Based on current production levels, the bonus issue means around 95 per cent of our farmer shareholders will not need to buy additional shares next season to match their increased production.

The details of the bonus issue are:
•All farmer shareholders (and unit holders) will receive one share (or unit) for every 40 held on 12 April (referred to as the ‘record date’).
•This means that a farmer shareholder with 100,000 shares on 12 April will receive an additional 2,500 shares (likewise for units and a unit holder).
•All farmer shareholders and unit holders will, therefore, receive 2.5 per cent more shares/units, and Fonterra will have 2.5 per cent more shares on issue after the bonus issue.
•The bonus issue will not affect Fonterra’s total earnings or dividends paid.
•Since everyone receives more shares in the same proportion, no person will be better or worse off although earnings per share, and dividend per share will reduce proportionately.
•Additional shares or units are “free” and have no tax implications.
•No action by farmers or unit holders is required to receive the additional shares or units.
•The shares (or units) that result from the bonus issue will be received by shareholders (or unit holders) on 24 April.
•The share standard is unchanged – farmers can keep their bonus shares (e.g. to back production) or sell them.

Supply Offer
After the interim result announcement at the end of March, we will offer farmers another opportunity to offer the economic rights of some of their wet shares to the Fund, similar to the Supply Offer held last November.

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“Private use” is defined as use by the owner or an associated person or use by a third party for less than market value. Broadly there are three categories of costs:

1. costs that provide a solely private benefit that are not deductible,
2. costs that provide a solely income earning benefit that are deductible, and
3. the balance that is apportioned between the period the asset is used to derive income and the period it is used privately, as per the formula below:
expenditure x income-earning days
(income-earning days + private days)

Income earning days are defined as the days in which the asset earns a market value rate of income or above. All other days the asset is in active use are classed as private days (i.e. when the asset is in use by the owner or if it is rented out at below market rate). For example, if a taxpayer’s holiday home is rented for five weeks and used privately for five weeks then the costs, which provide neither a wholly private or income earning benefit, are 50% deductible.

Additional complexity does exist as there are specific rules around the apportionment of interest costs on borrowing and GST.

Losses are unable to be offset against other income and are instead offset against future income from the asset, if the gross income derived from renting the asset to non-associated third parties is less than 2% of:
• in the case of land, the latter of either the most recent rating valuation or cost at acquisition, or
• for other property, the cost of the asset to the taxpayer.
Taxpayers will also have the ability to opt out of the rules if the income from an asset is less than $1,000 in an income year. If a person opts out of the rules the income is treated as exempt income and not subject to tax.

With 1 April 2013 not so far away, it would be prudent to think about how these rules may apply to any mixed-use assets you own and what record keeping processes you may need to introduce.

The post NEW LEGISLATION FOR MIXED-USE ASSETS appeared first on Hughson & Associates.

However, property owners should be aware of the following regarding residential rentals:

• Repairs and maintenance expenses are only claimable if the repairs were carried out while the tenant was still living in the house or the house was still available for renting purposes. Often overseas owners returning home realise the damage done to the property after the tenants have moved out and because of the change to private use, accordingly Inland Revenue may not allow a claim for repairs to such damages.

• Splitting losses – unless the Inland Revenue is satisfied with documentary evidence to the contrary, a couple owning the property jointly cannot split rental losses unevenly. Often the higher income earning spouse claims all or most of the losses when it should be split equally.

LOOK OUT FOR OUR UPCOMING SEMINAR ON RENTALS.

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• tax credits for income under $9,880,
• childcare rebates and
• housekeeper rebates.

Taxpayers will still be able to make claims for the above for the 2012 tax year and previous years.

Student loan voluntary repayment bonus removed
Effective from 1 April 2013, the voluntary repayment bonus for extra student loan repayments will no longer be available. Extra repayments made for the 2013 year (1 April 2012 – 31 March 2013) and earlier tax years may still qualify for the bonus.

