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What You Need to be aware of in 2021

Be aware of what you are signing up for

Over Christmas, on two occasions we had clients sign contracts without really reading or understanding what they were signing and on both occasions It meant that legally we could not act for them after the contracts were signed, when this was explained to them they simply threw their arms up in horror and asked us to unravel the mess. It’s important that you fully understand what you’re signing and if you have any doubts you need clarification.

Trust Act Changes

It’s common for people involved in family trusts to underestimate the ongoing management and administration requirements.  Recent case law has highlighted the risks for trustees when things do go wrong.

In addition, the Trusts Act 2019 has received royal assent and comes into effect at the end of this month.  This will legislate higher standards of management being required, including new requirements for a trustee to know the terms of the trust, to act according to those terms, to retain trust documents, to notify the beneficiary of any variations from new default duties of the Trustees and make certain information available to them.

While people settle (create) a family trust as a means of providing a form of protection for assets, many experts believe that, if challenged, many of these trusts could be overturned.  Author and financial advisor Martin Hawes, who has sold over 120,000 books about trust management in New Zealand, estimates that 75% of family trusts wouldn’t withstand legal scrutiny.

To ensure that your trust is effectively managed in order to achieve its goals we have been recommending to our Trust clients to use a New Zealand product called “Connectworks” for some time now. It is an easy-to-use, cloud-based software solution for the management of family trusts. It can bring all those involved in each trust and all their information together to improve compliance and streamline management.

Restructuring decisions for 2021

Giving the sustained drop in interest rates many property investors have made the transition from loss-making to profit-making. This is having a dramatic effect on the overall effectiveness of tax structures.

As from 1 April individuals who earn over $180 000 will be paying 39% income tax on their personal income above this amount. Coupling this with distributions from the family’s investments, there is likely to be a significant amount of tax paid by some unless action is taken.

Many of these investments are held in a Look Through Company (LTC). If you make a revocation of the LTC status, much of the investment profit can be retained in the company and taxed at just 28%.

With the Trust Act reforms causing trustees to consider whether a trust is still the structure they want to administer going forward, it is worth noting that the government has not signalled any change to the trust tax rate of 33%.  So for those continuing with their trusts, the lower tax rate rather than the high marginal rate, individuals will have something to smile about.

With these changes and many others, it’s timely that you consider if your current investment and business structures are appropriate moving forward, or do you need some advice?

HAVE WE GOT YOU THINKING?

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for  March’s article!

TAX DATES TO REMEMBER

  • 20 February. 2021 – monthly employers PAYE payment…
  • 28 February. 2021 – Bi-monthly GST Return for Dec/Jan 2021…

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