Taxation Of Companies And Shareholders, Trusts, And Deductions In New Zealand

Company and Shareholders’ Taxation

The income tax treatment for the following transactions is as follows

1. The settlement received for car accident by the manager can be claimed as deductions
2. The purchase of new Toyota Corolla shall be considered for depreciation under declining value at a rate of 30%. This is because the car was acquired after 20 May 2010.
3. During the sale of business where goodwill forms the part of selling price vendors generally wants that component of the sale price to be a in the form of tax-free component of selling price (Jones & Rhoades, 2013). Under the current scenario goodwill be considered as a tax-free component and will be allowed for deductions.
4. As defined under the QB 14/08 of the Income Tax expenditure that is occurred on the demolition of an existing building forms the part of the capital account and cannot be claimed as deductions (Kaldor, 2014). As evident from the current scenario, expenditure incurred on the demolition and dilapidated of building cannot be claimed for deductions.
5. The compensation paid to the consumer for the defective product will be treated as capital contribution business expenditure and such expenditure can be claimed for deductions under capital contributions.
6. Bonus paid on regular basis are generally taxed by adding up the amount of bonus received by the employee to the gross wages regarding the period for which it is paid (Miller & Oats, 2016). The accrued incentive bonus of $10,000 paid to staff shall be considered as taxable.
7. The purchase of loose tool will not qualify for depreciation since the value of the asset is below $500 and does not need to be depreciated (Alley et al., 2013).

The pool method of depreciation can be defined as one of the three method of computing depreciation loss an income year (Pallot, 2017). This method allows the taxpayer to put the number of assets under group together and perform depreciation of the pooled assets in the form of single asset which ultimately assist in lowering the cost of compliance. A pool method of depreciation is used by diminishing the value at the lowest rate by applying to any asset in the pool.

The advantage and disadvantage of this method of deprecation are as follows;

Advantage:

1. This method of depreciation enables fast depreciation of assets with depreciation is at 18.75 for the first year and then 37.5% from the second year onwards.

Disadvantages:

1. Once this method of depreciation is created all the low value assets from that year onwards must be put in the low value pool. If the pool method of depreciation is destroyed then an individual cannot write off the remaining amounts.

The types of properties that are not depreciable are as follows;

1. Land
2. Investments in stocks and bonds
3. Property placed in service and that are used for less than one year
4. Personal property that includes clothing, personal residence and car

The distribution made by the trust can be characterised as complying trust in the present context. A complying trust can be defined as the trust where the trusts is settled by New Zealand residents with New Zealand trustees (Pallot, 2017). The beneficiary in the present context both Vince and Cameila are residents of New Zealand and the family lawyer that is appointed in this context is also the resident of New Zealand.

According to the general rule, the trustee is liable for New Zealand income tax on the amount of income generated from New Zealand Irrespective of the trustee place of living (Sawyer, 2016). As evident from the current case, the settlor is resident of New Zealand during the income and shall be subjected to tax at a flat rate of 33 cents. Furthermore, in the present context both Vince and Cameila residual income tax is more than $2500 for which are liable to pay provisional tax on the following years income.

In order to reduce the tax liability the beneficiary can make the use of Income sprinkling strategy as one of the best strategy to reduce the instances of higher taxation (Elliffe et al., 2016). Under the current scenario, the trustee Vince and Cameila can accumulate their income in the trust distributed before December 31^st of the year, which will be counted as the income for the beneficiary. Given that Cameila is under the bracket of lower tax, there will be usually significant amount of tax savings.

References:

Alley, C. (2015). Online resources and updates for the book New Zealand Taxation 2015.

Alley, C., Coleman, J., Elliffe, C., &Gousmatt, M. (2013). New Zealand Taxation 2014 Principles, Cases and Questions.

Elliffe, C., Peters, C., & Vial, P. (2016). New Zealand Branch Report, Subject 1: Assessing BEPS: Origins, Standards and Responses.

Jones, S., & Rhoades-Catanach, S. (2013). Principles of Taxation for Business and Investment Planning, 2014 edition. McGraw-Hill Higher Education.

Kaldor, N. (2014). Expenditure tax. Routledge.

Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.

Pallot, M. (2017). Recent GST developments in New Zealand. World Journal of VAT/GST Law, 1-6.

Sawyer, A. (2016). Complexity of tax simplification: A New Zealand perspective. In The Complexity of Tax Simplification (pp. 110-132). Palgrave Macmillan UK.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order