Many New Zealand family businesses pay more tax than they legally need to. Not because they are doing anything wrong, but because taxation decisions are often left until the end of the year. By then, most opportunities to reduce tax are already gone.

Effective taxation planning for NZ family businesses is not about loopholes or shortcuts. It’s about making smart choices early, setting up income right, and knowing how today’s decisions impact tomorrow’s tax bill. When planning is done properly, businesses stay compliant, protect family wealth, and improve cashflow without unnecessary risk.

At GECA Chartered Accountants, we work closely with family-owned and owner-managed businesses across New Zealand. This guide shows how tax planning works. It helps family businesses avoid paying too much tax while following IRD rules.

What Is Taxation Planning for NZ Family Businesses?

Taxation planning is the process of legally organising your business income, expenses, and structure before the financial year ends. The goal is simple: pay the right amount of tax, not more.

For family businesses, taxation planning for NZ family businesses goes beyond claiming deductions. It includes how profits are distributed, how family members are involved, whether the business structure still fits, and how future growth is handled. Planning is proactive. Compliance is reactive. Businesses that rely only on compliance almost always overpay.

Why Family Businesses Often Overpay Tax in New Zealand

Most overpayment happens due to poor timing, unclear structures, and a lack of forward planning. Common pitfalls include:

• Treating tax as a filing exercise rather than a strategy.
• Mixing personal and business finances without a clear boundary.
• Retaining outdated business structures as the company grows.
• Failing to review income allocation across family members.

These issues are common, but avoidable. Effective family business tax planning in NZ ensures you aren’t leaving money on the table simply because of administrative oversight.

How Income Splitting Works for NZ Family Businesses

Income splitting allows business income to be shared across family members who are genuinely involved or entitled, often resulting in a lower overall tax bill.

In New Zealand, income splitting in NZ must reflect real work, ownership, or entitlement. This is commonly achieved through:

1. Salaries: Paying a spouse or child a fair market rate for actual work.
2. Beneficiary Distributions: Allocating profits through a trust.
3. Shareholding: Distributing dividends based on ownership.

When structured properly, this reduces the total tax the family unit pays without triggering IRD concerns.

What are The Most Tax Efficient Business Structures NZ for Families?

Choosing the right legal setup is the foundation of tax efficiency. Many Kiwi families start as sole traders but quickly outgrow this, often moving to a limited liability company or a trading trust. The “best” structure depends on your specific turnover, risk profile, and long-term plans for the business.

• Limited Liability Companies: These are popular because the corporate tax rate is currently 28%. This allows you to retain earnings within the company for reinvestment at a lower rate than the top personal tax brackets.
• Family Trusts: The trust tax rate went up to 39% to match the top personal rate. This change has impacted the landscape, but trusts are still key for protecting assets and flexible income splitting in NZ. 
• Look-Through Companies (LTCs): These let tax transfers pass directly to shareholders. This can be very helpful if a startup business is making initial losses.

Why is Family Trust Tax Planning Still Relevant in 2026?

Even with the trust tax rate now sitting at 39%, family trust tax planning remains a cornerstone of NZ wealth management. The focus has simply shifted. The real value of a trust in 2026 lies in its flexibility to allocate “beneficiary income” to family members in lower tax brackets.

For example, if your trust owns shares in the family company, it can pass dividends to beneficiaries. This includes adult children in university who have little other income. Because they may only be in the 10.5% or 17.5% tax bracket, the family unit saves significantly compared to paying a flat 39%.

Beyond the tax savings, trusts remain the gold standard for protecting your family home from business creditors. As part of effective taxation planning for NZ family businesses, this protection often matters more than tax benefits alone in the 2026 economy. It also helps ensure a smooth and secure transfer of assets to the next generation.

What Should You Know About Provisional Tax Planning in NZ?

One of the biggest cash flow killers for NZ businesses is the “provisional tax trap.” This situation arises when your business grows quicker than anticipated. You could end up with a hefty tax bill and Use-of-Money Interest (UOMI) from the IRD.

Effective provisional tax planning in NZ involves:

1. Estimation: Regularly reviewing your year-to-date profit to see if your current payments match your actual liability.
2. Tax Pooling: Using intermediaries like Tax Management NZ (TMNZ) to “buy” tax at a lower interest rate if you have underpaid, or “sell” it if you have overpaid.
3. AIM (Accounting Income Method): Using software to pay tax as you earn, which is ideal for businesses with seasonal or fluctuating cash flow.

Ready to optimise your tax position? GECA Chartered Accountants offers a free initial consultation to help you unlock your family business potential. Book your appointment today.