Tax Credits for Children
The tax credit for children’s earnings from paid work has been replaced with a limited tax exemption, meaning children will not need to pay tax on up to $2,340 of income not taxed at source (such as money for mowing the neighbours’ lawns). The exemption does not apply to income where tax has already been paid, such as salary, wages or interest. Also, from 1 April 2013, employers are legally required to use the no-notification rate (of 45 per cent) for PAYE when an employee does not return a fully completed IR 3.

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DairyBase allows farmers to compare their business – both against others and against themselves – over time. The system allows users to pick groups to compare their farm against. Some may be interested in regional data, while others may prefer to compare similar farming systems.

DairyBase provides a standardised, objective view. The Key Performance Indicators help identify areas for farmers to investigate and the set of comprehensive reports can be used to drill down further.

For example DairyBase will show you what percentage of your milk income you are spending on feed (in dollars, per cow and per hectare) against previous years as well as other farmers.

This is a useful tool for any farmer wanting to analyse their business and to raise questions with their accountants and advisors where additional help and focus can be given.

The software has been built with the funding from Dairy Insight so there is no initial upfront cost to sign up to the scheme. There will be time incurred to enter your data. In most cases this time should not exceed one hour, although in the first year a bit more time may be required getting some of the farm physical data from you. Where you have several entities it may take longer as we need to combine those entities to get a true picture of your farming operation.

The data is confidential and only you and those professionals you authorise are able to access your data. The data will be aggregated at an industry level and used to analyse trends but this will be at a high level and will not be able to be identified on an individual basis.

We think that this is a great project and a great opportunity for the dairy industry to pool resources and get some meaningful, timely data. The funding by Dairy Insight shows you that this is a project that has the full support of your industry.

We would like to get as many farmers participating as we can as the more farmers who input information, the more beneficial it will be. DairyBase is a great tool and it’s supported by a knowledgeable team of experts. I would encourage farmers who aren’t using it to get on board and make the most of the information that is available. If you would like to participate or discuss this further, please give me a call.

What do farmers say?
“A lot of farmers fall into the trap of solely analysing production and thinking they are doing well when the numbers fall into place. But the reality can often be that profitability is suffering. That’s where using DairyBase can help pinpoint the exact areas in your operation where you need to focus and improve.” – Michael Hart, Totara Farm Ltd, Totara Flat, Grey Valley, winner of the inaugural Westland Milk Products/DairyNZ DairyBase Profit Challenge.

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MEALS
• Employee meal costs when travelling for work – tax-free if duration of travel to a given location is less than three months, otherwise taxable in full for longer trips,
• Meal expenses (not during travel for work) – tax-free provided payments are not made on a regular basis or as a reward for employee services.

ACCOMMODATION
• Cost of employee accommodation when travelling for work – tax-free if duration of work travel to a particular work location is less than 12 months, with a discretion for travel in excess of 12 months in exceptional circumstances – taxable in full for longer trips,
• Cost of accommodation provided as part of employment, e.g. farmhouse – No change – the market value of accommodation to be treated as taxable,
• Employees who work from home – No change – market value of accommodation is taxable,
• Cost of accommodation (more than one permanent workplace) – Factual assessment of the principal place of work to be performed i.e. based on time spent. Accommodation payments for the second workplace may be tax-exempt,
• Cost of accommodation (employees seconded overseas) – Treat as taxable up to the market value of equivalent accommodation in NZ, e.g. a similar property with the same number of bedrooms.

COMMUNICATION
• Payment for employee’s communication costs (including telephone and internet) – Taxable in full except where the private/work portion is able to be separately identified.

CLOTHING
• Cost of clothing for employees – Taxable unless the clothing is necessary and peculiar to the employee’s occupation e.g. uniforms, protective or specialist clothing.

