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

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

INDEX

1. GST- is your Business winding down?

2. GST- New Due Dates

3. Do you sell Online?

4. Are Family Trusts for Everybody?

XMAS TIME AND OFFICE DATES

GST- IS YOUR BUSINESS WINDING DOWN

If the value of your taxable supplies within a 12 month period is $40,000 or less, your GST registration becomes voluntary, unless you expect the value of your taxable supplies to exceed $40,000 within the next 12 months.  This means you have the choice- you can stay GST registered , and continue to charge GST, or you can deregister and stop charging or claiming GST.  When you deregister IRD will stop sending you GST returns.  There is a process however to go through however to achieve this, as follows:

• a GST Cessation Form has to be filed with IRD

• GST has to be paid on the current value of certain assets retained 

It is therefore suggested that you consult McLean and Co before doing so.

GST- NEW DUE DATES

Alligned with IRD's new measures to allign provisional tax and GST payments from 1 April 2008 there will be some changes to GST due dates.  GST taxable periods will not change at all- only the due date that you need to file and pay your GST will change.  This means that you will continue to file and pay your GST the same number of times each year as you have in the past.

As the new dates are not consistently the same date each month it is suggested that you refer to the GST taxable period and due date printed on the GST Return that IRD send you each time you receive a GST Return.

The following table indicates the due dates if you file your GST Returns every two months:

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DO YOU SELL ONLINE?

Lots of people sell things they no longer want or need on online auction sites. If the sales aren't part of a business this is usually fine and there are no tax implications.

However if you regularly sell things online you may in fact be in business and may have tax obligations you didn't know about. If you are in business, you should be declaring your sales for income tax purposes.

So when are you in business?

As a general guide, you are in business if you:

• acquire goods with the intention of on-selling them
• intend to make a profit from the sale
• sell online as part of an established business.

If any of the above situations apply to you, then you may be operating a business. IRD routinely monitor transactions on online auction sites, and one of the key things that IRD look at in audit processes is to determine if you are in business is how often or how regularly you trade.

What are your tax obligations?

Your tax obligations are exactly the same regardless of whether you sell things online or in a shop.

If you are in business, profits on sales are subject to income tax. If your turnover is over $40,000 per year you must also register for goods and services tax (GST). Like any other business you must keep sufficient records for seven years so that we can confirm your income and expenses.

FAMILY TRUSTS FOR EVERYBODY?

Trusts have been developed in British law over many centuries.  Essentially, they are a protective measure whereby a person (called a settlor) 'gifts' assets to a trust, for the benefit of specific recipients.  This means that these assets no longer belong to the settlor- they belong to the trust- - and must be used for purposes specified by the settlor at the outset.

Major motivational factors why persons decide to set up trusts are:

• protecting family assets- for example against the vagaries of a high risk occupation.
• the possible reintroduction in NZ legislation of an Estate Duty (or Death Tax) which taxes the value of assets belonging to a person before their death.  New Zealand used to have an Estate Duty and is currently the only country in the western world not to have one. A trust would ensure assets remain exempt from Estate Duty, should it ever return.
• To assist persons to dip under the government asset-testing radar, particularly for resthome subsidies.   Gifting assets to a trust will reduce total personal assets  and help you qualify for the subsidy.  It is important to make your move early for this- you need to have finished gifting all but $25,000  of your assets to the trust at least five years before you apply for the subsidy.
• tax advantages- the current trust tax rate is 33%, which is lower the the current highest personal marginal tax rate of 39%- there is also the ability to distribute income to beneficiaries who may be at a lower marginal tax rate and this lower rate is the final tax liability.
• for personal relationship reasons- should a relationship fail, assets in a trust are not personal property and therefore not part of the joint personal estate.

Negatives relating to trust formation could be:

• giving up ownership of personal property
• the loss of privacy in that decisions about that property will be made by other trustees as well as yourself
• extra administration costs- gifting , accounting, trustee payment if professional used as trustee

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