How GECA Chartered Accountants Help Family Businesses Avoid Overpaying Tax

Avoiding unnecessary tax requires more than filing returns on time. It requires understanding your business, your family, and your future goals.

At GECA Chartered Accountants, we work with family businesses throughout the year, not just at year-end. We review structures, plan ahead, manage provisional tax, and provide clear advice without complexity. Our fixed-fee approach means you can ask questions without worrying about extra charges.

This ongoing support is how our clients consistently avoid overpaying tax in NZ while staying fully compliant. If you would like tailored advice, reach out for a FREE initial consultation and explore how a PlusOne Accounting Package can support your business with confidence.

Final Thoughts

Tax should never feel confusing or punitive. With the right planning, family businesses can reduce tax pressure, improve cash flow, and avoid overpaying tax while building long-term financial stability.

If you want clarity and confidence about taxation planning for NZ family businesses, connect with advisors who understand both the numbers and family dynamics. Call GECA Chartered Accountants on 0800 758 766! Book your confidential and no-obligation consultation.  

The post Taxation Planning 101: How NZ Family Businesses Can Avoid Overpaying appeared first on GECA Chartered Accountants.

What once worked quietly in the background now demands active attention. Updated NZ family trust tax rules affect how income is taxed, distributed, and reported. Trustees can no longer rely on old structures or assumptions without risking higher tax or compliance issues.

At the same time, IRD expectations have increased. Clear records, correct reporting, and proper governance are essential to meet IRD trust compliance requirements. Understanding what has changed, and why it matters, is the first step to keeping your trust effective and compliant.

What Are the Family Trust Tax Changes in NZ for 2026? 

The most critical update for the 2026 period is the continued bedding-in of the 39% trustee tax rate. Initially introduced on 1 April 2024, this rate aligns the trust tax with the top personal tax rate to discourage “income sheltering.”

For the 2025-26 tax year, Inland Revenue (IRD) is maintaining strict oversight of how trusts distribute or retain income. If a trust earns more than ₹10,000 in a year and retains that income instead of distributing it to beneficiaries in lower tax brackets, it is likely to be taxed at the 39% rate.

Key Thresholds and Exemptions

• $10,000 De Minimis: Trusts earning under $10,000 per annum (after expenses) generally remain at the 33% tax rate.
• Beneficiary Distributions: Income given to beneficiaries is taxed at their personal rate (unless the minor beneficiary rule applies).
• Minor Beneficiary Rule: Distributions to children under 16 are generally taxed at a full 39% rate. This prevents “income splitting.”

Why the IRD Is Paying Closer Attention to Family Trusts

The IRD is using new data-matching tools. These tools help find trusts that exist only for “tax sheltering” and not for real commercial or protective reasons.

Common IRD Audit Triggers

• Inconsistent Filings: Discrepancies between the trust’s reported income and the lifestyle spending of the trustees.
• Lack of Documentation: Failing to record annual trustee resolutions regarding income allocation.
• Artificial Arrangements: Sudden shifts in investment (e.g., into PIEs or companies) without a documented business reason can be flagged under IRD trust compliance requirements.

For many trustees, the issue is not deliberate non-compliance but inattention. Trusts are often left unchanged over the years as income increases, investments change, and family circumstances evolve. Without regular review, even well-intentioned trusts may fall short of IRD expectations. 

At GECA Chartered Accountants, we help trustees navigate family trust tax changes 2026 NZ with clear, practical advice. We focus on compliance, efficiency, and long-term protection in family trust accounting in NZ. This gives families confidence that their trust is working as it should. Book a free trust review with a GECA Adviser today. This helps protect your family’s future and avoid expensive compliance errors.

How Do NZ Family Trust Tax Rules Affect Your Annual Returns?

Under the NZ family trust tax rules, trustees must now meet higher tax and reporting standards each year. Annual IR6 returns require full financial statements and detailed disclosures. Following the trust tax rate changes in NZ, undistributed trust income is taxed at a flat 39% (up from 33%), materially increasing tax exposure.

Key impacts on annual returns

• Higher trustee tax exposure: Income kept in the trust faces a 39% tax. In contrast, distributed income is taxed at the beneficiary’s rate, which ranges from 10.5% to 39%. This makes distribution choices very important.
• Expanded disclosure: Trusts must file profit and loss statements, balance sheets, and disclose settlor and beneficiary details to meet IRD trust compliance requirements.
• Greater trustee responsibility: All distributions must be declared accurately. This reinforces trustee tax obligations in NZ and lowers tolerance for errors or omissions.