On a related topic, in December 2012 the IRD released a statement (CS 12/01) that has caused some concern. The statement outlines the IRD’s view on accommodation allowances and accommodation provided to an employee on secondment when that employee continues to maintain a home in their original location. In this situation it is accepted practice for such expenditure to be treated as non-taxable to the employee. This treatment and its approval by the IRD dates back to the now expired (in 1998) Technical Rulings Manual, which included the following statement:

57.11.1.1 Exemption – Cases will arise where an employee is required to live away from his/her normal place of residence. He/she is required to maintain the normal place of residence for the family while working away from home. In these cases, there will be no benefit in respect of the accommodation supplied by the employer as the cost of maintaining the family home will offset any benefit received. The value of the accommodation supplied will not be taxed.

In contradiction to its own historical commentary, the IRD have now advised:

• Where an employer provides accommodation or an accommodation allowance, the amount is taxable and subject to PAYE,
• When accommodation payments have been made by the employer for expenditure incurred by the employee the amount is taxable and subject to PAYE,
• Accommodation for overnight and short-term stays by an employee in another location is not taxable.

The statement has been poorly received as the IRD’s view is arguable, however due to the lack of technical analysis provided, it is difficult to confirm how the IRD has reached its view. The IRD have advised that taxpayers should make a voluntary disclosure if they have not treated amounts correctly. For this purpose the statement should be referred to as the period of reassessment, and application of interest and penalties will vary depending on the facts.

The post TAX TREATMENT OF EMPLOYEE ALLOWANCES appeared first on Hughson & Associates.

Refund Process
Rebates have to be claimed quarterly by filing the claim form (MR70), available from the New Zealand Transport Authority website www.nzta.govt.nz, which also provides a fact sheet of the refund process. Information required for completing the form will consist of details such as fuel usage, proof of purchase, opening and closing stock.
If you miss the quarterly claim, the rebate can still be claimed (up to two years) but you will lose 10 per cent of the refund.

Taxability
If you have been claiming the petrol as an expense then the refund is also taxable. It is also subject to GST output tax.

The post A REMINDER: FUEL REBATES appeared first on Hughson & Associates.

“…it is abundantly clear that the New Zealand Parliament has the right to enact legislation applying to all persons in New Zealand, whether they had ancestors who lived here in 1840 or whether they have only recently arrived in New Zealand.”

In TRA Case 9/2012 a taxpayer recently claimed to be exempt from tax under Maori law or Maori sovereignty. The case involved a company that operated a business providing shearing services to farmers, mainly in the Southland region. From January 2005, the taxpayer failed to deduct and account for PAYE on wages paid to its shearers and shed-hands. The taxpayer claimed they were not able to be taxed by the IRD as the taxpayer was subject only to Maori law and not the laws of Parliament.

The IRD was initially alerted to the situation by an anonymous caller who advised that the taxpayer was deducting a 21% “charitable tax” from payments made to workers. The taxpayer stated that this charitable tax went to Maori community purposes.

The IRD commenced an investigation and determined the taxpayer was liable to withhold tax, either PAYE (if the workers were employees) or withholding tax (if the workers were contractors). The total tax due, including a penalty for tax evasion, was $1.6m. During a meeting with the company’s director it was argued that no tax is payable under the Maori Land Act. The IRD advised that the Maori Land Act was irrelevant because that Act was about promoting the retention of Maori lands in the hands of its owners and their whanau, not income tax.

Later during the formal disputes process, the taxpayer produced as evidence a document called “Notice of Understanding and Intent and Claim of Right” under which it argued that Parliament is bound by the Maori Land Act, which allows the Maori people to set up their own judicial jurisdiction and operate within it. It stated the taxpayer had a right to claim money from the Commissioner, under its fee schedule, if its members are questioned or property interfered with – damages of $8m were later claimed.

