Property Tools Blog

Pushing it too far

21st January 2014

We all hate tax and, unfortunately, sometimes we can convince ourselves, and even our advisors, that we have legitimate reasons for doing what we have done.

Here is a recent case that shows when buying and selling a personal house is taxable.  In my opinion, it is obvious that this situation should be taxable and liable for GST due to the sheer volume of buying, building, and selling in a short time frame (approximately one every year).

Facts

B Trust bought and sold 11 properties over a 12 year period.  Ten of the properties were purchased as sections and then the Trust built a house on 9 of the 10 sections.

Mr and Mrs B lived in each of the houses for between 2 and 10 months before selling, except for the 10th property, which they occupied for two and a half years.

Click here to read more.  Download the Tax Information Bulletin Volume 25, No 11 Dec 2013, and refer to page 30.

Their Tax Position

As they lived in the houses as their personal home, they tried to use the personal home exemption.

B Trust also tried to argue that the activities of buying, building, and selling were a series of “one–off” transactions and not a continuous activity or business.

Court Findings

The Taxation Review Authority (TRA) held that the “residential exemption” in section CD 1(3) of the Income Tax Act would only apply if a dwelling was used “primarily and principally” as a residence, and only if the taxpayer is not engaged in a regular pattern of acquiring and disposing of properties.

In this case it was found that CD 1(3) did not apply due to the large number of transactions, and the pattern of buying, building, and selling.  Therefore the profits were taxable.

The TRA found that the Trust was engaged in the business of erecting houses and this was a continuous taxable activity.  Therefore GST was liable on the sale of the properties (expenses would also be claimable for GST).

What you can do to protect your position?

• Sometimes you need to take a step back and look at your situation from the outside without bias.

• Company or Trust minutes to evidence why the property was purchased and that it is a long term residential investment.

• Talk to mortgage brokers, lawyers and accountants and ensure they take notes on your intention.

• Always try to hold your long term holds forever or for at least five or more years.  Then if you are forced to sell one, it doesn’t look like you have a pattern of buying and selling.

• Talk to me about your history of selling or trading, if you are worried that you may be establishing a pattern and it is more than just your personal homes.  Call Ross on 07 839 2801 or click here to email us.

Coombe Smith are property accountants and property experts in Hamilton, who help the Waikato property community and are proud to have property clients throughout New Zealand and the World. Do you need a property accountant to help with your rental properties?

Immigration and possible housing boom?

10th December 2013

One major factor that affects New Zealand property prices is immigration.

Back in 2002/03 New Zealand net immigration peaked at just under 40,000 coming into New Zealand. This also corresponded to the start of the property boom. I have attached a graph on immigration from 1992 to 2009, as well as a graph from REINZ of Median NZ House sale prices for approximately the same period.

We are starting to get high immigration again, with forecasts that it will peak next year at over 30,000 into New Zealand.  Basic economics states that if demand increases (more people into New Zealand that need houses), then prices should also increase.  Obviously property prices are affected by a number of other factors, and there is no guarantee that the property market will boom over the next few years, but this article still provides some interesting reading.

 Immigration Graph

Median Price Graph

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11161500

Coombe Smith are property accountants and property experts in Hamilton, who help the Waikato property community and are proud to have property clients throughout New Zealand and the World. Do you need a property accountant to help with your rental properties?

What accounting package should you be using? Banklink vs Xero

3rd February 2014

Accounting is continuously changing and it’s a great time to review your accounting package before 31/03/14.

Banklink

For a lot of clients we still use Banklink as it is extremely simple and easy.

• OK for cash based business (motels for example) and rental properties

• Can complete payments basis GST returns

• Doesn’t provide invoicing, debtors, creditors, so doesn’t work perfectly for non cash businesses

• $10 + GST per month cost for us to send monthly information to you

• Simple cash reporting, graphs and can compare well to budgets

• Coombe Smith can provide Banklink training, and we have training notes to help

• For a lot of rental clients, we use Banklink in-house to reduce our processing time

• Most of our staff are really familiar with Banklink.

Disadvantage: Banklink hasn’t changed in the last 10 years and it is not a cloud based product.  We need to manually email you the months file, then you have to email it back when finished.

XERO

Xero is a cloud based accounting system that started around seven years ago, so it is no longer the ‘new kid on the block’.

For non cash businesses, it is a full accounting system that can do your invoicing, debtor management, creditor management and full accrual profit and loss.  As a business owner it is essential that you know and understand your monthly profit.

• Most reasonable sized businesses will have to go on to the Standard plan, which is $50 + GST per month.
• Under the More options on www.xero.co.nz, there are weekly free training webinars and also email support.
• Xero has a number of add-ons that can provide further services or information for your business such as job management program and payroll.
• If you cease your business, Xero keeps your information for 7 years, and they can restore this if necessary.  Note:  there is a cost involved.
• Slightly easier to set up new bank accounts and can put on more credit card options than Banklink.
• By using either Xero GST cashbook or Xero Cashbook, you have access to the file storage facility in Xero and to the Add-ons.
• We have an expert available for Xero training.  Joanne runs her own business, Onsite XT  – www.oxt.co.nz
• Joanne works with Coombe Smith and can set up Xero for your business, or provide training if required.
• Joanne provides expert training for $80 per hour, which is much more cost effective than Coombe Smith providing the training.

Other Options with Xero

As a Xero partner, we can offer you some extra packages not readily available to the public:

• GST cashbook for $19 per month + GST

• Quite similar to using Banklink for a cash business, but cloud based with more up to date transactions.
• NO invoicing, debtors or creditors.
• But can still process cash transactions and complete GST returns.
• Easy to upgrade to Standard package at a later date.

• Cashbook for $10 per month + GST

• Ideal for rental property clients.  Quite similar to Banklink for rental properties but cloud based with more up to date transactions.
• NO invoicing, debtors or creditors.
• Can process cash transactions and give reporting on each rental.
• Can link to Pocket Rocket Add-on to gain access to property management software.  Pocket Rocket is free for one property.

Recommendations

1. If you have a non cash business where you invoice customers, then you need more than Banklink.  You need a full accounting system such as Xero.  There are a number of other options such as Saasu, MYOB live, Quickbooks, etc.
2. If you are a cash based business (make a sale and receive the proceeds straight away), then either Banklink or Xero GST cashbook would be fine.  The decision comes down to whether you prefer the slightly cheaper Banklink, or the convenience of online through Xero.
3. If you own rental properties, for one or two properties, we can still use cashbooks or just narrated bank statements.  As you get more rentals it becomes easier to use an accounting package.  Either Banklink or Xero Cashbook would be fine, and it depends if you prefer the online program.  I find Banklink to be a little simpler.

Timing and changeover

If you were thinking of changing accounting package, now is the perfect time so that it is all set up and running before 31/03/14.

If you would like to discuss your options for an accounting package, please give me a call on (07) 839 2801 or click here to email us.

Coombe Smith are property accountants and property experts in Hamilton, who help the Waikato property community and are proud to have property clients throughout New Zealand and the World. Do you need a property accountant to help with your rental properties?