Australian Federal Budget Brief – A NZ perspective of what you need to know about the 2017-18 Federal Budget

Some Important Information for Kiwis from Tuesday’s Australian Federal Budget.

On Tuesday 9th May, the Australian Federal Government released its latest budget. It was an attempt to squeeze more blood out of a stone and to try to balance its books.
Kiwi’s seem to have recently borne the brunt of the Australian Government’s attempts to balance its books with the removal of subsidised Australian university education as an example. The budget yesterday takes this a few more steps further and there are a couple of very important points that our clients need to be aware of:

1. Depreciation restrictions – it is proposed that for properties acquired subsequent to the budget, it will no longer be possible to depreciate plant and equipment apportioned out of the purchase price i.e. chattel split out. Previously there has been an ability to apportion out a part of the purchase price for a commercial property or commercial residential property and claim depreciation on the chattels at higher depreciation rates than building rates. In New Zealand, we continue to be able to depreciate these even though we cannot claim building depreciation.

Existing properties in Australia will be grandfathered. In future where a building is acquired, it will no longer be possible to apportion out the property, plant and equipment. However, where a property owner does spend money on these actual capital items, then they will still be entitled to depreciation.

2. Foreign residents and foreign temporary migrants – individuals who are foreign residents or foreign temporary migrants residing in Australia will no longer be eligible for the principal family home exemption from capital gains tax. When New Zealanders enter Australia, they generally enter as foreign temporary migrants (refer our “Tax Free Sunshine” paper on our Covisory website for the full background).
For foreign residents and temporary migrants moving to Australia from today’s date or acquiring a property after this date, they will no longer be eligible for the exemption. Those already in Australia with existing properties will be grandfathered until June 2019. However, it is not clear whether at June 2019 the properties will then be subject to capital gains tax from that point on subject to a valuation or the whole of the gain up to that point in time will fall to be subject to capital gains tax. More details to follow.

Naturally as Kiwi’s enter Australia as foreign temporary migrants, they are effectively permanently temporary. There is no comment yet from the Australian Government about whether New Zealanders will be specifically excluded from the removal of the principal residence exemption.

We will be arranging to have one of our Australian colleagues come to New Zealand in the next few months to run some specific updates for clients that are affected. In the meanwhile, if you are affected by these changes, please do not hesitate to contact us.

KYC – Know Your Client

The AML Act imposes obligations to ensure NZ businesses, NZ Banks and financial services are not helping facilitate criminal activity. Instead of taking people at face value we now need to know our clients. Are they who they say they are and where did their wealth come from?

  1. All parties to the transaction need to be correctly identified.
  2. This includes verifying identification documents such as a passport, drivers licence or other government-issued identification document.
  3. Other documents that provide proof of the address of the applicant must also be verified.
  4. Identify the source of wealth of the funds being used in the transaction.

 

For our KYC Form please click on this link.

For our Source of Wealth Form please click on this link.

 

 

AML – Are You Ready?

In 2013, the laissez-faire world of New Zealand business as we knew it came to an end with New Zealand playing catch up with the rest of the world.  Phase 1 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“the Act”) introduced new laws to tackle money laundering and terrorist financing.

The Ministry of Justice estimates $1.3 billion of proceeds from illegal activities are laundered through New Zealand businesses each year. The new rules have added in an extra level of regulation that has taken some people in New Zealand by surprise.  However, many countries around the world have already adopted these rules and New Zealand was late to the party.  On a positive note, the rules New Zealand adopted are more robust than many other countries.

As you will know by now under the new laws Banks, Casinos and a range of Financial Service Providers had “practical measures” imposed on them to protect New Zealand businesses and reduce the ability of criminals to benefit from illegal activity. It has taken awhile for these organisations to come to grips with the amount of information (read mountains of paperwork) required to comply with these measures.

In short, every customer’s identity needs to be verified and their source of wealth determined to ensure there is no criminal activity involved.

Phase 2 will see the Bill, when it is passed mid-2017, extend this requirement to real estate agents and conveyancers, many lawyers and accountants, businesses that deal in expensive goods and betting on sports and racing.  The law will come into effect in stages between July 2018 and July 2019 allowing these businesses to prepare for the changes.

One result of the introduction of these new rules is that when applying for an Inland Revenue Department (“IRD”) number for a non-resident/off-shore individual is that you either need to supply a New Zealand bank account number or have completed customer due diligence on the applicant.  In our experience, New Zealand banks are not interested in opening bank accounts for non-residents if it does not result in ongoing income for them, which is the case for most non-resident applicants.  This only leaves one option and that is to have a reporting entity as defined by the Act, carry out full know your client (“KYC”) checks on the applicant.  The process of opening a bank account also takes a considerable amount of time and paperwork compared to previously.

Covisory Trust Services is a reporting entity for the purposes of the Act and governed by the Department of Internal Affairs.  In our capacity as a reporting entity we regularly carry out independent KYC checks for non-resident applicants for IRD numbers and provide the appropriate sign-off for the IRD to allow the application to proceed without having to open a New Zealand bank account.  Assuming the KYC checks do not throw up any untoward results they can be completed relatively quickly.  This is a bonus when the IRD application is urgent.

If you are interested in using this service or just want to talk about anti-money laundering and its possible impact on your business please contact either Marcus Diprose or Nigel Smith (www.covisory.com)