Tax and Legal Advice

Business entertainment is a necessary component of your marketing strategy. Some of this expenditure is tax deductible in full and some not. To get the best value from your entertainment budget, you need to understand the tax and GST implications.

Fringe benefit tax (FBT) was introduced to tax non-cash benefits provided to employees or associates of employees. These rules also apply to non-cash benefits provided to shareholder employees and their associates.

The fringe benefit tax rules apply to a range of benefits. Principally these include:
• Providing the private use or availability for private use of a motor vehicle to an employee. (Private use includes travel between home and work in most instances)
• Employment related or low interest loans by an employer
• Other goods and services provided by an employer at a price lower than the market value
• Various insurance premiums for example medical insurance and certain superannuation contributions
• Any benefit of any other kind whatsoever, although there are some specific exemptions, such as Health and Safety related obligations on or off premises

The definition of fringe benefit is wide and FBT is a standard area for close review in a tax investigation. Inland Revenue Auditors frequently find mistakes in this area.

The following has been adapted from a question received from one of our readers. When we looked into this we considered it worthy of highlighting in this issue for the benefit of all our readers as it is based on a discussion paper just released by IRD.

Question:
I have a client who owns a villa which has been operating as part of a Golf Course hotel complex until now. The villa is owned on a composite unit title. Until now the client has returned GST on income and claimed GST on the purchase of the property and expenses on the basis that it was a commercial dwelling, via the hotel/motel definition. My client has not renewed the hotel management lease and now intends to manage the villa themselves; the first tenancy being considered is for a six month term. I am aware of the 60% of value for GST purposes for longer than 4 weeks tenancies if we deem it still to be a commercial dwelling, however I am concerned as to whether it still falls under the commercial dwelling definition, being only a single villa and now not administered as part of the hotel by the management company.

New Zealand tax residents (whether companies or individuals) are taxed on their worldwide income. In contrast, a non New Zealand tax resident (a tax resident of another country) is taxed only on income that is sourced in New Zealand. These issues of “tax residence” and “source of income” are central to determining liability to New Zealand taxation. When you hear the words “tax resident”, it is important to realise that they have a specific tax meaning which differs from the generally accepted meaning of residence.