From a practical standpoint, the family trust tax changes 2026 NZ mean trustees must be far more proactive. Returns are generally due by 7 July, although tax agent extensions may apply. Some trusts, like registered charitable trusts, might be exempt. Also, extra rules apply when non-resident settlers or trustees are involved. As compliance costs rise, managing trust compliance New Zealand without proper advice significantly increases audit and tax risk.

Common Trust Compliance Mistakes in NZ Family Businesses

1. Mismanaging the 39% Trustee Tax Rate

Many trustees fail to plan for retained income being taxed at 39% following recent trust tax rate changes in NZ. Without timely distributions or clear resolutions, trusts often overpay tax unnecessarily and lose flexibility.

2. Inadequate Beneficiary Disclosure

Trustees sometimes distribute income without properly recording beneficiary details or resolutions. This breaks trustee tax rules in NZ. It can lead to reassessments, penalties, or the IRD questioning the validity of distributions made.

3. Poor Record-Keeping and Formalities

Missing trustee resolutions, unsigned minutes, or incomplete records weaken the legal position of a trust. Accurate documentation and sound governance are key for effective family trust accounting in NZ and for staying compliant.

4. Errors in IRD Disclosures

Incorrect or inconsistent IR6 filings, settler disclosures, or financial statements can quickly attract IRD attention. Even small errors may signal wider compliance issues and increase audit risk for family trusts.

5. Mixing Personal and Trust Finances

Using trust funds for personal expenses without proper records harms the trust’s separation. This common mistake harms asset protection, makes reporting harder, and puts trustees at risk for compliance and tax issues.

How GECA Helps Keep Family Trusts Compliant and Practical

At GECA Chartered Accountants, led by Giles Ellis, we help family-owned businesses. Our services include:

• Bookkeeping & Accounting
• Xero Software and Training
• Virtual CFO Services
• Business Growth
• Executive Services
• Trusts & Investments

Our advice reflects real-world experience and current family trust tax changes 2026 in NZ.

Our fixed-fee packages include unlimited phone and email support, so you can ask questions as they arise without worrying about extra charges. This approach provides business owners with clarity, confidence, and practical guidance. It also ensures strong trust compliance in New Zealand.

If you want clear advice and a trusted accounting partner, speak with GECA Chartered Accountants today. Call 0800 758 766 to set up a private, no-obligation meeting. Let’s talk about how we can help your business, your trust, and your long-term financial goals.

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The 2026 tax year is already in motion. If you haven’t reviewed your trust’s distribution strategy or disclosure settings, you could be exposed to the top tax rate. Proactive planning is essential to avoid unnecessary costs and maintain compliance.

Book a consultation with GECA Chartered Accountants to ensure your trust is optimized for the current climate.

The post Family Trust Tax Changes 2026: Is Your Trust Still Compliance-Ready? appeared first on GECA Chartered Accountants.

In any business with more than one employee, it’s inevitable that conflicts will arise. Family-run businesses are no different. In fact, they can be even more prone to conflict and complications. When family members work together, they bring their roles and expectations from their home relationships into the business – which can cause complex and emotion-laden problems.

That’s not to say that conflict is always a bad thing. Managed correctly, a healthy amount of conflict can lead to stronger leadership, a wider range of opinions and ideas being accepted, and eventually a stronger business. The key is managing disputes well, and never letting them fester.

At GECA, we have years of experience in resolving family-business conflict. Here are our top five strategies:

1: Plan for problems

Some people go into business with family members with an overly rosy outlook. They think working with family members means everything will run smoothly, without much effort. Unfortunately, this is not always the case.

Starting with the assumption that you’ll have problems sounds negative, but it could end up being a positive in the long run. If you plan for conflict, it’s less of a shock when it does happen, and you’ll have a strategy in place to resolve it.

2: Set formal structures

Planning for conflict means putting formal structures and rules in place before anything goes wrong. Avoid taking a casual, ad hoc approach simply because you’re working with family, and set up your business like any other. That means having formal contracts and appropriate compensation, processes around management and review, and systems for recruitment and staff leaving.

These structures don’t just help if conflict arises, they can also help avoid it. Formal structures make your organisation feel more like a business and less like a family, which helps staff leave their relationship issues at the door.

3: Create a formal family council

When you work with family, it’s tempting to talk about the business at home, at work, and at every family gathering. But this isn’t necessarily the best idea for your business – or your relationships.

