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NEWSLETTER TO CLIENTS 2021

Thank You

First of all, a big thank you to all those clients, solicitors and banks who have worked with us through a difficult period over the last eighteen months for many families and businesses. As the vaccine for Covid-19 rolls out, we hopefully will enjoy greater freedom and movements of travel. It is certainly a period of our lives that we will never forget. We have had a lot of issues to work through with entitlements for clients, helping families and businesses with all the requirements and dealing with working from home, both for our staff and a lot of people we deal with.

We are very fortunate to be living in New Zealand which can have a very strong border and we must acknowledge the work our Government has done in getting us through this period.

Thanks for all your assistance, help and support.

 

Staff of Bailey Ingham Limited

At the start of Covid, we sent a newsletter out to all people advising them of new Directors, Bridget Boshier, Layne Kerr and Kelly Bair. We also advised that Robert Ingham was resigning as a Director and would remain as a Consultant. Unfortunately, we now find that some of these newsletters did not go out to clients, and we apologise for this.

The three new Directors joining David Bailey and Cheyne Waldron have each been with the firm for over twenty years and are all experienced rural and business professionals.

Robert has greatly assisted us through this change to ensure the Directors handling your work have a good understanding of your family and operations.

We have a very good group of Chartered Accountants and Institute members as follows:

Directors – David Bailey; Cheyne Waldron; Kelly Bair; Bridget Boshier and Layne Kerr.

Associate Directors – Jayne Peers Adams; Tracey Hall.

Chartered Accountants - Rebecca Lynch; Jessica Quirk (currently on maternity leave); Vanessa Neustroski; Rakeshwar Lal; Ashley Shrubsall; Cathrine Hurley and Jenny Martin (awaiting confirmation of membership).

Associate Chartered Accountants – Michael Crook; Carolyn Dew and Shellee Hazledon.

Accounting Technicians – Christine Benefield; Ellyn MacPherson

Office Staff – Kim Brown; Ashleigh New; Casey Rolton; Teresa Cooper, Toni Wright (currently on maternity leave) Ann-Marie Thackray and Molly Crook.

­Taxation – Sarah Hickey; Anna Needham; Leanne Cameron with Niki Needham helping out.

Accounting Staff – Amber Gane; Ana Wise; Andrea Waite; Bashi Singh; Catherine Clark; Dominic Clapcott; Janet Beehre; Jann Sanson; Jennifer Muller; Jo Butcher; Karen Budden; Ken Fisher; Kylee Burmester; Lauren Hill; Maggie Roy; Mathew Findsen; Monique Bains; Morgan Rata; Natalie McMullan; Stephanie Josling; Stevie Lacy; Tanya Le Fleming; Tessa Walker and Hamish Patel.

Administration – Carolyn Pye; Rosemary Johns.

Payroll – Dany Neustroski; Tarin Alcock.

Bailey Ingham Limited are an approved training organisation for admission to CAANZ.

We are pleased to report, in the last eighteen months, Ashley Shrubsall who works in our Taumarunui office, Cathrine Hurley from Te Kuiti, Jessica Quirk and Rakesh Lal all became Chartered Accountants after years of study and hard work. They will shortly also be joined by Jenny Martin who is now applying for full membership.

We congratulate these people and look forward to seeing their careers develop.

Recently the New Zealand Institute of Chartered Accountants Australia New Zealand carried out a survey of accounting firms in New Zealand. We are pleased to report that Bailey Ingham Limited was placed in the Top 20 Accounting Firms in New Zealand. We note that included are the major international firms and we are greatly encouraged by this and recognise the support of all our wonderful clients that have assisted in achieving this.

The New Zealand Institute of Chartered Accountants Australia New Zealand placed Bailey Ingham Ltd as No. 1 accounting firm for charitable and community work. We are humbled by this award and recognise that many firms carry out a lot of work to assist the community they live in and people they communicate with. We are very grateful for the award in recognition of how we help the communities we work in.

The strength of our firm has been, and continues to be, a lot of dedicated people who work very hard meeting the needs of the clients, deadlines for GST and income tax, and assisting with all queries. We are grateful to have such hard working staff, with many years of experience.

