New Tax Rules Proposed for Holiday Homes

The IRD has recently released an issues paper in relation to the tax treatment of mixed-use assets.  Whilst the issues paper will apply to a range of assets including yachts, launches, aircraft for example, its application to holiday homes is likely most relevant to readers and clearly the main intended target of these proposed changes.

Current Rules

Currently one is entitled to a tax deduction for expenses incurred in deriving taxable income.  In the case of a holiday home where there are periods during which the property is rented the law is very clear in that the income is taxable and the expenses incurred during that period deductible.  When the holiday home is used privately the law is equally clear in that no expenses are deductible during that period.  In between the holiday home may well be available for rent and the current IRD position in relation to expenditure during this period is that a deduction may be available if genuine attempts are made to rent the property. 

Proposed Changes

The IRD want to change the rules in relation deductibility of expenditure during periods in which a holiday home is available for rent but not actually rented.  The proposed rules will apply to holiday homes that are unused for at least two months of the year and owned by individuals, trusts, companies that are close companies, qualifying companies, look through companies and where the holiday home is used both privately and for income earning purposes.

If these criteria are satisfied the IRD are then proposing one of two methodologies for determining whether expenditure will be deductible.

First option is something of an all or nothing option in that either all expenditure during the downtime will be deductible or none of it will.  In order for all of the expenditure to be deductible the holiday home would have to have been used for income earning purposes for 62 or more days during the income year and the actual personal use be less than 15% of the income earning use.  For example, if a holiday home were rented for 80 days during the year then provided the private use were no more than 11 days all expenditure during the remaining days of the year would be deductible provided there was genuine efforts to earn income during that period. 

The second option includes a more complicated formula that allows for a partial deduction of expenditure during the downtime periods based on the proportion that the income earning use of the property bears to the private use.  Under this test in order to get a deduction for all of the expenditure, once again the asset will have to be used for 62 days or more in a year, but the threshold of private use to income earning use drops to 10%. 

GRA Comment

The first point to note that these rules are at proposal stage only.  Public submissions on the rules can be made to the Inland Revenue before 30 September 2011.  A link to the issues paper can be found by clicking HERE.

Whilst the rationale for this overhaul of the rules is relatively sound in that the desired outcome is to tighten deductibility of expenditure in relation to assets that ultimately are more about private than investment use, the proposed thresholds will likely have a significant consequence for owners of property that are genuine investments but used privately from time to time.  A typical holiday home investment may well produce more rent on an annual basis if rented periodically to short-term stay occupants rather than on a long term lease.  In such a case there may not be a large number of days where the property is occupied meaning that the private use threshold whether it be set at 10% or 15% is relatively low.  It seems unfair to us to then disallow deductibility of all expenditure during downtimes on the basis that it is essentially of a private nature when the asset arguably has a predominant business use. 

It was also interesting to note that the IRD issues paper referred to the fact that there are 15,000 holiday homes available for rent in New Zealand based on a survey of eight leading New Zealand websites.  One would not be surprised if you had a property advertised on such a site that you attract the attention of the taxman in the future. 

As always if you have a holiday home and are concerned about the application of the current rules to you please contact us.  Once again these rule changes are proposed only and if you feel strongly about them we encourage you to make a submission or provide GRA feedback and we can accumulate your feedback and submit on your behalf. Please send feedback to info@gra.co.nz

Matthew Gilligan
Director

Contact Matthew at mg@gra.co.nz
or call +64 9 522 7955

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Firstly our hearts go out to those in Christchurch who have had to endure the earthquakes and aftershocks of recent time. Many of our staff have family in Christchurch and we have been hearing first hand the events of 22nd February and the flow on effects from this major earthquake.

We at GRA want to do our bit as well. We are donating to 'Paw Justice' a charity that has organised a pet-food bank to donate essential supplies to the many affected animal shelters in Christchurch. If you would like to donate please follow through to this link.

With Christchurch being the second largest city in New Zealand we are aware that many of our clients are based in Christchurch, have investments or business interests in Christchurch. Here at GRA we thought it would be useful if we can assist you, find below a brief guide of financial matters that you may want to consider.

If you are a Christchurch resident and you have yet to file your income tax return we have taken the liberty to inform the IRD that you will be late in filing this return.

Financial Guide To Quake Victims

Filing and Payments to IRD

If your business was damaged in the earthquake it may be unrealistic to meet your filing and payments to the IRD for all the variety of taxes you may be set up to pay.

