PAID PARENTAL LEAVE
Paid parental leave is a government-funded entitlement paid to
eligible working mothers and adoptive parents when they take parental leave
from their job(s) to care for their newborn or adopted child (under the age
of six). These payments go towards the loss of income that working
mothers and adoptive parents experience when they take parental leave from
work to care for a new baby or adopted child.
Paid parental leave payments equal your normal pay (before tax) if
you're an employee, or your average weekly earnings if you're self-employed,
up to a current maximum of $441.62 a week before tax. If you're
self-employed and make a loss or earn less than the minimum wage, for at
least 10 hours work a week, the payment is $127.50 each week before tax
(this is equivalent to 10 hours each week at the current minimum wage rate).
You can receive paid parental leave for a maximum of 14 weeks. You can
transfer your paid parental leave to your spouse or partner, as long as they
also qualify for paid parental leave from their employer or self-employment.
IRD will pay parental leave payments directly into your bank account
each fortnight. The payments will be treated as income, just like your
normal salary and wages or self-employed income. Paid parental leave
payments have tax and student loan deductions taken out (at whatever rate
applies to you). It will not have earners' levy deducted from it.
IN A PROPERTY OWNED BY AN LAQC, COMPANY , PARTNERSHIP OR TRUST
If you're living in a property owned by your LAQC and are claiming what
would otherwise be private expenses, this may be regarded as tax avoidance.
If you Rent your Family Home to Yourself
Problems arise when an LAQC buys an LAQC shareholder’s family home, and
shareholders continue to live in the home and claim deductions (such as
interest, insurance, rates and maintenance) for the property. In most
instances this is considered tax avoidance.
You may believe that if you continue to pay market rent to the company
you can continue to claim these LAQC losses against your income. However,
IRD are likely to consider the arrangement to be tax avoidance.
The same principle applies if a similar structure is used such as a
company, partnership or trust.
The problem arises when a structure (eg company, partnership or trust) is
set up which enables an individual to rent their family home effectively to
themselves. The individual or their family then continue to live in the home
and claim deductions (such as interest, insurance, rates and maintenance)
for the property which would otherwise be private expenditure.
Living temporarily in a Property owned by your
LAQC, Company, Partnership or Trust
From time to time a shareholder will move into a home owned by their LAQC
which they had previously rented to tenants. There may be good reasons
why they do this. For example:
- inability to find tenants
- relationship breakdown
- relationships formed with tenants
- renovating or building your own home.
But, if you live in the property and you’re a shareholder, you
generally cannot continue to claim what would otherwise be private expenses,
as outlined above.
Whether or not this structuring and claiming of resulting losses is
considered tax avoidance depends on a number of factors. For example,
whether the arrangement is permanent or temporary, and whether there are
commercial factors driving the decision to live in the property.
IRD look at these arrangements on a case-by-case basis, but in many
situations they may be regarded as tax avoidance.
Living with your Tenants in a Property Owned by
your LAQC, Company, Partnertship or Trust
The situation about tax avoidance is less clear when both a
shareholder/owner and other tenants live in an LAQC-owned home. IRD consider
the proportion of expenses attributable to the shareholder/owner is not
GIFT DUTY TO BE
The Government has confirmed that it will continue with its
intention of abolishing gift duties in New Zealand.
On November 1st 2010 it was revealed by Peter Dunne, Revenue Minister of
New Zealand, that gift duties will no longer be applicable in New
Zealand, as of October 1st 2011.
According to Peter Dunne, various government departments have
worked throughout the year to assess concerns surrounding the abolition
of gift duties, and to appraise the move’s viability. Subsequently
it was agreed that gift duties are generating an approximate NZD 70
million annually in compliance costs for the national private sector,
while not raising any significant revenues for the Government. The
Minister went on to say that the Government’s “work has revealed
that the protection that gift duty offers in the areas of income tax,
creditors and social assistance has only ever been incidental and very
After gift duty is abolished the Government will monitor the
subsequent effect on the economy and tax system, to ensure there are
no unintended effects or unexpectedly arising oversights. According to
Peter Dunne there are currently adequate existing legislation which
will provide appropriate levels of protection to all the risks
associated with repealing gift duty.
REASONS TO KEEP A FAMILY TRUST
Setting up a Family Trust has a number of advantages if operated in a
proper manner. The abolishing of Gift Duties reduces the
cost of setting them up, as there will be no more need to arrange a yearly
gifting from 1 October 2011.
1. SECRECY: Private trusts do not have to be registered and do not have
to provide financial statements in any form available to the public.
2. DEFYING CREDITORS: Gifting assets into a trust is a means of
impoverishing yourself, while not losing control and use of the assets.
Abolishing gifting duty will only make it easier to put assets beyond the
reach of future creditors. Trusts may be assailable under certain
circumstances, but their very existence still protects assets.
3. CUTTING OUT A WAYWARD CHILD: Wills are easier to challenge than
trusts. Anyone trying to cut one of their children out of a will has a
greater risk of that being contested than if they put assets in a trust and
simply exclude one adult child as a beneficiary. Similarly, adult offspring
could challenge your will if you leave money to a charity. Settle it in a
trust and they'd have a much harder job.
4. SECURITY DURING BREAKUPS: Those planning on marriage tend to feel a
lot more secure when all their assets are in a trust, because it is easier
to exclude them from any divorce or separation proceedings.
5. REST HOME SUBSIDIES AND DODGING ASSET-TESTING
REGIMES: Placing assets in a Trust reduces your personal asset
wealth, which assists in you obtaining rest home subsidies rather than
paying for rest home service out of your personal wealth. There is
currently spotlight on Working for Families because of the ease with which relatively
wealthy individuals can use trusts to reduce their income to qualify, if
only they are willing to defer taking some income from a trust for a year.
IRD are currently looking on including trust assets in Working for Families
6. WISE OLD EYES: Setting up a trust with trustees can be a means of
providing a loved one you are leaving behind with one or more advisers who
have a fiduciary duty to manage their money for them. An independent trustee
can also be helpful, some say, in convincing the authorities your trust is
not a sham.
7. TAX: This is a much-reduced reason to set up a trust. From October 1
last year year the top personal tax rate and the trust tax rate were equalised at
33%. There are still benefits here for the rich, though, as trusts can be
used to stream income to family members on lower tax rates.
8. PROTECTING ASSETS FROM BEYOND THE GRAVE: You might not trust your
daughter's – or son's – other half. One solution is to leave your
offspring nothing but a beneficiary interest in a trust set up to ensure
your son-in-law or daughter-in-law can't split with half of your hard-earned
wealth. It can also allow you to ensure the family bach, for instance, is
not sold and your grandkids get to enjoy it.
9. INTRODUCING COMPLEXITY: The rich love complexity in structuring their
affairs. It makes auditing them harder, befuddles those seeking money from
them, and allows for more related party transfers of assets and tax
reduction methods. The IRD has made inroads in auditing the wealthy, but
trusts remain valuable to them.
10. FUTURE-PROOFING: The argument is that the government can, and does,
introduce new taxes and levies from time to time, and that a trust can help
people avoid some of them. There has been some truth to this, but government and its departments are getting better at catching trust
assets in their planning.