instalment of 2015 Provisional Tax…