We have recently seen a noticeable increase in number of people (more inexperienced) dabbling or investing in shares. Several easy to trade app-based platforms such as Sharesies and Hatch, providing ability to invest small amounts at a time, and the reduced return from bank deposits have contributed to this increase.

Whilst the investment in shares provide a good alternative, all investors regardless if they are investing purely for the long run or for a short run for quick gains or have a foot in both camps need to be aware of the current tax rules relating to income from these shares and also potential gains or losses on disposal of these shares.

As different tax rules exist for taxing overseas share investments, this article is primarily concerned with the tax impact of investment in shares in New Zealand owned companies by individual investors, who form‘s the majority of this readership.

It is not difficult to understand and digest that the most common return to investors are dividend payments, akin to fruit from tree, and dividend income forms part of taxable income irrespective of the category of investor you fall into.

While there is no capital gains tax in New Zealand, income from sale of shares is taxable in certain circumstances. Casual and new entrants may assume that they are not required to pay tax on any profits from sale of shares as they are considered to be capital gains. In some cases they are treated as capital gains however there are provisions in the tax act which provide the ability to tax gains on disposal of shares.

According to Inland Revenue:

Share sales are personal property and usually non-taxable, except if the seller:

• Originally bought the shares for resale instead of long-term investment
• Deal in shares

In these 2 situations, any profit from the share sale will be taxable – the seller will need to include it as income in their tax return.

There is also a third category where a person entered into an undertaking or scheme to make profits with the shares purchased (unlikely to be applicable to most of you).

Under the first category stated by IRD, if the shares are purchased with a pure intent to resell to reap the profits then the gains become taxable. As an example, if a NZ company sets up to produce and market the Covid vaccine as well as related PPE products then there will be a reasonable expectation of the value of shares to rise in the initial phase due to the demand these products have. Assuming the intention of an investor at the time of purchase is to make a quick gain, even if the investor hold the shares for 5 years and then sell them, he would still be taxable on the gains.

Looking at another investor who has been mostly buying and holding shares, acquired the shares in the company as above and sells the shares in say year 3, he won’t be subject to tax on gain as the intention at the time of purchase for this shareholder was to buy and hold.

If IRD decides to review your transactions, they would take into account the volume of shares being bought and sold as well as the level of profits being made and not to forget the speed of turnover! It would be very easy to gather information from app-based platform providers and in hindsight it becomes easy for IRD to consider a tax payer to be dealing in shares by looking at the past transactions and the established trading pattern.

A person who is considered to be dealing in shares is always subject to tax on gains and conversely able to get a deduction for any loss. It is important to note that the shares on hand are to be valued at cost at year end to determine the profit or loss made from trading.

We hope this opens your eyes towards the potential for IRD to want a share in your disposal gains, which historically most have considered to have no tax exposure. The tax rules are complex and forever changing. Please contact your usual JACAL contact or one of the partners for further information and help.

As some readers may be aware, in December 2020, the Government enacted new disclosure requirements for domestic trusts, effective from the 2022 tax year onwards. The purpose of this is so the Government can gain insight into the effectiveness of the new highest individual tax rate, being 39% for individual who earn $180,000 or more. As well as this it will enable the Government to better understand and monitor the use of structures and entities by trustees.

Currently, income retained in a trust is taxed at 33%, with no further income tax imposed if this income is subsequently distributed to a beneficiary who might be on the new highest marginal tax rate of 39%. Under these new disclosure rules, Inland Revenue will have complete visibility over how trusts are being used to fund annual capital distributions from income taxed at the lower trust tax rate. The Government will be using this information collected to decide on whether the trustee tax rate should also be increased to 39%.

What are the implications of these new requirements?

For most trusts, there is now a legislative requirement to prepare financial statements for tax purposes to a minimum standard. It is also necessary to disclose a lot of detailed information about settlements, settlors, and distributions to Inland Revenue as part of filing the annual trust tax return. It sounds simple in theory, but there is no doubt these measures will increase compliance costs for most trusts. We note in the regulatory impact statement, officials admit they “have limited understanding of the compliance costs that trusts will face with the increased disclosure requirements and how large the costs will be”.

After a period of public consultation, there has been some improvements to the minimum financial statement proposals, but in our view, this does not significantly reduce the amount of information that all trusts need to disclose when filing their tax returns. Currently, we are still waiting for Inland Revenue to release its final operational guidance on how to apply the rules.

Is your trust excluded from the new rules?

First, it is important to note that not all trusts are caught by these rules. Trustees should first check if they qualify to be excluded from these rules, as this will save considerably angst. The largest category that will be exempt are non-active trusts. Typically trusts holding the family home, with no income and expenditure will be considered non-active. All trustees in this situation should review whether their trust is non-active and speak to their accounting advisor about filing an IR633 (non-active) declaration if not already done.

The other trusts that are excluded from these rules include foreign trusts, charitable trusts, trusts that choose to be a Maori Authority, trusts that are widely held superannuation funds and lines trusts.

Filing the trust tax return and making disclosures

The next task for trustees is to file various disclosures of all settlements, settlors, distributions, and those with the power of appointment via the IR6 and IR6B forms, which we understand have been redesigned to collect all the new information now required. Unfortunately, at the time of writing this article, the final guidance on the specific information required has not been released. However, what we do know is that accountants will be asking for a lot more information from their trustee clients this year!

