Burton and Co Blog

New Zealand - Canada Double Tax Agreement

Mon, 03 Aug 2015 23:29:00 GMT

The Canadian and New Zealand governments have recently entered into a Double Tax Agreement which replaces the previous Agreement of 1980.
The key features of the new Agreement (DTA) are:
• The withholding tax rate (WHT) for dividends reduces from 15% to a maximum of 5% where an investor holds at least 10% of the shares in the company paying the dividend.
• The WHT rate for interest reduces from 15% to 10%.
• The WHT rate for royalties reduces from 15% to 10% generally with a further reduction of 5% on royalties from copyright, software and other specified items.
The effective date for the application of the new WHT rates is 1 August 2015 for both countries. In other respects, the remaining provisions will apply to income years beginning on or after 1 January 2016 for Canada, and 1 April 2017 for New Zealand.
The New Zealand Revenue Minister, Todd McClay has said that the new DTA will help reduce tax impediments to trade and investment between Canada and New Zealand and will provide investors with greater certainty about how across border income will be taxed.

New Zealand tax (nearly) on top

Fri, 21 Nov 2014 03:00:00 GMT

NEW ZEALAND’S TAX SYSTEM RATED 2ND MOST COMPETITIVE
IN OECD BY THE TAX FOUNDATION
A non-partisan research think tank based in Washington DC, the Tax Foundation, recently conducted a survey to measure the degree to which the 34 OECD countries promoted competitiveness through their tax systems. In so doing, more than 40 variables across 5 categories were considered. The 5 categories are:
• corporate taxes;
• consumption taxes;
• property taxes;
• individual taxes; and
• international tax rules.
In studying these 5 variables the Tax Foundation attempted to demonstrate which country fosters the best tax environment for both investment and for developing a business. The importance of these findings is significant as companies or businesses can and do move from less competitive jurisdictions to more competitive jurisdictions as and when deemed necessary.
Whilst Estonia was ranked as having the most competitive tax system of the countries surveyed, English speaking New Zealand was second ranked. It was noted that in New Zealand, the top marginal tax rate for individuals is 33%, the corporate tax rate is now 28% and there is a notable absence of inheritance taxes, payroll taxes and the application of a general capital gains tax.
New Zealand continues to work hard to improve its taxation system and is continuing to refine the system.
It is interesting to note that the Tax Foundation ranked France as having the least competitive tax system with the US being ranked as 32nd out of the 34 countries. A complete report and table can be found on www.taxfoundation.org/article/2004-ir.
Anyone thinking of establishing a business or a subsidiary of a business in New Zealand should contact Jeremy Carr – [email protected]">[email protected].

Director requirements finalised

Tue, 02 Sep 2014 04:53:00 GMT

ON THE GROUND DIRECTOR REQUIREMENTS FINALISED

Government has released regulations that now confirm details for the new director residency requirements that were imposed into the Companies Act 1993 (“Companies Act”) by the Companies Amendment Act 2014 (“Amendment Act”).

Background

The Amendment Act introduced a number of key amendments to the Companies Act including the requirement that all companies incorporated in New Zealand have either a director resident in New Zealand or a director resident in an “Enforcement Country”. An Enforcement Country was to be prescribed by regulation and was to be one with which New Zealand has reciprocal arrangements concerning the enforcement of fines.

Regulations

The Companies Act 1993 Amendment Regulations (No. 2) 2014 (“Regulations”) have prescribed Australia as the only Enforcement Country for the purposes of the resident director requirements under the Amendment Act. The Regulations have also introduced the effective date for the implementation of the Amendment Act. The effective date is 1 May 2015 (“Effective Date”).

Effect

The Amendment Act and the Regulations combined mean that as and from the Effective Date all New Zealand companies (whether incorporated after that date or before that date) will need to have at least one director resident in either New Zealand or Australia.

Where the company has a director resident in Australia only and no director resident in New Zealand, in order to satisfy the requirement under the Regulations, that director will also need to be a director of a company incorporated in Australia.

What to do

You must ensure that prior to the Effective Date any company incorporated in New Zealand complies with the Amendment Act and the Regulations. You will need to look now at implementing arrangements to appoint a director or directors as appropriate to comply with the Amendment Act.

