Asset Planning & Structures Division
Run by GRA founding partner MATTHEW GILLIGAN, GRA ASSET PLANNING focuses on ensuring your taxation and asset protection structures are optimised.
What does this mean, and what is asset planning? Asset planning is the process of designing taxation and legal structures.
Asset planning ensures taxation, estate planning and asset protection are all dealt with at the same time.
In short, creating a good structure to own your home, business assets and investments requires thorough planning.
This involves taxation and legal analysis. The end result is a 'holistic' outcome that means you will be in the best position to increase your net worth while having the right protection in place.
A Holistic Approach - The GRA Difference
Don't fall into the trap of allowing a practitioner from one discipline (accounting or legal) or a person who is non-expert in this area to set up your structures.
Take the typical lawyer. She will seek to maximise asset protection and design your estate plan - good motives and integral to the process. But lawyers tend to put all of your assets inside a trust, without thought as to the tax ramifications of moving assets.
Asset Planning & Tax Issues
Examples of tax issues you may face are:
- Locking up losses on rental properties - properties in trusts or in companies outside of 'group' structures result in losses not being accessible to income earned, impacting cash flow and tax efficiency.
- Loss of tax credits - if you move the shares of a company that carries tax credits, NZ tax rules say if you have shifted more than 34% of the company's shares, the breach in continuity of shareholding results in forfeiture of all taxes paid by the company. A disaster, as you end up paying taxation.
- Forfeiture of losses to carry forward in companies - for those with losses in companies to carry forward, transferring more than 51% of the shares results in forfeiture of losses to carry forward. This continuity test aggregates all shareholding shifts throughout the years and matches them to losses earned 'period by period', so if you moved 51% three years ago and lost $100k that year - no problem. If three years later you still carry these loses, and move 1%, the losses are forfeit.
- For farmers - moving stock causes you to crystallise stock values with resulting losses or taxable surpluses, as you dispose of the asset out of your valuation scheme.
- For rental investments shifted - you create depreciation recovered, resulting in tax to pay on the depreciation claimed life to date.
- Selling business assets from companies to other companies or trusts, resulting in a capital gain, will cause such gain to be taxable to the company selling it (on realisation of the gain), unless some tax planning is done in advance. For example, you have a business in a company that is sold at valuation to a new company owned by a trust for $1m. Because the gain is a related party gain, the gain is taxable on windup of the vendor company. This could easily be avoided with a bit of planning in advance.
This list, which is a small list of tax travesties we see lawyers (and some accountants) committing, identifies common traps for people not familiar with tax issues in asset planning. The result is that you pay the cost and fall out with your advisor, as you realise they have let you down by not providing information, or causing the information to be provided.
Some Accountants Can Get It Wrong
As well as this, accountants setting up asset planning structures often make problems for their clients. How? By not addressing the legal points of interest in relation to a structure.
Common things that we see accountants doing that should be addressed are:
- Failure to consider the nature of the property from a relationship property perspective - is it joint property or separate relationship property? Take an inheritance, for example. If kept in a separate trust, it is not joint property. We frequently see accountants not versed in the legal side of asset planning trampling these sorts of issues, resulting in one spouse losing 50% of their separate relationship property to the other.
- Failure to look at general security agreements securing your own money in your own company, a huge advantage for self-employed and something that should be addressed in all self-employed structures, bout not tax so often ignored by accountants.
- Failure to draft new Wills and set up the estate plan as part of an asset planning process. (When you create trusts, you need to do new Wills, which typically an accountant will not have the expertise to do.)
- Failure to address blended family issues - children to prior spouses. Consider what happens if one spouse dies, leaving the surviving spouse in charge of the assets for the children of the deceased spouse's previous relationship. Will the deceased spouse's children be treated equally and properly?
These sorts of things are often ignored by advisors not versed in asset planning.
Let GRA Help
If you want to achieve your money goals, then asset planning will be a critical part of that success. It is a specialist process, best run by a combination of legal advisors and taxation advisors.
Get your lawyer and accountant working together, thinking through not only these issues, but also looking further ahead to where you are going with your investing.
GRA is a chartered accounting firm, specialising in asset planning. We have a good commercial knowledge of all the issues of asset planning, and seek to work together with your solicitors as part of the process.
The end result for you means better peace of mind and more time to achieve your financial goals.
Typical Salaried Property Investor Structure - Family Trust & LTC
For more information about this diagram, please request an interview.
Typical Property Trader / Developer Tax Structure
For more information about this diagram, please request an interview.
Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I’ve copied Janet into this email as she provided us her email address in the first class, another example of how personable you are and lovely to deal with. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again,
A & B