Tax Planning for New Investors and Businesses

Before you start up a new business, or before you decide to purchase investment property, you should carefully consider the structure that you will trade through. Although it is possible to change structures later on, this is likely to be more expensive as not only may property have to be transferred, you may lose the benefit of tax losses (if transferring from a company to another structure), and there may be other tax implications.

Business decisions should not be made solely on the basis of tax savings as doing so places you at risk of having the arrangement deemed to be tax avoidance; however, it is essential to consider the tax implications when looking at what makes sense from a business point of view. In relation to the common structures, some tax points to be considered are as follows:

• Trusts: In some cases these can be used to shelter income that you don’t want to have recorded in your own name. They can also be used to save tax if trust beneficiaries are at a lower tax rate (for example: children or a spouse).
• Companies: The company tax rate (28%) is lower than the top personal tax rate (33%) which provides an incentive to retain earnings in the company. The later sale of (increased value) shares may provide a tax free capital gain.
• Portfolio Investment Entities (PIEs) usually offer a lower rate of tax.

Asset protection, and ease of administration, are other factors to consider. For some people it makes sense to have a trust as the owner of the company through which the business is run. For other people there is benefit in having a company for the business and a stand alone trust for asset protection for the family home and other assets. In situations where there are different income streams, some likely to lead to tax losses and others to profits, the best overall outcome may require more than one company. The type of company and shareholding linkages must be carefully considered.

We are able to assist with advising you on the best structure for your situation, taking into account tax planning and other requirements. In addition, we can create and maintain trusts, companies and other entities, should you need assistance with this.

Kristina Andersen
Andersen Accountants Limited
Telephone: 09 3695198
Email: Kristina@andersen.co.nz
Website: www.andersen.co.nz