Update for directors - health and safety issues

Tue, 11 Feb 2014 11:00:00 GMT

There are four new Bills before the New Zealand Parliament which will be passed in the next 24 months. All of them have the effect of increasing exposure of directors to legal risk. The Health and Safety Employment Regime (HSE), with a likely commencement date in 2015, has particular importance for organisations which have a number of hazards and risks in the work place.

The HSE Bill will, when passed into law, establish a duty on directors to ensure that those with management responsibility for workplace safety are discharging their duties appropriately. A set of Good Governance Guidelines, prepared by the Ministry of Business Innovation and Enterprise and the Institute of Directors, will assist in helping judge what is appropriate. These require that the Directors:

be aware of the organisation’s hazards and risks
understand hazard control methods and systems; and
understand how to measure health and safety performance so as to measure effectiveness.

At an absolute minimum, directors will be required to understand the nature of the company’s operation and any associated risks and hazards, as well as ensuring that there are appropriate resources, systems and processes to manage these risks.

Currently, directors can only be held liable for a breach of health and safety where they have “authorised, assented to, acquiesced in, or participated in the failure”. Under the new Bill, directors may be held liable without intentional wrongdoing. A three tier penalty structure will also be introduced with the most serious breaches punishable by individual fines of up to $600,000 and/or five years in prison.

Boards are being urged by the Ministry and by the Institute of Directors to develop charters in which directors' individual roles in relation to health and safety are made clear. Functions in implementing a new strategy may be delegated within the organisation and external advice sought, however should a failure occur the buck ultimately lies with the directors.

This is something that all directors will need to be aware of and engaged in.

Jeremy Carr (Partner)
Nick Lovegrove (Senior Solicitor)

Welcome news in respect of lapsing subdivision consents

Wed, 28 Aug 2013 00:25:00 GMT

The Environment Court has recently lent a helping hand to developers faced with a lapsing subdivision consent where the subdivision plan has been approved by Council.

Subdivision consents are usually issued on the basis that they will lapse if they are not ‘effected’ within 5 years from the date of issue (or such longer period as the consent may specify). There has traditionally been uncertainty in terms of the relationship between this 5 year period and the 3 year period which attaches to the territorial certificate issued approving the subdivision plan (the S223 Certificate).

The Resource Management Act provides that Land Information New Zealand cannot issue the new titles unless less than 3 years has passed since the issue of the S223 Certificate. Different Councils have traditionally held different views in relation to their ability to extend the 3 year time period attaching to the S223 Certificate.

Where the Council involved has been of the view that this time period could neither be extended nor a fresh S223 Certificate issued, then developers have traditionally been faced with the situation where they have had to apply for a new subdivision consent and risk the imposition of new or different consent conditions.

The Court has now confirmed that whilst Council cannot extend the 3 year time period attaching to a S223 Certificate, there is nothing to stop a developer submitting further subdivision plans in respect of the original subdivision consent. Thus, provided that the 5 year period attaching to the subdivision consent has not lapsed, a developer can obtain a fresh S223 Certificate by submitting a subsequent plan to Council for approval.

Whilst it is obviously preferable to avoid the original S223 Certificate lapsing, this does at least provide a much simpler and more cost effective method of dealing with expired certificates.

Government reviews development contributions

Fri, 16 Aug 2013 02:23:00 GMT

The impact of development contributions on the feasibility or otherwise of projects has long been a source of contention and concern for our developer clients. It is often unclear how these charges are calculated, with little ability to challenge the reasonableness of the contribution. There also seems to be huge inconsistency between Councils in relation to both the quantum and underlying basis for these fees, making them difficult to budget for in the early planning stages of a development.

As part of the Housing Affordability Inquiry Report a review of development contributions has been undertaken with a view to amending the development contribution regime in the Local Government Reform Bill which is expected to be introduced later this year.

The key areas of expected change are as follows:

Introduction of a new development contribution purpose and principles statement:

The idea is to provide a backdrop of guiding principles against which the development contribution policies of separate Councils will need to be set, and can be tested. The types of principles that are expected to be adopted are; efficiency, equity, accountability (in terms of contributions actually being applied by Councils as levied), transparency and certainty of quantum. The actual need for the infrastructure which is intended to be the subject of a contribution will also be a focus.

