You may be considering whether to complete your gifting programme in one fell swoop – or perhaps not.

Everyone has their own reasons for establishing a trust, and your own individual situation will be unique to you and your family. Completing your gifting programme in its entirety may not be the best step for you.

Do get in touch with us so we can talk about the best path forward for you and your particular circumstances.

In this edition:

• Let’s give it all way – It’s not that straightforward
  With the abolition of gift duty from 1 October 2011 the first thought for most people who have a family trust would be “Let’s give it all away”
• Rest home care – Don’t expect government hand-outs
  After gift duty comes to an end from 1 October, one thing will still be clear: you can’t give everything away to a trust and then expect to rely on state assistance because you don’t own any assets…
• Trustee Liability – As vendor under an Agreement for Sale & Purchase Trustees are the legal owners of trust property and are personally liable for warranties given under an Agreement for Sale & Purchase. Trustees should be very careful about giving warranties
• Trusts and tax – The Supreme Court has spoken Using a trust – or any other structure such as a company – to reduce your income is
  not straightforward. If you push the boundaries too hard you may end up having to pay a lot more. The latest Supreme Court decision provides a useful warning

The Supreme Court has said that having a salary set at a low rate to avoid paying tax is tax avoidance. However, if the salary is at a low rate for a legitimate reason (e.g. saving income for the purchase of a capital item) then this is not tax avoidance.

A more detailed summary of the decision follows and you can read the full decision here.

Mr Penny and Mr Hooper are orthopaedic surgeons. The Commissioner of Inland Revenue alleges that they have used certain corporate and family trust structures in a way which breaches s BG 1, the general anti-tax avoidance provision of the Income Tax Act 1994.

Each of the appellants sold his orthopaedic practice to a company of which he was the sole director. The shares in each company were owned by family trusts. Mr Penny and Mr Hooper were then employed by their respective companies to undertake exactly the same surgical work as they had performed prior to incorporation.

From the time of an increase in the top marginal tax rate in 2000, each man was paid a significantly lower salary by the company than the income he had previously received when conducting the practice in his own name. The rest of the company’s net revenue was distributed to the family trust by way of dividends. Tax was paid at the lower company or trust rate. The Commissioner alleges that the use of the structures in this way constituted a tax avoidance arrangement for the purposes of sBG 1, and accordingly made assessments increasing the taxable incomes of both men for the 2002, 2003 and 2004 tax years.

The High Court found in favour of taxpayers, holding that there was no tax avoidance in the arrangements, and that the scheme and purpose of the Act did not require the taxpayers to derive the funds as personal income. A majority of the Court of Appeal, reversing the High Court, held that the incorporation of the practices and the payment of salaries at artificially low levels represented tax avoidance which was more than a merely incidental purpose or effect of the arrangements.

The Supreme Court has unanimously upheld the finding of the majority of the Court of Appeal. It has held that although the structures themselves were entirely lawful and unremarkable, the use of those structures by Mr Penny and Mr Hooper to pay themselves artificially low salaries constituted a tax avoidance arrangement in each of the relevant years. Accordingly the Commissioner is entitled to treat the arrangements made by the taxpayers as void against him for income tax purposes under s BG 1.

In this issue:

• New Unit Titles Legislation now in Force: New rules for body corporate and unit title holders
• Buyers Beware: No LIM or builder’s report?

Property briefs:

• Rest home subsidies and the abolition of gift duty
• Buying and selling a unit title property: management agreements
• Residential property developments to become acceptable investments under New Zealand Immigration investor category instructions

In this issue:

• Beware the traps of the Abolition of Gift Duty: Don’t embark on a frenzy of gifting in October
• Improving Health and Safety on the Farm: Moral, social and economic reasons to do so
• Over the Fence: Quad bike safety guidelines – Employers to retain employment agreements – Forest owners must make decisions this year

If you need advice on any of these topics, please give us a call.

Here

• Franchising – The Pros and Cons - Operating a franchise can be a very satisfying and profitable method of running a business. There are, however, some specific issues around franchising that are quite different from running a ‘regular’ business…
• Anti-Competitive Behaviour – Avoid it at all costs - There are often benefits for competing businesses to discuss industry related practices and issues among themselves. However, when having discussions like this, you must ensure you are not engaging (inadvertently or otherwise) in anti-competitive behaviour that could breach the Commerce Act 1986
• Business Briefs
  New copyright law
  PPSA – Australian style
  Digital legacy

In this Autumn edition, you can read articles on:

• The ‘Solicitor’s Approval Clause’: it cannot be used to cancel the Agreement on a whim
• Total Destruction of Premises Subject to a Commercial Lease: what is untenantable?
• Property Briefs: Christchurch earthquake: buying property – Legislation updates – GST on land transactions

The main changes to the Holidays Act include:

• The ability for employees to cash in a maximum of one week of annual holidays (only if the employer agrees).
• Transferring public holidays to another working day.

The main changes to the Employment Relations Act include:

• Extending ‘grievance free’ trial periods to all employers
• Changes to the personal grievance provisions (to a definition more favourable for employers)
• Requiring consent to be given before a union can access a workplace, and confirming communication with employees can occur during collective bargaining.
• Requiring employers to retain employment agreements (effective from 1 July 2011)
• Extending the role and powers of labour inspectors.

To discuss how this might affect you please contact Chris Grenfell on 07 872 0877.

The Consumer Law Reform Bill represents the most significant changes to consumer laws in more than two decades and brings much-needed clarity in an era of online shopping, extended warranties and self-checkouts,” Mr Boscawen said

Under the Consumer Law Reform, seven existing consumer laws will be replaced by updated and more understandable Consumer Guarantees, Fair Trading, and the Weights and Measures Acts.

Some of the key changes include:

• The Disputes Tribunal jurisdiction will be extended to cover complaints about misleading and deceptive conduct.
• New goods sold via auctions – and all goods sold via online auction sites – will be subject to the acceptable quality provisions of the Consumer Guarantees Act.
• A prohibition on making unsubstantiated claims will require trader and retailers to take steps to ensure their claims are valid.
• Rules surrounding direct sales, such as door-to-door or telemarketing sales, will apply to all types of transactions, including cash or credit. This used to apply to credit agreements only.
• Auctioneers will have to be registered and will have to meet a number of minimum standards, included accounting for the proceeds of an auction, displaying their licence and complying with the law.
• Carrier services, such as couriers, will be subject to the Consumer Guarantees Act.

These changes will reduce costs and confusion, and make it easier for consumers and businesses to understand their rights and obligations.

The Bill will also strengthen the enforcement powers of Government agencies, allowing faster and more effective action to remove unsafe products from the market. It will give courts new powers to ban individuals who repeatedly breach consumer laws.

Strong and relevant consumer legislation is important for both consumers and businesses. These changes will allow consumers to shop with greater confidence and, for businesses, will help to create a level-playing field where reputable suppliers are protected from the inappropriate market conduct of competitors.

For more information on the Consumer Law Reform visit www.consumeraffairs.govt.nz/legislation-policy/policy-development/consumer-law-reform.

In this Autumn edition, you can read articles on:

· Personal Property Securities Act: Grappling with section 53 in a livestock purchase

· Leasing the Farm: Can be a practical solution

· Over the Fence: New minimum wage rates – Sharemilking Arrangements: 2011-2-12 season – Public Holidays: Easter 2011 – GST zero-rating land transactions

The next issue of Rural eSpeaking will be published in July.