All text must be copied without modification and all pages must be included.
This document must not be distributed for profit.
McLEAN AND CO.
Tax Exempt Organisations/ GST
Gift Duty Changes
IR3 FORMS FOR 2011 MUST BE PROCESSED BEFORE ISSUING DONATIONS REFUND
IRD need to check donation claims against a taxpayer's current year income, which means there is a need to process their Individual Tax Return 2011 (IR3) before or at the same time as their Tax Credit Claim form.
The total donations, childcare and housekeeper payments claimed in a tax year can't exceed a taxpayer's taxable income for that same year. IRD use the IR3 to verify taxpayers taxable income before issuing a refund.
This means the IR3 Return for the current tax year must be filed before IRD can process the Tax Credit Claim form (IR526). If the IR526 is filed before the IR3 , you will have to wait for their refund. This can be managed by filing IR526's and IR3 at the same time.
IRD have issued a revenue alert for donations tax credits because they're increasingly seeing situations where people are claiming tax credits for "donations" where they haven't made a true gift of their own money. Such arrangements involve recharacterising (as a gift of money) gifts, which wouldn't ordinarily have been a donation, to receive the donations tax credit.
Payments made under these arrangements are not a charitable or other public benefit gift, and don't qualify for a tax credit. Where IRD consider donations tax credits have been claimed in such situations, IRD will recover the excess tax credit from the person making the claim and will also consider imposing monetary penalties.
IRD encourage you to tell them if there's something wrong with your IRD Returns, so it can be corrected as soon as possible. This is called making a voluntary disclosure. Anyone can do it and there are benefits if you do it yourself rather than waiting for IRD to find out.
If IRD find you've made an error in your tax returns, you may face significant shortfall penalties. By making a voluntary disclosure before IRD notify you of an audit you'll get the benefit of:
If you make a voluntary disclosure after IRD have notified you of an audit but before IRD start the audit there are still some benefits:
Include the following information when making a voluntary disclosure:
To make a voluntary disclosure you can:
TAX EXEMPT ORGANISATIONS/ GST
In some cases it may be unclear whether a tax-exempt organisation needs to be GST registered and if so, what income is used to determine the $60,000 threshold. Section 51(1) of the Goods and Services Tax Act 1985 (GST Act) outlines the liability to register.
Even if an organisation holds an income tax exemption, it must register for GST if:
Turnover doesn't include donations received in the form of "unconditional gifts" because unconditional gifts made to non-profit bodies aren't consideration for the supply of goods or services. "Unconditional gift" is defined in section 2(1) of the GST Act.
However, this definition expressly excludes payments made by the Crown or a Public Authority. Any grants received from a government agency aren't regarded as a donation. Section 5(6D) of the GST Act requires any payment in the nature of a grant or subsidy made on behalf of the Crown or by any Public Authority to be a supply of goods or services and therefore included in the turnover figure.
If the organisation charges for services provided overseas, whether nominally or otherwise, these charges should also be included as turnover, even though they would be zero-rated.
Recent changes now mean that Gift Duty will no longer be charged on liable gifts made on or after 1 October 2011. Gift Statements will not be required for these gifts, but will still be required for liable gifts made before 1 October 2011.
|McLEAN AND CO KNOWLEDGE CENTRE AND ARTICLES ABOUT TAXATION AND BUSINESS IN GENERAL PRESS HERE||FOR BUSINESS STARTUP KNOWLEDGE CENTRE PRESS HERE|
|FOR INFORMATION ABOUT COMPANY INCORPORATION PRESS HERE||FOR PREVIOUS MONTH EMAIL NEWSLETTERS PRESS HERE|
If we can assist further, please email McLean and Co as follows:
International tax compliance can be complex and difficult. To help you get it right, we've compiled the following list of commonly misunderstood tax facts relating to individuals:
It's important to keep the above in mind when preparing tax returns for individuals with international investments. New Zealand has a large migrant population as well as ex-pat executives, many of whom come from countries with quite different tax systems
DRIVERS OF PROFIT AND CASHFLOW
Profit and Cashflow is the lifeblood of a business and significant factors in the success of any business. The following are significant factors related to these:
Revenue Growth Percentage
Allowance for the fact that invariably you have to pay for the stock/ Labout to produce the sale, before you make the sale. You have to be in a position to fund the sale in these circumstances.