In these instances we can contact the IRD on your behalf and let them know that you have been affected.  Doing so will give the IRD the ability to use their discretion and reverse any interest and penalties that may be imposed.

Cashflow will be uncertain during these times and making tax payments may not be an option also. Let us know if this is the case and we can communicate this through to the IRD at the same time.

The IRD will want to know a timeframe for when payment can be made. In these early days following the earthquake analyzing your cashflow may be very difficult and as such a month or two would not be unrealistic. This will give you the breathing space to sort out your affairs.

All outcomes with the IRD will be on a case by case basis as the IRD has the final discretion on whether to undertake such actions. Communicating with them early is likely to yield the best results.

Provisional Tax

If you are a provisional tax payer and your business is affected by the earthquake then it is likely your profits will suffer. The next provisional tax installment is 7th May, if you receive a provisional tax advice letter from us during April and you are affected please contact us and we can discuss options for modifying the amount that may need to be paid.

Cashflow Management and Bank Financing

Managing cashflow through a crisis is an art. If your business or investments have been severely affected your financiers will want to know the effect on their positions. Engaging in communication with them will be critical to ensure a positive outcome. We can assist you with cashflow forecasting where required. We are also aware that many of the banks are offering repayment holidays for a period of time whilst you get yourself back on your feet.

EQC Payouts/Insurance

Repairs

If you own residential rental property or business assets and the insurance is used to repair these assets, you will be entitled to a deduction for the repair, but you will also include the amount of insurance compensation as income.  The end result is that is there is no tax loss or profit from undertaking repairs. If you have excess insurance monies beyond the repairs this will not be assessable for tax.

Replace/Full Loss

If property or assets have been completely destroyed, any insurance payments will be considered as a deemed sale of that property or asset. The effect is that you may have depreciation recovery on depreciable assets if the amount received exceeds the depreciated book value.  Depreciation recovery is income for tax purposes.

Other Insurances

Any business interruption or loss of profit insurance is recognised as income for income tax purposes.

• Draft legislation is before Parliament to repeal gift duty from 1 October 2011.  Once this rule is finalised we will spend more time advising you as to what the appropriate course of action is.  At this point it would seem highly likely that this will be enacted as is so one can expect gift duty to be no more from 1 October 2011.

• A number of significant changes are programmed to take effect in relation to GST from 1 April 2011.  Some of the key ones are:

• Land transactions entered into after 1 April 2011 are zero rated for GST purposes if the transaction is between two GST registered parties.  In the past the vendor would collect GST from the purchaser and remit that to the IRD and in turn the purchaser would claim the GST back.  From 1 April 2011 such transactions will be subject to a GST rate of 0% meaning no GST is charged and collected and no GST is claimed by the purchaser.  This is a rule change designed to prevent so-called "phoenix" arrangements whereby land was sold out of one GST registered entity to another, at which time the purchaser made a GST claim and the IRD were left out of pocket because the vendor entity was insolvent and could not pay the GST back.

• New apportionment rules replace the current adjustment rules.  Under current GST rules you claim GST on 100% of the purchase price of an asset if the principal purpose in acquiring the asset is to apply it towards a taxable activity.  You then make adjustments if the asset is subsequently applied towards exempt purposes.  The apportionment rules replace this approach by requiring you to determine up front what portion of the assets use is intended to be for taxable purposes and then claiming GST on that basis.  For example, say 75% of the use of an asset is expected to be in relation to the taxable activity, you will claim 75% of the GST.  You then make adjustments over time if the actual use of the asset differs from the original estimate.

• In relation to land transactions many of you may already be making GST adjustments as a result of a property being bought for dealing or development purposes being rented.  Despite the enactment of these new rules on 1 April 2011 you will still continue to apply your existing rules for land acquired prior to this date.

• The position in relation to nominee transactions has been clarified.  There has historically been debate around whether nomination arrangements triggered a second supply for GST purposes.  The new provisions by and large confirm that there is a single supply from the vendor to the nominee and provided all other criteria met, the nominee is entitled to make the GST claim.

• The definition of commercial property has been broadened to explicitly include home stays, farm stays, bed and breakfast accommodation and certain serviced apartments.  Broadly speaking there is almost a presumption that property is commercial unless you fit within the definition of dwelling, which is essentially a dwelling used by its occupants as their principal place of residence.

