subdivided land, mortgagee sales or where property is gifted to a trust. Selling the main home

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1 SUMMER NEWSLETTER Robin Whalley Associates Summer Newsletter PREPARING FOR SUMMER! TAHUNA BEACH 30 NOVEMBER 2015 Risk and Reward Own a Property? Must Read New Tax Rules New legislation affects property sales made from 1 October 2015 onwards. The changes hit in a variety of ways. Bright-line test & residential land New tax rules now apply to residential property sales made from 1 October. A new bright-line test will apply where a person who has purchased a residential property on or after 1 October 2015 then sells it within two years. The sale will be taxed unless the property is the seller s main home, inherited from a deceased estate or sold as part of a relationship property settlement. The bright-line test does not apply to business premises or farmland. How the start and end date of the bright-line test is counted varies with the type of sale and purchase it is. For instance, where it s a standard purchase, the start date will be the date a person obtains registered title for the property and the end date will be the date of entry into agreement for sale. However, start and end dates will be calculated differently where the registration date may not take place immediately or be the definitive point of transfer - sales off the plan, sales of subdivided land, mortgagee sales or where property is gifted to a trust. Selling the main home The seller s main home is exempt from the bright-line test. Where the seller has more than one home, their main home is the property with which they have the greatest connection. Just to prove that the tax system has a sense of humour, a person will not be able to use the main home exception if they have already used it twice in the previous two years. It may get tricky for family trusts where family assets are distributed between individual owners and the trust. If a trust owns the property being sold, the main home exception will apply when it s the main home of a beneficiary of the trust. However, if the principal settlor of the trust has a main home that the trust doesn t own, the main home exception cannot apply to any property owned by the trust. Claiming Tax Deductions There are provisions for allowable deductions when a property subject to the bright-line test is sold. However, where losses arise as a result of the bright-line test they have been ring-fenced so they may only be offset against taxable gains arising on other land sales. It is not possible to claim a loss arising from a transfer of property to an associated person. Companies & Trusts Inland Revenue will keep a close eye out for where land-rich companies and trusts try to get round the bright-line test. They may view a transaction as subject to the bright-line test where: 50% or more of the shares within a 12- month period are sold there is a change in the trust deed a decision-maker under the trust deed changes This applies where at least 50% of the value of the company or trust is attributable to residential land either directly or indirectly. Please contact us if you are considering buying or selling residential property; your company is thinking about a large scale share transfer; or there are any changes to the family trust s trust deed or trustees.

2 SUMMER NEWSLETTER 2 4 Handy Seasonal Tips 1) Cash flow check what tax payments are coming up in January/February and make sure you are prepared 2) Are you sending gifts to top clients? Splashing out on an event? What about presents or bonuses for your staff? Your welcome to contact us to remind you about the rules around entertainment expenses and FBT 3) If your business is shutting down, make sure your voic message and website mention closing date information and emergency contact details. Also, who will be responding to work related s? 4) Find time to Relax & Enjoy! IRD numbers for property sales All vendors and purchasers of property other than their main home must now provide an IRD number as part of the land transfer process. Non-residents Offshore buyers must provide a New Zealand bank account number before they can obtain a New Zealand IRD number. And all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport. Family trusts Where a family s main home is owned by the family trust, the trust is not exempt from providing an IRD number. It s quite common for a trust to own the family home, protecting the family from business or other relationship property risks. Up till now family trusts haven t needed IRD numbers unless they operated a business or owned rental properties. Now, when the family home is transferred into the trust or when the trust buys or sells property, the trust needs an IRD number. Trustees own personal IRD numbers aren t acceptable. The new requirements also affect changes of title. So, if a trustee dies or retires and the new trustee s name needs to be registered on the property title, the trust needs an IRD number to register the change. If you are arranging for the family trust to buy, sell or transfer property, please con contact us. If the trust does not already have an IRD number we can take care of this. Otherwise you could face costly and stressful delays while you sort out the paperwork. Non-Resident Directors! New Company regulations for Directors. From 28 October all New Zealand companies must have at least one director who lives in New Zealand, or who lives in Australia and is a director of an Australian registered company. New Zealand companies that don t comply risk being removed from the Companies Register. The company will be de-registered under Section 31 (1) (aaa) and will not be complying with Section 10. If your company doesn t have a New Zealand-based director, you will need to appoint one who lives in New Zealand or in Australia immediately. The Companies Office has started sending out Notice of intention to remove notices For further information about what Directors need to provide to comply with their Company s annual return, either contact us or refer to the Companies Office: (scroll down to Alert: Deadline to company director ) Christmas closedown Wishing you a safe and happy holiday from all of us here. Our office will close on 12pm Wednesday 23 rd December and reopen in the New Year at 8.30am Monday 11 th January Thank you for all your support this year. We wish you a safe and happy Christmas and a profitable 2016!