 

Succession Planning

A number of our farming clients have reached a stage where they are either carried out, are in the middle of, or considering succession planning. This is always a difficult topic and we are happy to work through with your lawyers and other consultants to achieve a solution.

Outlook

 

The outlook for the New Zealand economy and farming is positive and generally exceeds most peoples expectations. We have seen property prices, particularly houses, rise substantially and are getting close now to levels that are not sustainable. The introduction of lending restrictions and bright line test obviously has a bearing on this.

We see a period ahead when there will be some inflation and rising interest rates, so these need to be factored into any operations or budgets.

The above comments are of a general nature and need to be backed up by specific advice where applicable.

Once again, thanks for your support. We look forward to continuing to work with you.

From all at Bailey Ingham Limited

  

The Three New Directors

Layne Kerr

 

Bridget Boshier

Kelly Bair

 

 

Taxation Rates

Individuals: Taxation rates for individuals currently are as follows:

Income

Rate

0 – $14,000

10.5%

$14,001 - $48,000

17.5%

$48,001 - $70,000

30%

$70,001 - $180,000

33%

Over $180,000

39%

Companies: Company Tax rates are 28%, however when dividends are declared, Dividend Withholding Tax (DWT) is required to bring the effective tax rate up to 33%, made up with 5% dividend withholding tax (DWT) to be paid and imputation tax credits of 28%.

Where the person receiving the dividend lives overseas, there is no DWT payable and DWT is not payable when dividends are declared to associated companies.

Family Trusts: Family Trusts are taxed as follows:

Trustees Income 33%.

Beneficiaries – These are taxed at the individual tax rates

Children under the age of 16 generally can only receive $1,000 and any amount in excess of this is taxed as Trustees income. Once they are over 16 individual tax rates apply

Where Beneficiary Current Account’s exceed $25,000, the Beneficiary is deemed to be a settlor of the Trust and therefore can be assessed on Trust income, which could affect student allowances, Working for Families and any other entitlements.

As you may be aware there were amendments to the Family Trust Act  of 2019 and lawyers are quietly working away with their clients to review Trust Deeds and any changes that need to be made. There is a need to make beneficiaries aware they are beneficiaries in the Trust, however it is up to the Trustees to run the Trust, be aware of what the Trust requirements are, and what the Trust is doing and consider the needs of beneficiaries before making any distributions or major decisions.

Appropriate Resolutions regarding beneficiaries and major decisions are essential following meetings.

 

Student Loans

Student loan repayment threshold has been increased to $20,280 at a prescribed repayment rate of 12 cents in the dollar. This can include student loan adjustments at the end of the year and provisional tax payments for student loans, where the deductions are not made at source from earnings.

Fringe Benefit Tax

Quarters 1 to 3                                                             Quarter 4

63.93% (single rate)                                                     63.93% (single rate) or the alternate rate

                                                                                     Calculation (see below)

49.25% (alternate rate)                                               alternate rate calculation (see below)

The alternate rate calculation applies the following rates:

Income plus Fringe Benefits                                        Rate

0 - $12,530                                                                   11.73%

$12,531 - $40,580                                                        21.21%

$40,581 - $55,980                                                        42.86%

$55,981 - $129,680                                                      49.25%

Over $129,680                                                             63.93%

 

Low Interest Rates

Low interest rates for fringe benefit tax should be at 4.5%.

Depreciation

Straight line or diminishing value can be applied on an asset by asset basis. Depreciation rates vary depending on estimated useful life. Individual asset purchases can be immediately deducted in some circumstances. The relevant thresholds for immediate deduction are:

Purchase Date                                                             Deductibility Threshold         

19 May 2005 to 16 March 2020                                  $500

17 March 2020 to 16 March 2021                               $5,000

17 March 2021 and after                                             $1,000

Buildings           Residential buildings are not depreciable. Commercial and industrial buildings are depreciable at 2% DV or 1.5% SL.

Fitouts               Commercial fitouts are depreciable. Residential fitouts are non depreciable, but chattels can be depreciated.

Donations

Companies        Allowed a deduction for approved charitable donations up to their net income.