Price Change Percentage
This is a consequence of any price adjustments, be they increase , decrease or discount. Margins should be monitored to see when it is time to increase prices. Many business think they can't increase prices because they lose customers, but most people understand that prices go up- wages and fuel go up constantly. When your suppliers prices go up use this opportunity to increase yours. If you dont increase prices regularly, gross profit will reduce and your overall profit and cashflow will be significantly affected
Cost of Goods Percentage
This relates to the comparison of your sales price and the direct costs of the stock/ materials purchased to achieve those sales. The setting of the value of your sales prices by yourself, your reaction to increased, decreased prices charges by your Suppliers can increase or decrease the Cost of Goods Percentage, which is an impostant factor in Profit or Cashflow. In your Financial Statements, the Sales less the Cost of Sales is your Gross Profit. If your Gross Profit is less than your Overheads, as discussed later, you will make a Loss. Therefore it is important to achieve a Cost of Goods Percwentage which is to your financial favour.
Overheads occur all the time e,g, wages, rent, power, telephone. Your overheads will continue even if you are not achieving sales at the time. It is therfore important to contol Overheads.. A good way to do this is to prepare a budget for the year, and regularly compare this budget against actual. You should also be flexible and change your budgets if your business circumstances markedly change during the year.
Accounts Receivable Days
This is the number on days, on average, that customers are taking to pay. Regular follow up is one way of decreasing Accounts Receivable days. It should be remembered that your customers supply all the cash to run your business
Accounts Payable Days
This is the number on days, on average, taken to pay suppliers. It is common to see this number at less than the Accounts Receivable days number. Such actions can result in a cash squeeze. so Accounts Receivable days are important to avoid this.
Inventory and Work in Progress Days
Inventory days is the number of days, on average, stock sits in store waiting to be sold. Work in Progress days is the number of days jobs are in progress prior to invoicing. You need to have stock ready to sell when customers are ready to buy, but not too long , as this will suck up working capital. With reference to Work in Progress (which would involve you paying out wages, buying stock etc. accordingly for same) , the longer it takes to complete jobs and invoice, the more working capital is needed , Speeding up job management and reducing Work in Progress days will have a positive impact on cash. Interim/ Progress charges may be appropriate and necessary, so that your business cash flow is not affected, if there is a reasonable lengthy period before completion of a job.
If you fail to make the payments due under a mortgage on your home, the lender (the "mortgagee") has the right to recoup the loan amount through exercising the powers contained in the mortgage contract. Usually this is done through the power to sell the property.
The mortgagee must, however, fulfil certain strict legal requirements, including serving you (the "mortgagor") with the proper notice. If these requirements aren’t met then you may be able to apply to the court for a remedy.
Before taking action the mortgagee must serve you with a notice under section 92 of the PROPERTY LAW ACT 1952. This notice must adequately inform you of:
The date specified must be at least four weeks from the date on which the notice is given. But if the mortgage contract specifies a period for this that is longer than four weeks, the date specified in the notice cannot be earlier than the end of that longer period.
If you receive a notice from your mortgagee that does not comply with the legal requirements, you may be able to apply to the court for an injunction to prevent the sale going ahead. Further, if the mortgagee exercises the power of sale before the date specified in the notice, you may also be able to apply to the court for a remedy.
The mortgagee has a statutory duty to take reasonable care to obtain the best price reasonably obtainable as at the time of sale. If the mortgagee breaches this duty, you can apply to the court for a remedy.