3 SUMMER NEWSLETTER 3 Our Ranking in the World INDUSTRIAL RENT: NEW ZEALAND 80% CHEAPER THAN MOST BUT YIELDS RANK IN TOP TEN Rises in industrial warehouse rents over the past 12 months put Auckland, Christchurch and Wellington between 70% and 80% cheaper than the most expensive city for industrial rents in the world, according to Colliers International s latest industrial survey of 146 cities around the globe. London s Heathrow is the most expensive city in the world to rent prime industrial warehouse space with Hong Kong a close second. (based in USD/sq ft per year). Heathrow s rent at NZD375/sqm (USD23.59/ sq ft per year) is significantly higher than Auckland (NZD111/sqm), Christchurch (NZD 103/sqm) and Wellington (NZD83/sqm). Our large global gap exists despite the boost to New Zealand s industrial sector from tenant demand outweighing supply. Vacancy rates have reduced significantly in New Zealand, with Auckland, Christchurch and Wellington all experiencing declining vacancy rates over the past year to record lows of 2.2%, 2.1% and 5.6% respectively. Although rents have been rising due to the demand, the decrease in our exchange rate against the USD saw our rankings actually reduce over the last year to 42nd (AKL), 52nd (CHCH) and 86th (WGTN) positions respectively. However, yields for New Zealand s industrial investors are among the strongest in the world. Business Perspective The average industrial prime yield/cap rate for the top rental cities is 5.9% (excluding the outlier Minsk from the top 10 with a yield up to double some of its counterparts). This compares with Auckland at 6.6%, Wellington at 8.2% and Christchurch at 7.6%.

4 SUMMER NEWSLETTER 4 This is an indication of the strong demand and competitive bidding for industrial property in New Zealand when compared globally. Rising rents and firming yields in the three main New Zealand cities has seen capital values increase steadily in recent years. Industrial was the first sector to emerge from the recovery after the global financial crisis - recently passing its last cyclical peak across many indicators. Robust property fundamentals have aided investor confidence in the sector. We predict this will be a driving factor for even more capital value increases in the medium term. Although the number of offshore buyers of commercial property has increased over the past year, the majority of activity has been for flagship office premises and regional shopping centres across New Zealand. Offshore investors cite our comparatively lower total value of industrial properties compared to other sectors, scale and geographical barriers as the key determinants for their lower exposure to the sector in New Zealand - for now. Across the ditch, Sydney is the 15th most expensive city globally for prime industrial warehouse space at NZD162/sqm (USD10.22/sq ft). Despite their high global rankings, many of the Top 10 cities actually experienced rent declines in local currency over the past year - some exacerbated by the changes in the USD exchange rate. Only Honolulu and Hong Kong experienced local currency rental gains. OFFICE RENT: AUCKLAND & WELLINGTON IN TOP 90 MOST EXPENSIVE AND YIELDS AMONG STRONGEST New Zealand s two largest cities recorded one of their highest rental rate rises in recent years. Auckland and Wellington prime CBD office net face rents increased by 5.2% and 3.2% respectively over the past 12 months as space availability declined in an expanding economy. In the latest Colliers International global office survey (tracking office rents in 151 cities) New Zealand s pace of rental growth rank is strong, but still provides cheap rents when compared to other major cities across the globe. Colliers International s global office survey for June 2015 shows that in a ranking of CBD prime net office rents (in the common denominator of USD/SF/year) Auckland is 60th and Wellington is 84th. Top spot is taken by Hong Kong, with other major gateway cities filling up the top 10. New Zealand s closest, major ranking city Sydney recorded the seventh highest office rental rate. Recent rental growth rates for Auckland and Wellington are dwarfed by many office markets across the globe when comparing rental growth in local currency rates. The growth rates represent a rank of 53rd and 64th position respectively. Top spot for net office rental growth was achieved by Grand Rapids, Michigan, USA, with a rise of 37% - albeit from a low base. Refer to the following link for rest of this article: Colliers Portfolio, Issue

5 SUMMER NEWSLETTER 5 Miss Amy in Prague Amy has been taking Europe by storm and staying safe in the process yay! This is a picture of Amy connecting with the place of her ancestors no doubt wondering what life would have been like if she had been brought up here. Christmas will be in London and she will see the New Year in with a white New York, maybe on Times Square with a million odd people! a far cry from little old sunny Nelson have fun Amy Robin has just become a Grandfather for the first time! Congratulations Max Whalley arrived on 30 th December healthy and happy Disclaimer This publication has been carefully prepared, but it has been written in general terms only. The publication should not be relied upon to provide specific information without also obtaining appropriate professional advice after detailed examination of your particular situation.