Setting up a regular ‘family council meeting’ gives family members a formalised way to raise issues and discuss conflicts – without the business intruding on family life. It can also help catch and resolve conflicts quickly, rather than letting them fester. Even if your business is extremely busy, it’s worth taking the time.

4: Catch conflicts quickly

Avoiding conflict is a reasonable goal, but avoiding dealing with existing conflict is not. When problems arise between individuals or groups in the business, it’s best to identify and work to resolve them as quickly as possible. Leaving problems to worsen can make them much more difficult to sort out amicably.

Having a way to raise issues and talk about concerns makes you more likely to catch problems early. If left to fester, small problems can loom large in people’s minds, and can even start to affect the way the business is working.

5: Get guidance

When you work with the same people in the same business every single day, it’s easy to lose perspective. Sometimes an impartial outsider can see things more clearly.

Bringing in an expert mediator or business advisor can be an effective way to resolve issues without damaging relationships. This person can act as a neutral sounding board, give expert opinions without being influenced by family relationships, and help steer meetings towards solutions.

An advisor is essential for long-running conflicts, but can also be helpful for smaller issues. In fact, a good mediator can help you establish conflict resolution strategies that you’ll be able to use in the future.

Need help resolving conflict in your business? Talk to the GECA team now

The post Family feuds – five tips for conflict resolution in family business appeared first on GECA Chartered Accountants.

When you inherit a family business, you step into a new role. And, as in any new role, establishing your way of doing things can be challenging.

In fact, changing things in a family business can be particularly difficult. If you have been working in the business for many years, you may be set in your ways. Parents, siblings and other relations who work, or have worked in the business, will have their opinions about the best way of doing things, and there can be a lot of emotion tied up in the business – it can be difficult for older family members to let go, even if they’ve technically passed the business on to you.

But that doesn’t mean you should continue on with the status quo. If you want your business to grow, you need to take a hard look at the way you work and make changes – even if others don’t agree.

Here are the top five ways to kick-start your growth.

Keep your customers coming back

Increasing your customer retention rate can be a low-cost, low-impact way to grow your business. Keeping existing customers around is easier than attracting new ones, so it’s worth thinking about ways to increase retention.

The ‘how’ will be different for every business. You’ll need to investigate why customers are leaving your service or failing to buy your product again, and work on improving those factors. Does your customer service need work? Do you need to contact your customers more often to make sure they remember you? Is it something simple, like shipping cost or packaging, letting you down? Small changes could make a big difference.

Finding new leads

Finding new potential customers is the bread and butter of business. If you’re neglecting this area, your growth is likely to be stagnant.

There are many ways to connect with potential customers and find new leads. Advertising, whether online or in print, is the most obvious and traditional – but not necessarily the most effective. You can also use direct marketing to target people likely to be interested in your business, use social media to connect on an individual level, and work on improving SEO for your website so potential customers can actually find your business.

Conversion is key

Once you’ve increased the number of leads, you can work on your conversion rate. If you’re not converting leads to sales, you’re wasting the money and time you spend on marketing.

You can boost your conversion rate by offering promotional prices or deals for new customers, adding customer reviews and testimonials to prove your product’s worth, or improving your website to make it easier for customers to purchase your product.

Boost your transactions

Increasing transactions is a good goal – more transactions mean more money, after all. But it’s also important to work on increasing the value of each transaction. Higher value transactions bring your business more profit, with the same – or a similar – amount of effort on your part.

If you’re selling online, you can try to increase transaction value by offering free shipping on sales over a certain point, bundling product offerings so customers purchase more items, and using targeted suggestions based on customers’ browsing history. In physical stores, you can work on staff sales training, use tactics like suggesting related product add-ons, or think about increasing your prices.

Reduce your costs

All businesses have overheads, and every sale has a cost involved. Some of these costs are set, while others may be more flexible. Reducing these costs can be a relatively simple way to up your profits.

Think about your larger, monthly costs – like rent and staffing – and the less obvious expenses that apply to each sale – like packaging and shipping. Whether you find ways to reduce the larger costs and save a big chunk of cash, or reduce the smaller costs and save slowly over time, it could make a significant difference to your profit margins.

Looking for ways to grow your family business? Book a complimentary meeting to talk to a qualified business advisor at GECA for advice and support.

The post How to make your family business flourish appeared first on GECA Chartered Accountants.

Using an in-house person to manage your accounting and finance functions might seem like a great solution. You have someone on hand to answer questions who knows your business inside out.

What many businesses don’t consider are the risks that come alongside it – some of which can have devastating consequences to a business. At GECA, we’ve helped a number of businesses come back from the brink of bankruptcy after relying on an in-house finance person.