Individuals         Cash refund for one-third of donations of $5 or more to approved charitable organisations (provided the value of gifts made do not exceed their taxable income). This is up to the level of taxable income.

Use of Money charged by Inland Revenue

Under payments - 7%

Overpayments - nil

Use of money charges apply where the residual income tax for the year exceeds $60,000 and the residual tax has not been paid by the last tax payment due for the year. Penalties can also apply in respect of late payments or under estimations. We can use Tax Pooling at a lower cost in respect of the previous year’s income tax, but not GST.

Bright Line Test

The Bright Line Test includes subdivision of farm land into house sections and lifestyle blocks, and was increased on the 27th March 2021 from five years to ten years. Before entering into any agreement for sale, please contact our office to discuss.

The bright line test on properties has been extended from five years to ten years on all existing properties, sections, beach properties and subdivisions, and it is in effect a capital gains tax.

Where a farm is being purchased which does include a separate section, and or house, that is to be subdivided or has been subdivided, this needs to be assessed at full value to ensure on sale, there are less taxable issues.

There has also been changes in interest deductibility for existing houses. This is getting phased out on houses purchased on finance as follows:

1st October 2021 – 75% deductible

1st April 2023 – 50% deductible

1st April 2024 – 25% deductible

1st April 2025 – no deduction

The Government are now working through the legislation which has not been passed, and submissions have now closed on the deductibility and treatment of new housing and what constitutes new housing. No doubt there will be considerable media commentary on this as matters evolve.

The current ring fencing of losses still apply in that rental losses have to be offset against future rental income.

 

Payroll 

There have been a number of changes to payroll legislation recently that will increase the cost to employers:

  • Sick leave increase – minimum sick leave entitlements are increasing from the 24th July 2021. Currently all employees are entitled to 5 days sick leave after six months continuous service. Employees will get an extra 5 days when they reach their next entitlement date, i.e. after reaching 6 months employment, or on their sick leave entitlement anniversary. The maximum amount of unused sick leave that an employee can carry over from previous years will be 10 days with the maximum entitlement remaining at 20 days.
  • Statutory holiday – a new statutory holiday has been introduced. This is Matariki Day and it will be first celebrated in 2022 with the holiday falling on the 24th June 2022.
  • Holiday pay calculations – the Government has stated it will adopt the Holidays Act Task Force’s recommendations on changes to the calculation for holiday pay. One of the main changes is that gross earnings used to calculate holiday pay will include all cash payments, apart from reimbursing allowances. This will include discretionary bonuses, for example, bonuses paid at Christmas time. Legislation is expected to be introduced in early 2022.

ACC

ACC rates have decreased over the years with the large investment portfolio ACC have, which has assisted in keeping costs of claims down.

ACC have delayed issuing invoices for a large number of entities and are now catching up, and people are now often faced with two years ACC levies. If cashflow is an issue they will spread payments out over several months without interest charges, or can have a longer period to pay.

Cover Plus Extra

This product gives individuals the opportunity to set their own level of cover and quotes can be obtained for this by either going online https://www.acc.co.nz/for-business/understanding-your-cover-options/optional-cover-coverplus-extra-cpx or contacting this office. It does give certainty and is particularly useful in the first year of business or where earnings are either far higher than you would want from ACC or far lower. The maximum earnings for ACC is $130,911 and the minimum is $36,816. There is a small premium to pay because of the certainty and the ability to fix earnings.

Livestock Values

The livestock national average market values for the Herd Scheme and the National Standard Cost (NSC) have been announced. These are attached. We now comment as follows:

            Herd Values:

  • Sheep – there has been a solid lift in sheep values, closer to the 2019 values.
  • Beef – these also increased by approximately 5%, but not as high as they were in previous years.
  • Dairy cattle – these have remained reasonably constant, although Friesian bull calves and R2 bulls have had a drop. Dairy Heifers have increased slightly, while cows have remained almost constant at $1,528.

National Standard Cost:

  • NSC values have remained much the same. The calculation for these are a combination of stock bred and livestock purchased.

In 2020 we tried to get as many farming entities as possible on to the Herd Scheme, but this is dependent on a number of factors:

  1. Income received during the financial year.
  2. Tax rates.
  3. Outlook for the industry.
  4. Individual plans for each farming entity.