Without going into great detail, financial statements have to be produced for all trusts for the 2022 tax year. Early balance dates do not have to comply till next year but late balance dates have to comply for 2022.
Core requirements for all trusts:

• Statement of financial position and statement of profit and loss
• Double entry bookkeeping
• Value assets and liabilities at market value, cost or tax adjusted value and state which you have used. TBV is only available for income earning assets.

Simplified reporting for small trusts

Small trusts have:

• Less than $100,000 assessable income
• Less than $100,000 deductible expenditure and
• Total assets in the statement of financial position (including both private and income producing assets) valued at less than $5 million as at balance date.

Assessable income caused by the Brightline rules is not included in the above.

Simplified trusts are excused from the additional requirements you will see listed in the special report.

The additional requirements include:

• Accrual accounting
• Statement of accounting policies
• Comparative figures
• Tax reconciliation
• Depreciation schedule
• Various matters relating to trusts with forestry and livestock businesses
• Details of transactions between the trust and any associated person unless it is minor in nature or the transaction is at market value.

Other information to be disclosed

Information about the appointer, beneficiaries who receive the distributions for the year, the amount and nature of settlements (unless they are minor and are provided by the trustees at less than market value) and the amount and nature of distributions to beneficiaries unless these are minor and other than money. The Commissioner is to prescribe the form in which the information is to be supplied.

Author: Percy Wootton, Insurance Design Limited

Many SME owners believe that they don’t have to worry too much about cyber-crime. After all, why would Internet villains bother with small fry when they could go after heavy hitters such as Yahoo, eBay or Uber?

Unfortunately, cyber criminals take an equal-opportunity approach. While they can and do target large organisations, they also realise such organisations have the resources to spend big on cybersecurity. It’s often quicker and easier for them to extort $1,000 from 1,000 small businesses they’ve infected with ransomware than to try to hack into a larger business in the hopes of earning $1 million. It’s the cyber-attacks that devastate multinationals or large government departments, such as Petya and WannaCry that get all the media attention. But, without generating any headlines, tech-savvy crooks target millions of SMEs each year.

“Microsoft claims cybercrime now costs the global economy around US$500 billion (NZ$776 billion) annually and that 20 per cent of SMEs have been targeted by malicious actors”

What is cyber-crime?

Cyber-crime includes all of the following:

• Identity theft
• Cyber stalking
• Use of malware
• Use of viruses
• Computer and network hacking
• Online scams
• Phishing scams
• Fraud
• Information theft
• Extortion

Everybody who uses a computer– or even just a mobile phone or iPad – for work purposes can be a victim of cyber crime

What happens if my security is breached?

The two cybercrimes SME owners most need to be worried about are ransomware attacks and data breaches. A ransomware attack involves a business’s files being encrypted and thus rendered unusable. In the digital age, this can quickly result in operations grinding to halt, which in turn soon means revenue stops flowing in. Business owners often pay a substantial but not excessive ransom (the average demand is around $1,000) to have their files unencrypted. In the case of a data breach, the cybercriminal steals data (think addresses and bank account details) about a business’s customers or, more rarely, staff. This data is then used for identity theft, fraud or extortion.

In the past, a SME that failed to safeguard the personal data it was entrusted with typically only had to worry about suffering reputational and legal consequences in the event word of the data breach got out. In February, the Federal Government introduced the Notifiable Data Breach (NDB) scheme. As the name suggests, this requires organisations, including businesses, to notify individuals affected by data breaches likely to result in serious harm. Failing to comply with the NDB scheme can attract fines of up to $2.1 million. Of course, complying with it could result in your clients making legal claims against you. At the very least, those clients will not be inclined to place their trust in your business in future.

But I’ve got a firewall!

It’s both possible and advisable to minimise the risk of a cyber-attack. This is done through some combination of the following:

• Installing reputable anti-virus programs
• Having secure data back-ups
• Firewall technology
• Data encryption
• Introducing and enforcing sensible policies around the use of equipment (especially BYOD gear) such as laptops and smartphones

Unfortunately, even if you do have all the right systems and software in place, your business is still at risk. If major banks, governments and even Google can fall victim to cyberattacks, anyone can.

What does cyber insurance cover?

Fortunately, while you can never 100 per cent guarantee your cybersecurity won’t be breached, you can insure against the costs that often arise in such a situation. A cyber insurance policy can cover you for expenses related to the following:

• Interrupted business
• Hiring negotiators and paying a ransom
• Recovering or replacing records or data
• Liability and loss of third-party data
• Defence of legal claims
• Copyright infringement
• Misuse of intellectual property online
• Crisis management and monitoring
• Prevention of further attacks

OK, what do I do now?

If you’d like to learn more about Cyber Insurance please contact us at Johnston Associates and we will refer you onto one of the Insurance Design team.

From 15 September 2022, the monthly retail price of Xero Business Edition plans in New Zealand is changing.

• Starter plans increase by $2 a month to $31 a month
• Standard plans increase by $4 a month to $66 a month
• Premium plans increase by $6 a month to $84 a month

And, from 15 March 2023 the monthly price of Cashbook and Xero Ledger plans is changing.

• Xero Ledger plan increases by $0.50
• Non-GST Cashbook plans increase by $1
• GST Cashbook plans increase by $2

The price of our Ultimate plan and any optional add-ons you have as part of your subscription will not change. This web page tells you more.

If you have a current discount or Xero promo code, it will continue to be applied to the new pricing, until the discount or code expires.

Johnston Associates has decided to provide more regular information via social media channels – namely Facebook and LinkedIn. We will continue to publish our quarterly newsletter, but you will find more regular and timely information through these channels.

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