Narrowing the range of infrastructure that is able to be financed by development contributions:

The Local Government Act lists three types of infrastructure that are able to be the subject of development contributions. Contributions in respect of network infrastructure and reserves have historically been considerably less contentious than charges imposed in respect of ‘community infrastructure’.

It is proposed that the definition of ‘community infrastructure’ be restricted to a narrow list, focussed on the types of infrastructure that actually service the local neighbourhood in question. This list is expected to include community or neighbourhood halls, play equipment located on neighbourhood reserves and public toilets. Any other community amenity outside the scope of the list is not intended to be the subject of a development contribution and will be funded from land rates or other sources.

Great transparency:

To promote transparency it is anticipated that Councils will be required to provide a development contribution policy that includes a schedule listing the projects to which development contributions relate, the expected cost of each project and the proportion of the cost of each project funded from development contributions.

Encouraging private development agreements:

Whilst private development agreements are currently being used, they are comparatively rare. There will be a push to encourage these types of agreements. It is anticipated they will promote greater flexibility and cover things such as the timing and phasing of the infrastructure, the ownership, vesting and maintenance of infrastructure, a mechanism for resolution of disputes and clarity and certainty in respect of the transfer of land from the developer to Council.

New objection process:

A new ability for developers to object to the level of development contributions is intended to be introduced. The developer will ultimately have the right to lodge an objection with an independent body (to be called the “development contribution commissioner”) whose decision will be binding on both parties.

Whilst the proposal will not alleviate all of the “pain” we are pleased to see the issue being addressed.

Foreign Trusts in New Zealand

Thu, 13 Dec 2012 11:00:00 GMT

We are seeing an increase in popularity with the use of New Zealand foreign trusts being set up by nonresidents of New Zealand. The principal benefits of using such a structure are:

An aid to asset protection and succession planning.
Flexibility.
The confidential nature of a trust.
The fact that New Zealand is a stable, onshore, whitelisted jurisdiction and is not regarded as a tax haven.
The limited reporting requirements and compliance obligations.
No tax being payable to the New Zealand Inland Revenue Department on foreign earned income.
To qualify as a New Zealand foreign trust the trust must comply with all four of the following requirements:
The settlor who transfers property to the New Zealand foreign trust must be a non New Zealand resident.
The trustee must hold the property of the trust for nonresident beneficiaries.
The trust’s income must be sourced from businesses and/or investments which are not in New Zealand.
The trust is required to have a New Zealand resident trustee (which can be a company or in certain specified cases an individual).

The New Zealand foreign trust regime is a flexible and tax efficient means of holding assets and/or conducting commercial activities in a confidential and tax efficient manner. Each trust must be tailored to suit the requirements and objectives of those setting it up.

For further information please contact Jeremy Carr [email protected]">[email protected] or Hamish Taylor [email protected]">[email protected].

Update to ADLS lease form

Sun, 04 Nov 2012 11:00:00 GMT

The 6th edition of the ADLS deed of lease was released today. It contains a raft of improvements and amendments whilst maintaining the structure of the lease which is familiar to so many of us and widely accepted in the marketplace.

Whilst the current soft ratchet has been retained, the standard form now usefully contains a CPI rent review clause option which will allow this form of rent review mechanism to be easily adopted in a standardised manner. Whilst largely familiar, the outgoings provisions have also been overhauled and updated.

Unsurprisingly the quantum of the insurance excess contained in the outgoings provisions has been increased from $500 to $2,000. Landlord access for repairs (and importantly earthquake strengthening) has also been addressed as has the tenant's repairs and maintenance provisions. So whilst the substance of the form is largely the same there have been some significant improvements and amendments.

Tenants and landlords alike would be well advised to review the new form.

Crafar Farms and the Overseas Investment Office - here we go again?

Tue, 11 Sep 2012 12:00:00 GMT

It seems that Shanghai Pengxin's application to buy the Crafar farms may be heading all the way to the Supreme Court. Two of the trusts within the consortium orginally led by Michael Fay are reported to have recently filed a further challenge with the Supreme Court funded by an undisclosed financial backer.

The Ngati Rereahu trusts lodging the appeal wished to purchase two of of the 16 Crafar farms sold to Shanghai Pengxin.

It is understood that the OIO's ruling is being challenged on the grounds that the lower Courts erred in finding that Shanghai Pengxin had the necessary business acumen.

