Tax Talk Newsletter Summer 2020
Government Improving Protections for Consumers and Workers when businesses fail
On Monday 4 November 2019, Minister Kris Faafoi released a statement announcing changes that will favourably affect consumers and workers of failed businesses.
Changes to insolvency law announced by the Government on 4 November will include requirements to honour up to 50 per cent of the value of gift cards or vouchers held by consumers.
"When a business is insolvent, these consumers are often left out of pocket. We are changing the law to require businesses that go into receivership, administration or liquidation but continue to trade, to honour at least 50 percent of the value of the gift card or voucher." Minister Faafoi says.
The Government is also improving protections for other creditors, including employees.
"We’re extending the scope of the entitlements for employees of failed companies, so that both payments in lieu of notice and long service leave will be protected in the same way as wages."
Another change involves making insolvency law fairer for businesses that provide goods and services to failed companies in good faith.
Kris Faafoi says this is too long a period for any creditor to be uncertain about whether an amount they received in good faith will have to be recovered, sometimes putting their own financial situation at risk.
"We’re going to improve commercial confidence by reducing the ‘claw-back’ period to six months. However, I’ve also concluded that two years is not long enough for creditors who have a close connection with a director of the failed company. So we’ll be increasing the claw-back period from two years to four years for ‘related party’ creditors."
Most of these changes were recommended by the Insolvency Working Group in a report published in 2017, and will be included in a future Insolvency Law Reform Bill.
"I want to express my appreciation to the Insolvency Working Group for their recommendations. This important work provided the foundation for the reforms I’m announcing" Kris Faafoi said.
The Rules for residential property deductions have changed - find out how they might affect you and your properties
From the 2019-20 income year onward, new rules apply to deductions claimed for residential properties. Residential property deductions will now be ring-fenced, meaning that they can only be used to offset income from residential property.
This means that the residential property deductions you claim for the year cannot exceed the amount of income you earn from the property for the year. Any excess deductions must be carried forward from year to year until they can be used. You cannot use excess deductions from your residential property to reduce your other income, such as salary and wages or business income, which would result in a reduced tax liability.
If you have more than one property, you can choose to apply these rules on a portfolio basis or on a property-by-property basis. You can find more information on these rules below, or in the Tax Bulletin, Volume 31.
Portfolio basis and property-by-property basis
The portfolio basis is the default basis for handling residential rental income deductions. Under this basis, the ring-fencing rules are applied to all of your affected properties as a single portfolio in each tax year. This means that the allowable deductions for the properties in your portfolio can be offset against income you earn from all of the properties in the portfolio. Any excess deductions from the portfolio overall can be carried forward to future years.
The deductions for each property dealt with on the property-by-property basis can only be offset against the income from that property. Any excess deductions must be calculated and carried forward for each property individually. If you use this basis, you'll need to keep accurate records to show that the deductions for each property were only claimed against the income from that property.
If you want to use the property-by-property basis for a property, you need to take a tax position consistent with this basis in the tax return for the later of:
- the 2019-20 income year
- the income tax year in which you first start using the property for residential rental income.
The property-by-property basis continues to apply as long as you keep filing tax returns consistent with this basis.
If you have two or more properties, you can choose to use the portfolio basis for some and the property-by-property basis for others.
We recommend that you talk to IRD about which approach is best for you.
There are some residential properties that aren't affected by the ring-fencing rules, including:
- your main home (if you have more than one home, this is the home you have the greatest connection with)
- property that comes under the mixed-use asset rules
- property used mainly as business premises
- property you've identified to IRD as land that will be taxed on sale, regardless of when it's sold
- property owned by companies (other than close companies)
- employee accommodation
- property owned by Government enterprises
If you're unsure if a property is affected by these rules or not, we recommend you talk to IRD.
Trade marks: Do you own your brand
A great brand can set your business apart from the competition. But if you haven’t taken steps to protect your name, slogan or logo, they may not be yours. Check them now with a free online tool at:
https://www.business.govt.nz/news/trade-mark-check/ - external link
Why trade marks matter
A trade mark protects your logo, name or brand. It could include words, logos, shapes, colours, sounds, smells or any combination of these.
Registering a trade mark gives you and your business exclusive rights to use the brand in New Zealand. It also discourages others from using or copying it. Protection can last forever if you renew it every 10 years.
You won’t be able to register your word or logo as a trade mark if:
- it is too similar to another registered mark in the same or related industry
- or it describes the goods or services you trade in.
For example, ‘Milk’ might be OK to register for an architecture firm, but not for a milk product.
Registering your business name with the Companies Office or buying a website address doesn’t give you trade mark rights.
In fact, existing trade mark owners may challenge your rights to the business name and domain
Court Cases for your Interest
Unsafe work at height can have devastating consequences
WorkSafe is reminding businesses of the potentially devastating consequences unsafe work at height can cause, following the sentencing of building company at the Whangarei District Court last week.