Here are some of the most common risk factors.

Illness, death and departure

We often see businesses operating with a one-person finance team. This person holds key information to the business’s finances – from small details like logins to access financial systems, and where documents are stored, to overarching information like the strategic direction of the company’s financial future. If something happens to the finance person – they leave suddenly, they get sick, or worse, they pass away – the company is unable to operate even the most basic of functions.

Fraud

You want to trust your people, but the sad truth is that fraud happens, and it’s seen most often in scenarios that don’t come with checks and balances. Having one person in your company’s finance role means you won’t have the basic controls, like dual authorisation, that can help protect against fraud.

Compliance errors

Human error is a fact of life – and when it comes to compliance, those errors can cost your company time and money. A single finance person has no support – no one to check their work, which means that errors can happen more often, and can go undetected for longer. It also means that any errors are your company’s fault alone – you can’t blame a third party and demand they cover any penalties and fines.

Employee data privacy breaches

In-house finance people are often asked to manage payroll – and even legal HR issues – something they could have no experience in. This allows errors to creep in, but also exposes the company to risks around the mishandling of employees’ private data. Any breaches, inadvertent or otherwise, can at best damage employee relations, and at worse lead to a public relations or legal nightmare.

Outsourcing – the smarter option

Unless your company can afford to sustain a larger finance department with the right mix of skills and protocols, outsourcing might be a smarter solution. It means you sidestep many of these risks, or pass them on to people who are much better equipped to manage them. For example, with GECA’s Virtual Finance Team service you get a group of experienced professionals covering all aspects of your accounting and finance. The service is designed to act as your own finance department – you get exactly the services your business needs, such as banking, payroll and management accounting, strategic planning and business coaching.

Strong internal controls give you the checks and balances that are missing from one-person finance departments. They are designed to catch errors and protect against fraud – and since we’re a team, if we lose one person it won’t affect your business at all.

More often than not, VFT also reduces costs – you’ll save on wages, and management time can be spent more productively. You’ll also only ever pay for the functions you need now – VFT can be scaled as you grow.

Outsource for peace of mind

Most importantly, an outsourced finance model like VFT delivers you peace of mind. Rather than keeping an eye on finance and accounting, you can refocus on the business, knowing it’s in safe in the hands of experts.

So, is it time to outsource your finance department? Talk to us about how our Virtual Finance Team could save you time, money and stress –  Call us now on 0800 758 766 for a complimentary, no-obligation meeting.

Time to outsource your finance department? Learn how GECA helps owners of family businesses grow their profits and increase their wealth.

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The end of financial year deadline

As the end of the financial year approaches, it always pays to spend a little extra time examining your financial records and considering ways to increase your after-tax income. There is a high chance that you will find a couple of extra savings from 2019-2020, which can add up to reduce your tax bill by a significant amount. It is also a good time of year to reflect on your financial position, and think about tax minimisation strategies and goals for 2020–21.

Top tax tips for preparing for the end of the financial year:

Write off bad debts

Businesses with outstanding amounts owed, no matter the size, that are unlikely to be recovered in full should consider writing these off as bad debts. Bad debts can be used as a tax deduction, effectively reducing your taxable income for the relevant year.

For a debt to be considered bad, you must have formally written the debt off in your accounts, and be able to prove to Inland Revenue that you have taken reasonable steps to recover the amount.

Pre-pay expenses

By pre-paying for tax-deductible expenses before March 31, you will be able to minimise your tax bill. Some categories of business expenses can be pre-paid without any limitations, meaning that you can claim as much as you like. Examples include stationery, vehicle registration, accounting and auditing fees and postal charges. Most other expense categories have caps that limit the amount that can be claimed in a year.

Split business income

In some circumstances, it may be possible to minimise your tax liability by redistributing the flow of income from your business. For example, if your partner is a low-income earner, it may be advisable for you to split the business income with them. It may also be possible for you to redirect some of your income towards your children.

However, if your family members are employed in your business as wage earners, you should be aware that Inland Revenue may elect to make tax adjustments if they consider the remuneration to be excessive.

Discount reserve

You can claim a deduction for a discount reserve. For example, a discount for speedy payments, if your debtors are traditionally entitled to this discount. In the years following on from the first year that you are allowed, you can claim a discount reserve deduction, adjustments will be made to maintain the discount level at a consistent level.

Trading stock valuation

Trading stock must be valued using a cost valuation method unless the market selling value is lower than the cost. Therefore, to lower the value of your stock before the end of the financial year, you should either physically dispose of it or sell it at market price (if the market price is lower than cost).

