Good accountant, Do I Need a Trust, Abolition of Gift Duty

Your Accountant should be proactive, up to date with Tax Laws, willing to listen to you, the client. Recommend a good approach to your problem. Work for you, not the taxman, within the laws provided. Your Accountant needs to be flexible. After all, he is providing you with a service. An agreed fee for his services Having said this, there are some occasions this is not possible, normally where it involves time that your Accountant can’t control, like a tax audit involving Inland Revenue.
On the other side of the coin, there are a few things he does expect from you, the client:

  • Tidy records presented in a manner agreed upon.
  • Good and timely communication, should there be reason for any queries while in the process of preparing your end of year accounts and tax return. In these poor economic times I have occasionally been asked for a discount on my fee charged.

Let me tell you a story that happened eighteen months ago:

A client, an Australian (I can knock them because I have family connections), asked me, would I discount his fee? I explained, all I have to sell is time, and that is limited by the number of hours both me, and my staff, can work. If I give him a discount, then that is time I effectively can’t give to another client. One who pays full price. Anyway, I relented and gave him a discount on the understanding that he would be charged for any time outside of the agreed work involved and that I would not be proactive and make regular contact with him. Some time later, he decided to buy a commercial building. Not wanting to spend the pennies with me, he decided to do it without any advice from myself. When it came time to claim the GST on the building, Inland Revenue rejected his claim for the GST in excess of $200,000.00!

We have since agreed on a fee that is acceptable to us both.

Trusts, Is there still a need to have one?

With the decrease in the highest marginal tax rate from 38% to 33%, being the same rate of tax paid by Trusts, there have been some clients asking is it tax beneficial having your assets in a Trust.

My answer – the tax benefits are only a pleasant consequence of having a Trust, to protect your assets.

Let me tell you a story about Bob the Builder. Bob had worked hard all his life, to provide for his family. While doing so, he has amassed a rather large asset base, which he was hoping to pass to his children. Over the years, I have tried to convince him that he needs to put his assets into a Trust, but he wouldn’t have a bar of it, saying “I pay my bills, I don’t need a Trust”.

I bumped into him the other day. He didn’t look happy at all “what’s up Bob?” I asked “I can’t look after the wife any more, because her illness has progressed. The Government tells me that I’m allowed a house, a car, and $115,000 in assets. Anything above this will go towards her care. –

If Bob had taken my advice and formed a Trust some time ago his assets would have been gifted to the trust, and fully protected. He would still be unhappy about his wife, but at least he would be able to retain all of the assets.

Abolition of Gift Duty

The general thought on the abolition of Gift Duty is, come 1stOctober, 2011, your Solicitor/Accountant will do one final gifting of the debt owed to you by the Trust and that will be the end of it. However, there are other things to consider, and before allowing your solicitor to do this, you should speak to your Accountant, especially if you are:

1. In business

2. You have an LAQC transitioning to an LTC

3. Or you still have some way to go in your gifting programme

It is my understanding that although Gift Duty is being abolished, it is still important to keep records.