The construction company was ordered to pay total reparations of $151,578.21 to a worker who was left permanently paralysed from the chest down after falling approximately two metres and landing on his head.
During the March 2018 incident, a worker was installing attic trusses in the garage of a residential property in Whangarei, when a bundle of upright standing trusses came loose and fell towards the worker. The trusses struck the aluminium plank the worker was standing on causing him to fall to the ground.
WorkSafe’s Chief Inspector Hayden Mander said the company had failed to ensure appropriate controls were in place for the safe installation of the attic trusses.
“WorkSafe’s investigation into the incident found that the company had identified the hazard of working at height and the risk it posed of serious injury or death, but did not provide enough details of the equipment required to safely carry out the installation.
“The hazards and risks associated with working at height are well known and controls to manage these risks are readily available”
“This is a reminder that even a fall from a height of less than two metres can have devastating consequences.”
$450,000 for “Inexplicable and Heinous” Treatment of Hamilton Liquor store Employees
A Husband and wife who owned two Liquor stores in Hamilton have been ordered to pay a record $200,000 in penalties for serious employment law breaches. This is in addition to $250,470 they already repaid to six former employees for minimum wage and holiday pay arrears.
The six employees worked at the stores between 2010 and 2017. They were paid between $8 and $11 an hour, which was well below the minimum wage in any given year. One employee alone was compensated $106,076 for seven years of underpayments.
Some of them worked more than 60-70 hours per week – including on public holidays. They had not been provided with any sick leave, holiday pay or public holiday entitlements. Where they took time off, they were either not paid or required to return the money to their employer or make up the time they were away by working for free.
The employers also failed to keep accurate employment records which the Court saw as an attempt to cover up their abuse. All employees in question were migrant workers from India on temporary visas.
The Court imposed penalties of $200,000 to be paid immediately. Following the Labour Inspectorate’s submissions, $80,000 of this will be paid as compensation to the workers for the mental and emotional hardships they endured at the hands of their employers. Failure to comply with these Court orders can lead to imprisonment.
The Court heard the husband & Wife have sold the two liquor stores and do not propose becoming employers again.
“This case sends a clear message that employers won’t get away with taking advantage of vulnerable workers for their own gain,” says Labour Inspectorate Regional Manager Callum McMillan.
“Beyond that, it sends a message to all
Migrant workers: Getting visa applications right
If you’re hiring someone from overseas, they’ll need to apply for a visa. Here are six tips for employers to speed up the process.
Overseas workers can be a great asset by adding new skills and perspectives to your business. But migrant workers need to apply for a visa to be able to work in New Zealand. As their potential employer, there are ways you can help your migrant worker through the visa application process.
Over the next eighteen months, Immigration New Zealand will be making changes to streamline the migrant visa process. But if you’re looking to hire a migrant in the immediate future, these tips can help get applications approved faster, so your new employee can start as soon as possible and on the right foot.
Employment agreement with all the right details
To apply for most common visas, your migrant worker will need a signed offer of employment and a copy of the proposed employment agreement. Key information often missed when applying includes:
- correct legal name of the business
- name and address of the worker
- hours of work
- the rate of pay (hourly or annual salary)
- whether the role is fixed term or permanent – if the role is fixed term, you’ll need to provide a genuine business reason why.
Minimum 30 hours a week
To qualify for a work visa, your migrant worker will need to be working at least 30 hours a week. This should be noted in the employment agreement. If the hours of work fluctuate, eg because of weather, the employee will still need to be paid for at least 30 hours a week.
Complete job description
Just like employment agreements, if you’re missing information in the job description, this could slow down the visa application process. Be sure to include the following:
- job title
- location of employment
- tasks and responsibilities
- skills, qualifications and experience required.
Proof you tried to hire a New Zealander
If the person you want to hire is applying for an Essential Skills work visa and doesn’t meet the criteria of one of the skill shortage lists, you’ll need to show that you tried and failed to find a New Zealander to fill the role.
Advertising for a role should be:
- recent, eg within the last three months
- at least two weeks (can be one week for certain ANZSCO skill levels – more on this below)
- widely circulated, eg using TradeMe or Seek (social media alone isn’t enough)
- relevant to the position, ie don’t include any skills not required for the role.
Correct ANZSCO code
ANZSCO stands for Australia and New Zealand Standard Classification of Occupations. Immigration New Zealand uses ANZSCO codes to classify and assess the skill level of jobs. If your migrant worker is applying for an Essential Skills work visa, you need to find the ANZCO code that best describes the role. You can use the Skill Shortage list checker to find the ANZSCO code that is right for the role.
Skills match report
As well as an ANZSO code, each role has an ANZSCO skill level between one (high-skilled) and five (low-skilled). If the Essential Skills work visa role is skill level four or five, you’ll need to advertise the vacancy with Work and Income. If they can’t find the right candidate, you can ask them for a Skills Match Report to show there are no suitable New Zealanders available to do the job.