To satisfy the duty the mortgagee must adequately market the property, which may involve advertising outside the local area, giving notice of the property’s advantages (including the potential for any development), and setting a realistic reserve price based on the property’s valuation.
The mortgagee can exercise the power of sale in one of three ways:
If the mortgagee chooses to exercise its power of sale through the High Court Registrar, it must apply to the Registrar and notify the Registrar of the name and address of the mortgagor and of any other mortgagee. The Registrar must be satisfied that the mortgagee is entitled to exercise its power of sale.
A mortgagee is entitled to buy the mortgaged property only if the sale is conducted through the Registrar.
There is a small degree of protection afforded to you, the mortgagor, through the "redemption price" – this is the price at which you may redeem the land to be sold. At any time before the Registrar’s sale you may pay the redemption price or the amount due and owing under the mortgage; the mortgagee must then release the mortgage.
The redemption price is set by the mortgagee, and must be specified in the mortgagee’s application to the Registrar to conduct the sale. Any advertisement for the mortgagee sale must state that the redemption price is available at the Registrar’s office and can be obtained before the auction.
Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by senior associate Phil Shannon who can be contacted at email@example.com
Q. I am looking at a number of properties to buy and a couple of them are being sold by way of mortgagee sale. I have never bought a property from a mortgagee but understand from other people that there are some differences in the way the property is sold. I am a cautious investor and do not want to assume too much risk in my contracts. As a buyer, what is the difference between a mortgagee sale and a normal sale of property?
A. As the sale is being undertaken by the owner's bank or finance company there are some potential issues that mean you need to take more care than you would in a normal property transaction.
A lender owes certain duties to the home owner when exercising its power of sale. There is a general duty to obtain the best price reasonably obtainable at the time of the sale. This includes advertising the property correctly and undertaking adequate marketing. However, although this duty of care is owed to the owner, the protections available to a buyer in a mortgagee sale are more limited.
When buying a property in a mortgagee sale, you should check whether the agreement for sale and purchase is conditional on the mortgagor failing to repay his or her debt by a certain date. Even in an "unconditional" agreement for sale and purchase, there may be a clause allowing the mortgagee to cancel the agreement if the mortgagor discharges the debt, or brings a legal action to stop the sale from going ahead. This means in some cases you will not be certain that the sale will go ahead until the actual settlement date.
It is also important to check who the agreement for sale and purchase is with. From the time the lender gains the right to exercise its power of sale, the owner is not able to sell the property without the lender's consent. It is therefore unwise to enter into an agreement for sale and purchase with an owner without checking that the bank has consented.
An agreement for sale and purchase in a mortgagee sale is usually different from the standard contract that you have seen in your other property deals. The lender will require removal of some of the more common contractual provisions.
As the lender wishes to dispose of the property as soon as possible, it may be unwilling to negotiate the terms of the agreement, or allow the purchaser to make it conditional. It may be difficult to make the agreement subject to finance or a builder's report, which means that you need to arrange finance and be satisfied as to the condition of the property before entering into the agreement.
Another potential pitfall is that a lender's agreement for sale and purchase will not usually guarantee vacant possession. You should find out whether the mortgagor is still occupying the property, or whether there are existing tenants. If this is the case, it may become your responsibility to make the previous occupiers vacate the property after settlement.
Furthermore, there is usually no vendor's guarantee for the condition of the property, including compliance with the building code.
If you are able to inspect the property before the sale, it will not necessarily be in the same condition on the settlement date.
The owner has the right to remove any chattels that would usually be included in a sale and purchase agreement.
You as the purchaser must bear the risks for any defects or damage to the property, so it may be a good idea to adjust your offer to take this into account.
You should also insure the property as soon as the agreement for sale and purchase is signed, so that you are not out of pocket in the event of damage to the property.
Given the numerous potential issues associated with buying a property at a mortgagee sale, it is important to do your homework before signing an agreement for sale and purchase.
Find out as much as you can about the property, read the agreement carefully, and discuss the proposed purchase with your solicitor.
The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.