Work In Progress (WIP)

It is recommended that on 31 March you assess all the jobs in progress. Make a list of these jobs and add up the costs associated with these jobs (exclusive of GST). The costs will include any stock items used and employee/contractor time on these jobs. These costs are treated as closing Work In Progress as at 31 March and are costs yet to be billed to the customers. These won’t be deductible as an expense at the end of the financial year.

Fixed Asset Schedules

We suggest reviewing your fixed asset registers and assess whether any assets are no longer in use by the business, not working or stolen or disposed of during the year. By writing off these assets (only if they meet the write off criteria) a deduction will be allowed with respect to those assets.

Bonuses and holiday pay

It is possible to claim amounts payable to your employees as a deduction for the current financial year, so long as the full amount is paid to the employee within 63 days of the balance date. Amounts that are paid more than 63 days from the balance date can only be claimed in the following financial year.

Got a tricky tax problem? Call us now on 0800 758 766 to see what we can do to assist. Alternatively, you can email support@geca.co.nz.

Download a pdf of the 2020 year-end tax tips.

The post Year End Checklist 2020 appeared first on GECA Chartered Accountants.

After you buy your first home and accumulate some equity on the property, it may be time for you to climb up the property ladder further. Now, when you are ready to start investing it is extremely important to do it right from the beginning. And the first question that needs to be asked is what legal structure to choose and what tax consequences it will bring.

Recently, The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 has been enacted. It introduced ring-fencing rental losses, a new rule for New Zealand residential property investors that will apply from the beginning of the 2020 financial year, i.e. from 1 April 2019.

To keep it simple here is what it means for property investors:

• If expenses related to your rental are higher than your rental income you cannot reduce your other income by the amount of your rental loss.
• You can use that loss amount against the profit from your rental – in a tax year when it gets profitable. Before this happens, ring-fenced losses can be accumulated.
• The amount of ring-fenced losses can be used to reduce or offset against taxable gain on sale of property for example if a rental is bought on or after 29 March 2018 and sold within five years after the purchase (so called the bright-line test). Un-utilised ring-fenced losses can be used in future when an investor buys another rental.
• An investor can elect to apply the rules on a property-by-property basis or on portfolio basis. This means that if an investor has got more than one rental, they can choose to track their ring-fencing losses by property or by the whole portfolio. Also, there is an option for an investor to include some of the properties to the portfolio and keep the others separate.
• Ring-fencing losses rules do not apply to your main home, business premises, commercial property, farmland, mixed used assets, employee accommodation, property bought as part of a land dealing business or bought with the intention of resale

This is the minimum that every investor may want to know about the new legislation. Now let me come back to the main question: what structure will suit better a new investor in the changed tax environment?

1. The first and simplest structure to be used is to buy a rental under a natural person’s name.If you get profit from your rental it is going to be taxed at your marginal rate. If you get a loss then the new rules will apply and you can offset the loss against your future profit.

The biggest disadvantage of this business structure is that even though it looks like a cheap option in reality it may appear that it is the most expensive one. Rental property under your personal name is not separated from your other assets.  This means that has no protection against your creditors and relationship property claims. Also, under some circumstances the process of inheriting this property may get complicated.

2. Another option is to set up a trust and transfer your residential property to this trust. It can by a costly and time-consuming option since proper trust setting and running implies that you will need to work closely with your financial adviser, lawyer and an accountant. However, it may be worth it: your property will be kept secured and protected against claims by creditors and ex-spouses / partners. Assets kept in trusts will be inherited by the people you want, and not the people that persuade the court that they were disadvantaged.

Taxwise, if the trust makes a profit out of rental property it may keep that profit in the trust or distribute it to the beneficiaries. If the profit is kept in trust it should be taxed at the flat rate of 33%. If it is distributed to the beneficiaries, it will be taxed at the beneficiaries’ marginal rates except for children under 16 (for them, the rate of 33% applies).

If the trust makes a loss it is subject to the above-described ring-fencing losses rule. The loss cannot be distributed to the beneficiaries and cannot be offset against other income that the trust may have.

3. There is an option for you to create a limited liability company and transfer your rental to the company. It will help you protect your property better than if it was held by a natural person but not as well as if it was held in a trust. However, the tax consequences will be similar. If profit is held in the company it will be taxed at the flat rate of 28%. If it is distributed to a shareholder as a shareholder salary it will be taxed at their marginal rate. Ring-fencing losses rule will still apply to the company losses.

