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Tax relief proposed for community housing

The Government has announced that it will introduce legislation to Parliament to provide that assisting low-income families into home ownership will be exempt from income tax.

The law change is considered necessary after the Charities Commission (the functions of which have been taken over by the Department of Internal Affairs – Charities) decided that assisting people into home ownership was not always charitable. These decisions, which have been confirmed by the High Court have resulted in a charitable trust being deregistered (Queenstown Lakes Community Housing Trust) another having its registration re-instated (Liberty Trust); and have left a number of trusts uncertain about their tax status or facing unexpected tax liabilities.

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Trustees liable to pay liquidators for company’s losses

This item has been adapted from an article written by Marilyn Hay

In the case of Rowmata Holdings Limited (in liq) v Hildred, the High Court has held that liquidators of a company were entitled to repayment of GST receipts from associated parties (two trusts) that had received them.


The matter arose from a sale and purchase agreement for the purchase of land where two trusts (the purchasers) did not have the financial ability to settle. Before settlement date a company incorporated by the purchasers claimed a GST refund from the purchase some of which it paid out to the trusts in settlement of debts. When the purchasers subsequently defaulted at settlement date, the GST refund became repayable to Inland Revenue but there were no funds held by the company to meet this liability. The company went into liquidation and the High Court agreed with the liquidators that they were entitled to recover the entire amounts claimed from the trustees of the trusts.

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Amendment to “Associated Persons” definition

Section YB 11 of the Income Tax Act 2007 has been amended, with general application from the 2010-11 income year (but with application from 6 October 2009 for some land provisions) to provide that a trustee is not associated with a person who has the power to add and remove trustees (the appointor) if the appointor only holds that power in a professional capacity.

When the Associated Person provisions in the Income Tax Act 2007 were amended in 2009 the rules became significantly more difficult to circumvent.  The amended definition including amongst other things a provision providing that  a trustee and an appointor are now associated persons (s YB 11).

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Review of the Law of Trusts

The Law Commission’s Report, Review of the Law of Trusts: A Trusts Act for New Zealand, was tabled in Parliament today (11 September 2013).

The Report recommends the introduction of a new Trusts Act to replace the current Trustee Act 1956.

The proposed new Trusts Act will be a comprehensive statute that modernises the law of trusts in New Zealand.

The Report contains 51 recommendations in total relating to trusts.

See below for links to the paper and the summary of recommendations.

Concerns over the Alesco decision

The recent decision in Alesco New Zealand Limited v CIR raises some important issues on the application of the New Zealand general
anti-avoidance rule. The following link will take you to an article by Mark Keating and Professor Craig Elliffe that has been published in the current British Tax Review:

Hotchin fails to join trustees as third parties

The High Court has released its decision striking out the third party contribution claim brought by Mark Hotchin and other directors to include Hanover Finance’s trustees, New Zealand Guardian Trust (NZGT) and Perpetual Trust (Perpetual), as parties to the Financial Markets Authority’s (FMA) civil claim against them. See Financial Markets Authority v Mark Stephen Hotchin [2013] NZHC 1611 [28 June 2013]


Mark Hotchin was a director of Hanover Finance and associated companies which issued prospectuses and other documentation in connection with offers of debt securities to the public. Read more

Alesco tax avoidance test case going to Supreme Court

The Supreme Court has granted leave for Alesco New Zealand Limited (Alesco NZ) to appeal the Court of Appeal’s decision, which considered an optional convertible notes (OCNs) financing arrangement, as tax avoidance. See Alesco New Zealand Limited v Commissioner of Inland Revenue [2013] NZSC66 [9 July 2013]. The development is significant given there are a number of companies who have utilised similar funding structures and now face potential tax liabilities.


In 2003, Alesco NZ purchased two other New Zealand companies. This was funded by its Australian parent, Alesco Corporation (Alesco), which used OCNs to advance purchase monies of $78m to its New Zealand subsidiary.

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A thumbnail guide to AML/CFT

Thought needs to be given to trust compliance in the face of new Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) laws. The main compliance components of the AML/CFT Act, which is New Zealand’s contribution to the international Financial Action Task Force (FATF) come into effect on 1 July 2013.

Banks, casinos and other financial institutions have been putting compliance regimes in place in anticipation of the forthcoming laws taking effect. By contrast exemptions in the regulations to the AML/CFT Act that apply to lawyers and accountants may have lulled many trust practioners into a false sense of complacency about “somebody else’s problem”.

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Update on Trans-Tasman superannuation fund portability

Following years of negotistion, from 1 July 2013 New Zealanders will be able to transfer their retirement savings between complying Australian superannuation funds and KiwiSaver schemes.

This means that from 1 July 2013, New Zealanders returning from Australia will be able to transfer the funds in their Australian superannuation schemes into participating KiwiSaver schemes and vice versa.

These transfers will be exempt from entry and exit taxes.

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GST – the forgotten tax

Given the far reaching nature of goods and services tax, it is surprising how often the imposition or impact of GST is disregarded, forgotten or left subject to multiple interpretations. The recent case of Sayes v Tamatekapua [2012] NZCA 524 provides ample illustration of the cost and delay when GST is not expressly addressed. In fairness to the parties it is noted that the deed of settlement did provide for how any tax or gift duty was to be paid.

However, what was not expressly addressed was whether the value of property that would be transferred pursuant to a deed of settlement was to be valued on a GST-inclusive or GST-exclusive basis. The valuation mechanism was relevant as it would determine ultimate shares in the estate. The High court found that the current market value was determined on a GST-exclusive basis, a finding that was up-held by the Court of Appeal.

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Recent comments

  • Peter: When you have more than one job all your income is added up and you pay tax on the total income amount. For...
  • Joanne Martin: Hi Would you be able to email me to discuss a small company that is an LTC which I need some advice on...
  • Rizwana Saheed: You are on the right track that there is an exemption when employees work overtime but whether or not...
  • bryan: as a group of employees we get paid meal money if we exceed 11hrs on any day. Employer says he wants to tax...
  • linda: My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the...
  • Sharon: Hi Daniel, Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay...
  • Another Anne: My Dad is in care on full subsidy. I am EPOA. Are we able to gift some money to my brother in UK so...
  • Twagilayesu Isaya: I agree with the author of this article that Inland Revenue Department need to provide clear...
  • Quinn: Hi. I would like some clarification regarding the valuation of the investments component of the owners basis...
  • QROPS Pensions: Interesting piece of writing, you always write the most useful content & TalkTax is no exception...

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