RESOURCES
Newsletter August 2021
In this newsletter we look at the reinstatement of depreciation on commercial and industrial buildings, the new purchase price allocation rules, various employment changes and the new trust disclosure rules.
Reinstatement of Depreciation on Commercial and Industrial Buildings
Since the 2012 income year the depreciation rate for commercial and industrial buildings had been reduced to 0%. Following the Government’s raft of Covid-19 support measures, depreciation can now be claimed on commercial and industrial buildings from the beginning of the 2021 income year. The reinstatement will mean commercial and industrial buildings are now depreciated at 2% diminishing value or 1.5% straight-line. Residential buildings continue to have a 0% depreciation rate.
If you had previously depreciated your commercial or industrial building prior to the 2012 income year, you must continue to depreciate the building from the 2021 income year. Alternatively, if you own a commercial or industrial building that you held prior to the 2012 income year and you had previously elected not to depreciate, you must continue not to depreciate.
Purchase Price Allocation Rules
If you are planning to buy or sell a business, you need to be aware of the new purchase price allocation rules that apply to business asset sales as well as commercial property sales. The new rules took effect from 1 July 2021 and impact the way parties allocate the agreed purchase price between tangible and intangible assets.
The new rules overcome the issue of vendors and purchasers allocating different prices to the same asset resulting in a tax mismatch for Inland Revenue. Under the new purchase price allocation rules, the parties either have the option of agreeing an allocation which will be applied for tax purposes by both parties, or if no agreement is made, then a legislative process applies for determining the allocation.
There is a de minimis threshold for transactions where the total consideration is less than $1 million, or if residential land and chattels are involved, the threshold is for consideration of less than $7.5 million.
Employment Matters
SICK LEAVE ENTITLEMENT CHANGES
The recent passing of the Holidays (Increasing Sick Leave) Amendment Act increased the employee sick leave entitlement from 5 to 10 days per year. The change comes into effect on 24 July 2021. The day in which the employee’s sick leave increases is based on their next entitlement date and not automatically from 24 July.
MEDIAN WAGE INCREASE
The median wage increased from $25.50 to $27 gross per hour from 19 July 2021. This has implications for employers who may be intending to employ staff on an essential skills visa or residence visa.
COVID-19 TRAVEL POLICY
The current pause in the trans-Tasman bubble and Wellington’s recent alert level change serves as a timely reminder that businesses need to plan for on-going travel uncertainty. Make sure you have an updated travel policy in place that covers what to do when an employee’s work or personal trip is extended, and the steps that employees should take when travelling in the bubble.
COVID-19 VACCINATIONS AND EMPLOYEES
As the vaccination programme rolls out across New Zealand, you might be wondering what your obligations are as an employer. Make sure you are clear on what you can and cannot do when it comes to Covid-19 vaccinations and your workers. Employment New Zealand has released some guidelines to help employers understand their role in the vaccination process. The guidelines can be found on their website together with a one-page PDF for your workplace.
New Trust Disclosures
With the introduction of the 39% tax rate for individuals from 1 April 2021, the Inland Revenue is increasing the information it collects from trusts to assess compliance with the new tax rate and to monitor how trusts are being used.
TRUST DISCLOSURE OBLIGATIONS
The additional information that needs to be included in a trust’s tax return (from the 2022 tax year) includes:
- name, IRD number and date of birth of beneficiaries, settlors and those with power of appointment and removal of trustees
- financial statements
- details of settlements
- details of distributions to beneficiaries
Non-active trusts, charitable trusts, Maori authority trusts, and New Zealand trustees of foreign trusts do not need to provide this additional information.
INCREASED DISCLOSURE OBLIGATIONS TO BENEFICIARIES
In addition to the above, from January 2021, trustees need to disclose the following trust information to all beneficiaries, including parents/guardians where the beneficiary is under 18:
- that they are a beneficiary
- name and contact details of all trustees
- that they can request a copy of the trust deed and the financial statements
Trustees can choose not to provide requested information to beneficiaries provided the request has been reasonably considered.
The beneficiary does not need to be told the reason for not providing the information.
CHANGE TO DEFINITION OF SETTLOR
There has also been a change to the definition of a settlor. A beneficiary with a current account greater than $25,000 will now be deemed to be a settlor if a market interest rate or Inland Revenue’s prescribed interest rate is not charged. This can have implications for the beneficiary such as student loan repayments and social assistance.
Please get in touch if you require any assistance on the above.