There is one minor exception from this rule. As per s EL 11 of The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019, if a company is not a close company, i.e. has got more than six not associated natural persons, the ring-fencing losses rule does not apply. However, the majority of New Zealand companies are close companies and will be still caught by the new rule.

Summary

Nowadays due to the implementation of ring-fencing losses legislation, holding rental properties individually or keeping it in a trust or in a close company will not differ significantly in terms of tax liabilities. Each ownership structure allows distribution of profits to individuals and tax at individuals’ marginal rate. However, the losses will be still subject to the new rules.

Therefore, when choosing a business structure, it is worth considering other pros and cons such as security, compliance costs and accessibility of profit.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having a rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

The post How to choose the right business structure for your residential rentals after ring-fencing losses were introduced appeared first on GECA Chartered Accountants.

You will never get a second chance to make a first impression. And yes, fortunately or unfortunately, a first impression is usually a long-lasting one and changing it can be a challenge. So when promoting your business, you want to make a good impression and be remembered in the right way. One of the ways to win over potential clients is through entertaining them in a social setting.

However, you need to remember that providing entertainment while promoting your business is subject to specific tax rules.

Promoting your business at events

The general rule is that promoting expenses that include entertainment are 100% deductible as long as the promotion addresses the general public, not particular people associated with the business.

For example, your company participates in a cultural festival and organises some entertainment for anybody who comes to the event. Say, people are offered some food, get involved in games and draw prizes. These expenses are fully deductible. However, if your existing business contacts, employees or somebody else has a greater opportunity to enjoy this entertainment than the general public these expenses will become only 50% deductible.

Let’s extend the example further. At this festival you distribute samples of your products or other freebies. You can deduct the 100% of the samples costs that have been given to the general public. However, if freebies are given to your employees or people associated with your business the expenses are just 50% deductible.

Promoting your business at conferences and educational courses

If the conference, educational course or other similar event is held for business purposes the deductibility of the expenses can be known using the following scheme.

Entertainment provided for the purposes of review to an external reviewer

If you are engaged in an entertainment business and you decide to render your services for free to a person who is going to review the entertainment, for income tax purposes you can deduct 100% of your actual expenses.

Say you run a tour around New Zealand. You invite a top blogger to enjoy the tour and write a review in his blog. The expenses associated with this tour including food and accommodation are 100% deductible.

Entertainment for charitable purposes

You can deduct 100% of your expenditures if your business provides entertainment for charitable purposes. The Charities Act 2005 says that ‘charitable purpose’ must fall under one or more categories:

• the relief of poverty;
• the advancement of education;
• the advancement of religion;
• other purposes beneficial to the community

For example, if you donate food to the Salvation Army the expenses are fully deductible.

Summary

When you do promotion and provide entertainment it is worth paying attention to who is going to enjoy the entertainment. If the entertainment is meant to be enjoyed by the general public more likely the expense is going to be 100% deductible.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax treatment of entertainment expenses feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

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Avoid making loans between companies

Avoid making inter-company loans if you are operating two or more companies. Unless the shareholdings in both companies are identical interest needs to be charged between the two entities. If it is not charged, the value of the interest that is supposed to be charged can be deemed a dividend. This can lead to tax complications.

If you want to move money between companies we suggest using the shareholder(s) current account as an advance or drawings in both entities. This is assuming you have a sufficient balance in the current account.

We also suggest not paying another company’s bills from the other company’s bank account. It usually creates a lot of accounting work. This can be avoided by a simple transfer of funds, as described above.

If you have a complicated structure and too many inter-entity loan balances, have a chat to us to see if we can assist you with the loan restructures.

Accounting & tax tips for personal trainers

Motor vehicle – If you are using your personal vehicle, then take note of how much you use your car for work purposes.  This might include travel between clients, picking up supplies, heading to a seminar or anything directly business related.

Bootcamps – If you are running a boot camp or training session for clients outside you can claim particular expenses.  Any equipment or resources used are tax deductible. This includes mats, sunglasses, sunscreen, and hats.

Uniforms – IRD is very particular about what type of expenses fall under the uniform category.  Clothing which has the business logo on it can be claimed as an expense for business purposes only.  Note, running shoes also fall outside of this rule.

Separate business accounts – We recommend clients setting up separate bank accounts or credit cards.  Your clients can pay into this account and you can pay all your business expenses from these accounts.  This ensures we as accountants spend less time processing and separating out your business and personal expenses. Therefore, reducing your accounting costs.

Xero Invoice Reminders – With busy schedules, chasing up debtors can be a chore.  Now in Xero, you can turn your automatic invoice reminders on. This saves you time on debt collection and allows Xero to chase up any late payers and overdue invoices.