The benefit of the Herd Scheme is that when you sell there is generally only a small taxable amount over and above the herd values. As we prepare each farmer’s accounts, we review what is the best option, taking into account individual circumstances.

Developmental Expenditure

The following development expenditure can be written off 100%

  • Fencing
  • Pasture renovation
  • Fertiliser not as part of significant capital activity
  • General Fertiliser
  • Legal fees regarding finance
  • Weed and Pest control
  • Re-metalling existing races

Developmental expenditure to be capitalised and depreciation rates:

                        Improvement                                                                                                             %

1

Preparation of the land for farming or agriculture, including cultivation and grassing

5

2

Regrassing and fertilising all types of pasture in the course of a significant capital activity that relates to a type of pasture with an estimated useful life of more than 1 year

45

3

Draining of swamp or low-lying lands

5

4

Construction of access roads or tracks to or on the land

5

5

Construction of dams, stopbanks, irrigation or stream diversion channels, or other improvements for the purpose of conserving or conveying water for use on the land or for preventing or combating soil erosion, other than planting or maintaining trees, whether or not on the land, for the purpose of providing shelter to the land

5

6

Construction of earthworks, ponds, settling tanks, or other similar improvements mainly for the purpose of the treatment of waste products in order to prevent or combat pollution of the environment

5

7

Sinking of bores or wells for the purpose of supplying water for use on the land

5

8

Construction of aeroplane landing strips to facilitate aerial topdressing of the land

5

 

Kiwifruit

  1. Kiwifruit plants can be written off at 7½% per annum.
  2. Licenses purchased can be amortised over the life of the licence. Currently Sun Gold Licenses have a seventeen year period and are amortised over this period.
  3. Please note, for taxation purposes these costs are amortised, and a full year’s amortisation applies, even if carried out towards the end of the financial year.

Private Adjustments

A number of years ago the Inland Revenue Department issued a change in claims whereby house costs generally were reduced from 25% to 20%, unless there are specific reasons for varying this. This includes insurance, power and repairs.

In addition, it is noted there is no claim for GST on employee’s house expenses as they are deemed to be rental houses. The rent proportion of their remuneration does not attract GST.

 

Sale & Purchase of Farms

Sale & purchase of farms are generally zero rated as a going concern, where there is a vendor and purchaser registered for GST. Care has to be taken in these agreements and generally you should not sign agreements without consulting both your solicitor and this office to discuss, as some vendors are not registered, while some purchasers do not wish to register.

 

 

 

 

Subdivisions and sale of Sections

There has been a large increase in the number of subdivisions being done from farms. Where the land being sold cannot be farmed as a viable business, or is not being used for other purposes, the purchaser generally should not be registered or is not registered, and therefore the vendor is liable to pay the GST. The GST can be claimed against the proportion of GST payable on the section for real estate fees, legal fees and subdivision costs.

For example:

Income

      Sale of Section at                                                                      $345,000

                            GST payable by vendor                                                                                                                        $ 45,000

Claims for vendor

      Subdivision costs                                                                      $   46,000

                            GST claimed                                                                                               ($  6,000)

      Commission, say                                                                       $   16,100

                            GST claimed                                                                                                ($  2,100)

      Legal fees, including legal fees for subdivision             $     3,450

                            GST claimed                                                                                                ($     450)                        ($   8,550)

Net GST Payable                                                                                                                                                                $  36,450

Sale of Farm Land within Ten Years

Generally, if the work is of a minor nature, or the land being subdivided can be farmed as a viable business, there would be no income tax payable. GST would generally be payable where the purchaser is not registered for GST.

Where a subdivision is going to be carried out, please check with the office to see what the position is.

Health & Safety

This remains a must do requirement with good introduction procedures signed off, regular meetings and continued awareness of keeping everyone safe.

Climate Change Healthy Rivers

Many farmers are working through this or have completed plans. Fortunately there are some very competent people to assist with these plans at a reasonable cost. However, the new rules do present challenges but we are confident farmers will meet these just as they have done before with other changes.

 

 

 

Our offices

 

 

 

 

Our offices are located in Otorohanga, Taumarunui and Te Awamutu

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