• In relation to Family Assistance the definition of income in order to determine one’s eligibility is being broadened to include trustee and company income.  This applies to Trust's where the applicants are settlors and companies owned by these Trusts.  Various other items of otherwise exempt taxable income are also now included in the assessment.  This was a change signalled when the budget was read in May.  It represents an attempt to address the Government’s concerns about the integrity of the social assistance regime. 

Naturally the above is merely a broad brush summary of the changes.  If you have concerns particularly in relation to GST and eligibility for Family Assistance then please contact us.

Since announcing in May that the LAQC regime was going to be the subject of an overhaul the property investment community has been anxiously awaiting the Government’s follow-up to the Issues Paper released at the time.  On Friday 15 October 2010 draft legislation was released.  As at the time of writing all practitioners, including myself, were poring over the draft to get to grips with the new regime.  The objective of this article is to provide an overview of the proposed rules.  Contact Us At GRA

Recap

In May sweeping changes to tax rules were announced with the ones of most significance to property investors being the prohibition on claiming depreciation on buildings after the end of the 2011 financial year and drops in personal income tax rates.  At the same time the Government announced that they wished to review the current tax rules in relation to LAQCs.  In the Issues Paper it was proposed that LAQCs would be treated as limited partnerships for tax purposes with the three main consequences of this being:

• LAQC profits would be attributed to shareholders (as well as losses).  Perhaps unsurprisingly the IRD had expressed concern that the existing tax rules allow an arbitrage in that shareholders of a loss making LAQC can offset losses against their personal income where the tax rate has historically been as high as 39%, whereas they could hold shares in a profit making LAQC and have the profit taxed at the lower company tax rate (historically 33%, now 30% and moving to 28% from 1 April 2011).
• Losses able to be claimed by shareholders to be limited to the shareholder’s “investment“ in the LAQC.  Broadly speaking this was proposed to include capital of the company, together with retained profit and any company debt guaranteed by the shareholders.  Shareholder loans were not included and many submissions were subsequently fielded on this point.  The objective here was to limit the ability of the shareholders to claim losses that exceed their economic exposure to the activities of the LAQC.
• Shareholders to be regarded as owning the underlying assets of the company for tax purposes.  This meant that upon disposal of shares there would be a disposal of the underlying assets potentially triggering depreciation recovery or tax on any “tainted” gains through association to dealers, developers etc.

Draft Legislation

With draft legislation now available it is clear that the Government is committed to implementing these changes and the outcome is largely as set out in the original Issues Paper albeit that the route chosen is simultaneously more complicated, but more friendly for taxpayers.

The headline of the draft legislation could well be “LAQCs are gone”.  From the 2011/2012 income year existing LAQCs will no longer have the ability to attribute their losses to shareholders which effectively represents the end of the LAQC regime.  Before readers with LAQCs that are going to produce tax losses post 2011 throw their hands up in despair let me introduce you to the new LTC structure.   Contact Us At GRA

The new LTC rules (LTC stands for “look through company”) are essentially the same as the proposed rules in the Issues Paper released in May.  In other words an LTC is a company that will be taxed as a limited partnership.  All profits and losses of an LTC will be attributed to shareholders in accordance with their shareholding interests.  If losses are produced the shareholders ability to claim those losses and offset them against other forms of income will be restricted if the losses exceed what is known as their “membership basis”.  Broadly speaking the membership basis is as noted above with the confirmation that shareholder loans are included in the calculation.  The sale of shares in an LTC will be treated as the sale of the underlying assets so that potentially issues like depreciation recovery will arise.  In saying that it is noted that there are thresholds and exceptions as to when there will be a tax cost. Contact Us At GRA

Transition Options & Relief for LAQCs

On a positive note the new rules contain extensive transitional rules that allow existing LAQCs to seamlessly transfer into the LTC regime or into an alternative limited partnership, general partnership or sole trader structure if desired without a tax cost.  This is an excellent outcome for taxpayers utilising LAQCs at present.

Perhaps the best way to sum this up, if you have an LAQC at present going into the 2011/2012 income year you have four options as follows:

• Do nothing which will see your company remain an LAQC but lose the ability for the losses to be attributed to the shareholders. 
• Transition into the LTC regime.  Under the draft legislation you will have six months to file an election with the IRD to convert your LAQC into an LTC which will then see it taxed as noted above.
• Take advantage of the transition provisions to restructure your LAQC into a limited partnership, partnership or sole tradership.  Any such transition will not come at a tax cost but there are restrictions as to when this is available.
• Revoke LAQC status and have the company revert to being an ordinary company. 

