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Q & A

Common Legal Questions & Answers

People often have a question that can be easily answered. Some of the questions we have been asked appear below. You cannot rely upon the answer as specific legal advice for your situation. If you have further questions to be answered please contact us.

Frequently Asked Questions:

Question: What is the difference between being a sole trader and forming a company
Answer: A sole trader typically uses their own name or a business name; for example "Smith's Apples Juice". The sole trader is personally liable for all debts and creditors of the business. A company is a separate legal entity that is different from the person themselves. It is expressed differently to a sole trader; for example "Smith's Apple Juice Limited". The company is liable for the debts and creditors of the business rather than the person.

Question: Why do people form trusts?
Answer: People use trusts for such things as asset protection against business creditors, protection against claims from personal relationships, keeping assets in the family, avoiding rest home subsidies, preventing children from wasting assets at a young age.

Question: Why do I need to make a new will when I get married?
Answer: When you are married your will becomes invalid .

Question: How long do you need to live together before you share your house 50/50?
Answer: Generally three years

Question: How long do you need to be separated before you can get a divorce?
Answer: Two years

Question: Are there different rates of tax between companies, trusts and individuals?
Answer: Yes
Companies: 30%
Trusts: 33%
Individuals:
Under $14,000 12.5%,
$14,001 to $48,000 21%,
$48,001 to $70,000 33%,
$70,001 and over 38%

Question: Why does beneficiary income have to be paid within six months of the end of the income year? Answer: Unless a filing extension applies beneficiary income must be paid within six monhts of the end of the trust's income year to avoid the income being requried to be accounted for as trusete income.

Question: My business is not going very well and so I've transferred my family home to a trust. Is there anything else I need to do to protect the house from creditors? Answer: In addition to any gift duty and relationship property consequences, and transfer of propery that is made to avoid creditors can be overturned. We recommend that you seek further legal advice.

Question: Can a rental property investor claim a deduction for a mortgage break fee?Answer: A landlord may be able to claim a deduction for a mortgage break or early repayment fee in respect of money borrowed solely to acquire a property from which rental income is derived.

Question: I got a letter saying that my annual gifting was due 6 months ago. Can I gift now or do I need to wait another 6 months? Answer: So long as it as least a year from your last gift you can gift anytime. Note that there is an annual limit of $27,000 for all gifts before gift duty can apply.

Question: I missed my annual gift last year. Can I gift twice this year? Answer: It is not possible to catch up on a "missed" gift. Where more than $27,000 is gifted in cash or property in a single year, gift duty can apply.

Question: My partner and I have sold our family home to an LAQC. We now rent the house from the company. The company is making a loss after payment of the mortgage interest. My partner thinks she heard that you can't do this any more. Is that right? Answer: If an LAQC (loss attributing qualifying company) owns a property, any losses from renting the property to be passed onto the shareholders. This is generally acceptable where the property is rented to a third party. However, where the property in question is a family home, and the shareholders are getting a deduction for what is really a personal expense, this can be tax avoidance. The Inland Revenue Department has published a Revenue Alert on this subject - see RA 07/01 available at www.ird.govt.nz. We recommend that you seek further legal advice.

Question: I sold my family home to a trust last year. Now my rates notice has my lawyer's name on it as well as my name but it doesn't show the name of the trust. Is this right? Answer: Presuming that your lawyer is one of the trustees, yes this is correct. The rates notice records the legal owner of the property. Although the property has been sold to a trust, the trustees of that trust are the legal face of the trust and at law are the legal owners of the property.

Question: I received a distribution from a trust while I was not resident in New Zealand. Is that distribution taxable? Answer: If you ceased to be tax resident in New Zealand and regained residency within five years, any distributions received from a trust during that period of non-residency may be taxable in New Zealand. We recommend that you seek further advice to confirm any tax obligations in respect of the distributions received.

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