Earthquake strengthening and insurance premiums

Tue, 04 Sep 2012 12:00:00 GMT

Further to our earlier comments in relation to earthquake prone buildings the market is now seeing the practical commercial fallout from the increasing focus on earthquake prone buildings.

Reports are filtering through of insurance premiums rising dramatically - in some cases by more than 600% where the buildings are circa the 1900's. Most commercial leases pass the cost of insurance premiums through to the tenant as an outgoing meaning the tenant is being asked to meet these increased costs. This is in turn causing some tenants to look to move premises as and when they can.

The improvements rent provisions under leases are also being dusted off and looked at quite closely. Where Council is requiring substantial upgrades to buildings, tenants may be liable for a share of the costs incurred by the landlord through improvement rent provisions. Again these types of additional expenses are likely to be an unexpected and certainly unwelcome surprise to tenants putting additional financial pressure on tenants in already tough times. Whilst these factors are probably yet to be reflected in most market rents that must surely be next.

Overseas Investment in Crafar farm deal supported by Court of Appeal

Tue, 07 Aug 2012 23:09:00 GMT

The New Zealand Court of Appeal this morning released its much awaited decision in relation to the lastest challenge to Chinese company Shanghai Pengxin purchasing the Crafar farms.

It was accepted that Mr Zhaobai Jiang, the principal shareholder, is a highly successful businessman with significant business experience. The issue was his lack of dairy farming experience. Dimissing the appeal, the Court found that the "investor test" had been met on the basis that Shanghai Pengxin was entitled to enter into arrangements with parties who had the lacked industry-specific experience in order to demonstrate that it in turn had the necessary experience to successfully promote the investment.

It is understood that no further challenge was made in Court in relation to whether or not the investment would bring substantial and identifiable benefit to New Zealand.

The way is now clear for Shanghai Pengxin to purchase the Crafar farms.

Title retention clauses - getting the basics right

Mon, 30 Jul 2012 21:09:00 GMT

The PPSA and Terms of Trade

The Personal Property Securities Act 1999 (“PPSA”) with the Personal Property Securities Register (“PPSR”) have now been in existence for over 10 years in New Zealand. Despite this we here at Burton & Co still find that many of our clients are not familiar with basic PPSR registration requirements and often lose out in cases where they have supplied goods to a customer on credit, believing that they have reserved their title in the goods until they get paid, only to lose out in situations where the customer is put into liquidation.

Common Scenario

A client calls advising me that a customer of theirs, that they have supplied goods to on credit, has been placed in liquidation and they would like to take back their goods and seek recovery of their unpaid accounts.

My first question: please provide me with a signed copy of your terms of trade that state you have reserved your title in the goods, with the customer in question.

Their response: we don’t have any as our terms of trade are simply posted out on the back of our invoice.

My response: you have a (big) problem and if the customer in liquidation has a creditor such as a bank with a valid PPSA security interest over all the company’s assets (such as a GSA) then you are unlikely to see your goods again and/or recover any moneys owing.

A harsh but all too often occurrence in these tight economic times.

Get the Basics Right

How do you avoid the above? Do two, relatively simple, things correctly.

These are:

1. Make sure your terms of trade, with a retention of title provision, are in writing and signed by the customer and that you hold a copy on file.

2. Before you supply any goods to the customer on credit make sure you register your security interest in the goods (your retention of title as such) on the PPSR.

If you do the above, you will stand a far greater chance of being successful in a creditor claim situation.

If you need help with any PPSA or PPSR issue we here at Burton & Co can help. Please also note that the government website is also very useful: www.ppsr.govt.nz.

For further help contact Hamish Taylor at [email protected]">[email protected]

Body corporate rule changeovers

Mon, 25 Jun 2012 12:00:00 GMT

Perhaps a timely reminder that body corporate rules promulgated and registered under the Unit Titles Act 1972 will fall away and be of no further effect on 1 October 2012. From 1 October the new rule provisions in s105 of the Unit Titles Act 2010 and the default Operational Rules (the new terminology for the new rules) will automatically apply and override any old body corporate rules.

Those body corporates that already have registered rules tailored to their particular developments would be well advised to sharpen their pencils and start work on a new set of rules well in advance of the 1 October 2012 deadline.