Comment

In my view, the new rules contain no greater issues for investors that currently operate LAQCs than were raised in the original Issues Paper.  It is fair to say that the introduction of the new LTC regime complicates matters in that investors will now have grapple with a new regime but it seems likely to me that most will choose to transition their LAQCs into the LTC regime.  Whilst an LTC has potential disadvantages in terms of the potential limitation of losses and the disposal of shares potentially triggering tax consequences these potential disadvantages may not be an issue for many investors.  In most cases the shareholders of an LTC will be guaranteeing the debt and therefore the shareholder’s membership basis will likely always be large enough to allow full ability to claim any losses produced.  The treatment of a disposal of shares as being the disposal of underlying assets is definitely an issue for those of you whom have properties that have been heavily depreciated and you should seek advice as to your options prior to 31 March 2011 if you are in a situation.

In closing, I see the LTC as effectively replacing LAQCs and see them as being widely used by investors.  Having said that, the transition process presents both opportunities and risks for investors and I urge you to get advice in relation to your existing LAQCs and the transition options prior to 31 March 2011. Contact Us At GRA

Matthew Gilligan
Director

Learn More about Matthew
Contact Matthew at mg@gra.co.nz
or call +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

Now that the dust has settled on what was one of the most anticipated budget announcements in recent memory, now is time to reflect on the impact of the announced and proposed changes on property investors.  In doing so I am going to focus on the specific impact of the tax changes and leave aside for the moment the wider macro effects of the impact of this budget on the economy.  Broadly speaking there are five areas where the tax changes will impact on property investors.  They are as follows:

• The drop in personal marginal tax rates;
• The removal of depreciation claims on buildings;
• Proposed changes to the LAQC regime;
• Raising GST to 15%;
• Extra funding for audit activity at the IRD.

For advice on how the changes impact you contact us.

Depreciation vs Tax Cuts

Let’s take an example of a typical property investor that has taxable income from their job of $75,000 per annum and owns two rental properties that are currently worth circa $700,000 but were bought in 2002 and 2006 for $550,000.  For the 2011/12 income year if depreciation was still able to be claimed on buildings they would have been expecting to make a circa $6,800 depreciation claim which would have a maximum tax benefit of circa $2,200.  At the same time due to the cuts in personal tax rates there is an increase to their after tax income of circa $2,400.  Following this, the investor is $200 better off in the 2011/12 year.  It is also worth nothing that of course depreciation is usually claimed on a diminishing value basis so the amount that would have been claimed on the building moving forward would be reducing over time.  Finally, there is also the fact that in many instances depreciation claims produce a timing benefit only in that it is then recovered on sale.

Following this, we see the removal of depreciation claims as being mitigated by the drop in income tax rates (of course there will be additional private GST costs).

LAQC Regime

The budget announcement also signalled that there will be changes from the 2011/12 year to the LAQC regime.  At the moment the proposals are at issues paper stage only which means they are open for public submission until early July 2010.  The philosophy behind the proposed changes are to align the tax treatment of qualifying companies and loss attributing qualifying companies with limited partnerships.  This means that some of the same aspects that LAQCs have now will be retained in that tax losses will continue to be attributed to shareholders in proportion to their relative shareholding.  However, it also means a number of changes to other aspects of the LAQC regime.  It will mean that taxable profit is attributed to shareholders rather than taxed at company level and there is also a proposal to limit the amount of tax loss that can be claimed to the shareholders’ exposure in the investment. 

If you have an LAQC that may become tax profitable, then contact us for advice.

At this point in time the rules are not finalised but we will be watching this closely and it may well be that many investors who currently have properties in an LAQC will need to consider whether this is the appropriate structure for them moving forward. 

If you have an LAQC with property in it, contact us for advice on restructuring prior to the rules changing.

The fact that depreciation on buildings has been removed, which may lead to a decrease in the tax losses (or perhaps even some properties even becoming profitable), along with the proposed changes to the LAQC regime mean that a review of structures is necessary.  If the changes continue to proceed as proposed affected investors would be best placed to restructure prior to 1 April 2011.

If you are selling property and want to know about the impact of depreciation recovery then contact us.