Please contact GECA if you need more tips on how to structure your business and if you need to know more on which expenses you can claim for better record keeping.

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Set expectations at the beginning

In New Zealand more than 60% of family owned businesses are transitioned to a second generation. However, this process can be fraught with difficulty and often lead to conflict between siblings and generations. Often this is due to the ‘expectations gap’ – that is differences in expectations between the various parties involved in the succession.

Often the expectations of each party when entering into an arrangement are not documented and so misunderstandings occur between the different parties. I recently worked with a client where this mismatch in expectations led to a severe breakdown in family relationships. Something that could easily have been avoided had these expectations been made clear from the outset of their business relationship.

Create a succession plan to document expectations as soon as possible

In this particular instance, the son had joined the family business ten years ago with a verbal understanding that he would succeed his father and take over the business in due course. This is a typical expectation for a family member entering a business even if they may not be the best person to succeed the parent.

The business had several tough years and then a period of growth. During this time the son was employed as a CEO and after about five or six years began asking his father who acted as Managing Director what was happening with succession. Several discussions were held over the years, however, no firm agreement on the way forward was reached. Following increasing pressure from the son, two years ago the father finally engaged advisers to help structure a succession transaction with his son.

Communicate to keep all beneficiaries happy

It was important to both parents that their three children were treated equally. And so this precluded the gifting of shares in the company to the son. Instead, the father proposed the son buy 49.9% of the equity in the company based on an independent market appraisal, over a period of 5 years, and use dividends and a supporting loan from the family trust to enable this. His view was the family estate would be boosted by the amount received for the shares from the son. The son would then get a one-third entitlement to this value in his inheritance.

The proposal came as a great shock to the son. It was his expectation that he would be succeeding his father as owner of the business. He had not considered that his father would expect him to buy the company, especially not at a commercial valuation.  He believed that he had created the value during his ten years as a CEO and that by buying a company at commercial rates he would be rewarding his two siblings for his effort in creating value.

Plan for the unexpected

It was a classic case of mismatched expectations. And it was around this time that the father was diagnosed with a terminal illness with only two to three years to live. Suddenly, the succession process took on a new urgency.

Complicating the issue was the appointment of a sibling as a trustee to the family trust that held the shares in the family business. As an aside, this is a problematic issue for many New Zealand family trusts. While there is a desire for family members to support their parents in the event they become incapacitated. If they are beneficiaries as well as a trustee this places them in a difficult conflict of interest position anytime a distribution of trust proceeds is considered.

The sister was of the opinion that the brother was lucky to have a job and should not be given a company without paying for it. This led to a conflict between the brother and sister. In particular, because the original succession proposal provided for the trust to maintain a 50.1% shareholding, in other words, control of the company. As CEO and a part-owner as proposed, this was unacceptable to the brother.

Finding a solution that rewards success

The son rightly identified that if he wanted to game the proposal, as CEO he would manage the business value down in order to secure the remaining 50.1% at a reasonable price.  This would disadvantage his siblings in the process. He also had to consider whether he wanted to buy the company or use what would be a substantial inheritance to retire. He also recognised if he were to exit the business, there would have been a negative impact on business value in the short term.

The outcome

Ultimately, a succession transaction was structured. The son was given an option to buy 50.1% of the shares in the company each year at a set value. The set value was an agreed increase over prior year EBITDA, therefore, incentivising the son to exceed this in-order to achieve greater dividend return on his shareholding. The remaining 49.9% shareholding was to be valued in the event of his death and the son to buy the shareholdings from siblings at an agreed 10% discount to market value. This was to reflect the brokerage cost of selling a business and to incentivise the purchase of the business by the son from the family trust.

One of the crucial elements of the succession proposal was agreed and the proposal documented the dividend payment policy to enable the structuring of loan payments to pay for the shares.

The above example illustrates the need for documented agreements from the outset of any business relationship, and in particular between family members. The more informal nature of these working relationships often leads to mismatched expectations which can cause conflict and compromise the business performance.

In particular, the succession of a valuable asset such as a business needs to be managed carefully and with transparency amongst all family members to ensure harmonious family relations. Often family estates can be worth many millions of dollars. Claims on this can be wide and varied, ranging from partners family members to charitable causes. Documenting the succession plan and disseminating provides clarity and transparency to all involved parties and helps maintain the integrity of the family unit. 

Read more about Succession planning at GECA. If you need help with a family member succession process, feel free to get in touch with Giles on 0800 758 766.

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