Through Notices of Claim submitted to the TRA, the taxpayer claimed that it was subject to Maori law or Maori sovereignty, and was exempt from being taxed by the IRD. The taxpayer claimed that it was exempt from all income tax, and that the IRD was guilty of abuse of process, breach of fiduciary duties, abuse of power, constructive fraud, discrimination etc. The judge was asked to either apologise or step down as he would not accept Maori sovereignty in the case, and would not allow the case to be heard on a Marae.

The TRA Judge summed up the taxpayers claim by stating that it “was rather confusing and focuses on the pleading that the Adjudication unit, this tax review tribunal and the High Court have no jurisdiction to rule on matters of Tikanga Maori”. The taxpayer’s Notice of Claim was struck out. Leave was granted to enable the taxpayer to pursue the argument that the shed-hands and shearers were independent contractors (thus reducing the tax owed), or to dispute the evasion penalty. The taxpayer did not respond within the allocated time.

The post CLAIM FOR TAX EXEMPTION UNDER MAORI LAW appeared first on Hughson & Associates.

• Refer back to your business plan to confirm how you were planning to position your products in the market, and whether your current pricing is consistent with that plan. If you don’t have a business plan, create one.
• Consider what you’re trying to accomplish with your pricing. Pricing can send a direct message to your customers regarding who you are as a business and the type of products you offer. For example:
o Customers can assume, rightly or wrongly, that more expensive products are better quality than cheaper alternatives,
o Customers also tend to resist products they see as too highly priced; however, they also resist cheaply priced products because they assume they are low quality.
• Consider how prices will affect demand and seek active feedback from your customers, including how they value your products.
• Consider the needs of customers and the value they place on your products. This can be a major pit-fall in pricing because customers may be willing to pay more than you realise. Customers who are unhappy with pricing on the other hand will generally let a business know how they feel, or they just won’t purchase the products.
• Consider your competitor’s pricing and any perceived or real difference in value provided. This is to ensure that the business is making as much as it can and also that you are not being priced out of a market.
• Consult with a business advisor. They will have a wider understanding of what is happening in the marketplace and can help guide you through pricing decisions.
• As a general rule you should review your pricing at least annually. This is to ensure that pricing is still consistent with industry best practice and that you are getting all that you can out of your business.

The reality is that incorrect pricing can seriously undermine business performance. In a changing business landscape customer’s ideas on value can change rapidly. Businesses therefore have to be more responsive and proactive in their pricing to ensure that products are priced appropriately.

The post HOW MUCH TO CHARGE? appeared first on Hughson & Associates.

• The data shows an increase in revenue collected from GST and company tax in recent years, compared to individual tax and other duties such as customs, estate, approved issuer levy, etc,
• The percentage of resident student loan borrowers who meet their repayment obligations is now at an all time high of 97%,
• Overdue debt is increasing and has been on an upward trend for at least 10 years. A significant portion of this is made up of overdue income tax, GST and child support,
• The number of families receiving Working for Families tax credits has been increasing. However, the average entitlement received per family has decreased slightly,
• Close to 82% of customers/taxpayers surveyed say the IRD is easy to access, although only 66% think that the IRD do enough to inform customers of their rights and obligations.

The statistics can be found on the IRD’s website at http://www.ird.govt.nz/aboutir/external-stats/ .

THE PUBLIC TRUST
The Public Trust ceased their offer of free Will service from 1 July 2012, thus putting it on a level-playing field with lawyers. However, some clients on very low income may still qualify. The Public Trust’s free Will service applies but only where it is appointed as an executor, as this role recognises the costs involved in Will preparation.

DID YOU KNOW?
We are able to attend to all your ACC needs and if authorised by you, we can view your invoices on line and check these for you.

All self-employed and shareholder salaries are liable for ACC levies which are compulsory.

There are 2 levels of cover – Cover Plus and Cover Plus Extra.

Call our office for a discussion to see which best suits you.

AND FINALLY…
Reporters interviewing a 104-year-old woman:
“And what do you think is the best thing about being 104?” the reporter asked..
She simply replied, “No peer pressure.”

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