Likewise if you are buying property and want to know if the LAQC is still the right structure then contact us.

The rise in the GST Rate & Audit Activity

The rise in the GST rate will not have a discernible effect on residential property investors other than expenses that they currently incur that attract GST will increase without the ability for the GST to be reclaimed.  There will be an impact on property traders and commercial property investors however.

If you are a property trader you need advice on transactions occurring around 1 October 2010 when the rate changes.  Please contact us for advice.

It is also worth noting that extra funding is going to be provided to the IRD with one of the focuses being the property industry.  As a result we encourage property investors to make sure that they are involving professionals in the preparation and filing of their tax returns and making sure that they are getting appropriate tax advice in relation to property transactions.

If you are concerned about tax treatment on past transactions or need advice on current ones, then contact us

Overview

Overall we think the budget was a largely positive one for property investors even in respect to the tax changes.  Certainly leading into the budget there was talk of ring fencing of losses, which has not come to fruition and would have had a much more significant impact on the property investment sector.  As it is the removal of depreciation claims on buildings from the 2011/12 year will definitely impact on property investors, but perhaps for property investors any impact of this will be matched by gains to the drop in personal tax rates.

Matthew Gilligan
Director

Learn More about Matthew
Contact Matthew at mg@gra.co.nz
or call +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

In recent times the Tax Working Group reviewing New Zealand’s tax system has received increased attention. 

This is no surprise as it gets closer to making its recommendations, which now appear likely to come out early in the New Year.  The Tax Working Group is a collection of academic, government and industry tax professionals charged with reviewing New Zealand’s tax system. 

Part of their brief is to look at the equity and fairness of the system and look for ways to broaden the tax base, ideally so as to fund drops in the personal, trust and corporate tax rates. 

Many readers will be aware of some of the options they are considering in respect of the taxation of property including capital gains tax, a land tax and a tax focused on property investments (which imposes a deemed income based on a risk free rate of return).  My thoughts on this process are as follows: 

I think that stamp duty should be considered.  It is progressive in nature (taxes volume) so satisfies the fairness and equity requirement.  It is also a system that is relatively easy to legislate for, hard to avoid, and easy to enforce.  I

If targeting the property sector and reducing the risks of a speculative bubble are a goal, then stamp duty on land transactions would also seem to achieve these goals. It dampens speculation (taking the margin off traders, leaving only the long term investors to prevail).

In the meantime we wait with baited breath as to what the next move is. Naturally GRA will keep you abreast of developments.  I

If we can help with advice with investments, structures or business planning, please contact us.

Matthew Gilligan
Director

In June 2008 the Government released a tax policy issues paper for public consultation that looked at options for reducing risks that GST can present to both businesses and the Government.  Following submissions in relation to this, the Government has now released a follow up discussion document that reinforces many of the proposals initially made but with one notable omission.

One of the most controversial elements of the original June 2008 issues paper was the proposed denial of GST input claims on the purchase of land from unregistered vendors.  In short, the original issues paper proposed that no GST should be able to claimed when a GST registered buyer buys land from an unregistered person.  The rationale was that there are different tests for transactions between associated and unassociated persons.  In the case of associated vendors and purchasers no GST can be claimed when an unregistered vendor sells to a registered purchaser.  Rather than having two different tests the issues paper suggested that the associated persons test should be extended to unassociated transactions.  Needless to say this would have had a dramatic impact on taxpayers engaged in property dealing in development activity where often stock is purchased from unregistered parties.

Fortunately the new discussion document makes no mention of such a rule so it seems to have fallen by the wayside.

Some of the proposed changes that have survived though include the following:

• A domestic reverse charge system is slated to apply to land and going concern transactions.  The domestic reverse charged system is one that sees the obligations of both returning and claiming GST in relation to a transaction imposed upon the purchaser.  This regime will apply to transactions between two GST registered parties.  At present if a GST registered vendor sells a property for say $1m plus GST to a GST registered purchaser the GST registered purchaser will claim $125,000 of GST as an input claim and the vendor will be expected to return the same as output tax.  The Government are concerned with potential risks to the tax base where the purchaser makes the claim but the vendor either cannot or does not pay.  The domestic reverse charge system would see the vendor sell the property for $1m plus GST and the purchaser, rather than paying the GST to the vendor, would return the GST output tax in their return and make the claim at the same time so the transaction is neutral from all parties perspectives and the IRD are not required to make a payout. 
• One very positive proposal is the pragmatic view of transactions involving nominations.  At present there is a degree of uncertainty as to whether transactions involving nomination legally involve one or two supplies.  The new proposals talk of taking a pragmatic approach whereby the ultimate nominee will be regarded as the recipient of the supply and therefore any issue of there being two supplies is removed.
• Existing change in use rules are proposed to be replaced with an approach that apportions the input tax deductions in line with actual use.  At present GST is claimable on the purchase of an asset if the principal purpose is to apply it to a taxable activity.  If the asset is then partially applied towards a non-taxable purpose, adjustments are required.  Under the new rules an apportioned claim would be made up front and adjustments only required if actual use differed from that anticipated.  Whether this proposed overhaul of a complex area of the law, is any less complex than the law it will replace remains to be seen.
• The Government is very concerned about lost GST on so called de facto mortgagee sales.  At present there is legislation in place to protect the IRD’s right to collect GST when there is a mortgagee sale.  Where sale takes place before the mortgagee takes possession, however, the Inland Revenue does not enjoy such preferential status.  The discussion document proposes a new rule whereby a sale that is an “in substance” sale in satisfaction of a debt is treated as the same as a mortgagee sale.  What they are talking about here is where the mortgagee has initiated or controlled the sale of the property, but doesn’t formally sell it as a mortgagee.  In such cases it will be treated as if it were a mortgagee sale and the GST debt will take priority.
• Another welcome change is a clarification of the definitions of dwelling and commercial dwellings.  Since June 2006 there has been uncertainty surrounding the Department’s position in relation to whether the likes of holiday homes and serviced apartments fell within the GST regime.  The new proposals are encouraging in that they indicate an attitude that is based on the use of property rather that its function.  Accordingly holiday homes and services apartments that are let out on a genuinely short-term stay basis and not occupied by tenants as their primary residence will clearly be regarded as commercial dwellings.

On balance we think that the proposals are generally sensible.  We note that we are of course just at discussion document stage at this point.  Next step from here is another round of public submissions which close on 18 December 2009.  From there one would expect draft legislation to be introduced to Parliament to be followed by the Select Committee stage which involves a further round of public submissions before final legislation is enacted and implemented.  If you are concerned about the potential impact of any of these proposed rules changes on your affairs then contact us at GRA. 

Matthew GilliganMatthew Gilligan
Director

Learn More about Matthew
Contact Matthew at mg@gra.co.nz or call +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

The much talked about new Association Rules are back before Parliament and unfortunately for those in the business of dealing in or developing property or erecting buildings, the Bill has not been substantially changed.

The new expanded definition of association has largely survived the Select Committee process and the new rules are likely to come into force in August, potentially from early August.

We are currently working through the rules so if you are looking to buy a rental property in August please contact us for advice if you are concerned about potential tainting.

Important Note for Builders

If you are in the business of erecting buildings this is the one activity that could lead to tainting of existing properties. To explain, if you are a dealer or developer only (ie. not involved in the business of erecting buildings) any rental property that you own now and that was not tainted under the existing rules will not be affected by the new rules. Further purchases could be, but your existing rentals will not be.

On the other hand, if you are in the business of erecting buildings, existing rental properties that you have could be tainted if you carry out improvements on those properties. If you are in the business of erecting buildings and are looking at making improvements to a rental property then contact us immediately as you need to know the implications of this.

Changing Use on Existing Stock

The other major impact that the change in Association Rules has is for those of you who have property bought for dealing and development purposes where you are considering a change of use. If you have a property bought for dealing and development purposes and you are considering holding it (ie. making a complete change of use in respect of that property) you need to contact us urgently.  You should consider restructuring the ownership of that property in the next two weeks before the new rules come into play.

Summary

In summary, the new Association Rules are coming in and as feared they are wide reaching and going to make it very difficult for those engaged in a business of dealing in or developing property or erecting buildings to prevent future rentals from being tainted.

More immediately than that though, if you have property owned by your dealing and development entity that you now wish to hold long term you may need to take action within the next two weeks to restructure the ownership of that property before the rules change. If you are in the business of erecting buildings you also have to be extra careful if making improvements to existing rental properties.

If you want tax advice in relation to these issues please contact Anthony at GRA on 09 522 7955 or at anthonyl@gra.co.nz.

Thank you.

Matthew Gilligan