ARL Lawyers – team news
Sarah, who has over 17 years’ experience in Family Law, has expertise in: relationship property matters, separation, care of children, paternity, and guardianship and child support matters.
Our Family Law team works alongside our other teams of specialists in trusts, property, commercial and employment law, to provide you with pragmatic, cost-effective solutions.
We are also thrilled to have Jeanne McDonald as our new Practice Administrator. Jeanne has been with us since 2011 as our Trust Accountant and we are pleased that she has taken on this role.
Jeanne has a strong background in administration and likes developing systems and finding ways to do things more efficiently. She loves gadgets, computers and all things geeky.
From the Partners
We would like to take this opportunity to thank you for your business this year. Have a relaxing break, enjoy the festivities and stay safe.
We are closed for a short break over Christmas and the New Year.
Our office closes at 5pm Wednesday 23 December and we re-open again on Tuesday 5 January 2016
Wishing you all a merry Christmas and a happy New Year.
Selling a business? Some things to consider
Are you replaceable? Many business owners have unique and integral knowledge and skills that may be difficult for a purchaser to learn or replicate. Remove that key person and the business suffers. So it can be important to devise an exit strategy, perhaps by employing and training a potential new owner for some time (often years) before the business is eventually offered to them. Depending on your business structure, a shareholders’ agreement could record that the shares of the business are transferred to your successor in parts over time.
Are you selling the shares in your company, or just the assets of the business? Selling shares can be simpler, but can include more risk.
Your business accounts and turnover figures should be up-to-date and accurate. You will usually be asked to provide a warranty that the turnover figures for the last 12 months are accurate.
Landlords and tenants on good terms sometimes overlook completing the proper paperwork to renew a lease. It is important to ensure you have signed copies of the lease, together with any deeds of assignment, renewal and rent review. A purchaser will typically want to ensure there are several rights of renewal available so they can be confident they won’t be forced to relocate shortly after purchasing (especially if there is goodwill tied to the business location).
Your landlord can usually stop a sale transaction if they are not reasonably satisfied that the new purchaser will be a good tenant. Also, your liability under the lease often extends beyond settlement if the new purchaser turns out to be a bad tenant.
Do you own everything your business needs to operate? Is any plant or equipment leased or owned by the landlord? If so, these need to be disclosed and you need to ensure they can be assigned to the purchaser, if they so require.
What is happening with your employees? Do you have employment agreements in place? Do you expect the new purchaser to take over all existing employees? If not, will you need to make redundancy payments?
Do you have all the consents, licences, permits, certificates or authorisations required to carry out your business?
What is your business actually worth? Have you valued the assets? What is the goodwill in the business worth, and how much of that is tied to the business itself, to you as the owner, or to the physical location? With that knowledge, what can you do to ensure you can sell as much goodwill as you can to the new owner?
Finally, when do you need to sell? A common theme here is that there are many things you can do to make your business more attractive, and therefore more valuable and easier to sell, but they can take time. Seek advice early to ensure you are on the right track.
Trusts and Relationship Property
Clayton v Clayton considers whether property owned by a particular Trust is relationship property for the purposes of the Property (Relationship) Act 1976.
Mr and Mrs Clayton separated in 2006 after 17 years of marriage. During the marriage, Mr Clayton established a number of Trusts, including the Vaughan Road Property Trust (‘the Trust’). The discretionary beneficiaries of the Trust were Mr Clayton and Mrs Clayton, together with their two children, who were also the Trust’s final beneficiaries. The Trust Deed nominated Mr Clayton as the ‘Principal Family Member’, which conferred on him certain powers including: exclusive powers of appointment and removal of trustees and beneficiaries, wide powers that permitted the Trustees to act contrary to the benefit of the Trust’s beneficiaries, and the power to distribute Trust assets to himself.
Family Court decisionTax changes for settlements
The Family Court held that the Trust’s assets were relationship property for the purposes of the Act, as the Trust was “illusory”. It was held to be an illusory Trust because the powers given to the Trustees hamstrung the ability of the Trust’s beneficiaries to hold the Trustees to account. This type of administration over the Trust was described as a “convenient structure for commercial purposes, carrying few hallmarks of a Trust”.
High Court decision
On appeal, the High Court also held that the Trust was “illusory” but for different reasons. The High Court held that the powers conferred on Mr Clayton were similar to ownership over the Trust’s assets, allowing Mr Clayton to manage the Trust’s assets, as though the Trust itself did not exist. As a result, the High Court held that the Trust’s assets were relationship property for the purposes of the Act.
Court of Appeal decision
On appeal, the Court of Appeal disagreed that the Trust was “illusory” and concluded that the Trust was valid. However, the Court considered the wide definition of property in the Act, which defines property to include “any other right or interest”. The Court held that Mr Clayton’s power to appoint and remove beneficiaries met that definition. As a result the Trust’s assets were relationship property for the purposes of the Act. The Court went on to hold that the value of Mr Clayton’s powers would be equal to the value of the Trust’s assets.
The Supreme Court is yet to deliver its judgement. However, the Family Court, High Court and the Court of Appeal all reached the same conclusion—that the Trust’s assets were relationship property for the purposes of the Act, but for different reasons.
The Court of Appeal’s decision means that Trust powers may now possibly be defined as relationship property for the purposes of the Act, despite being sheltered behind a validly constructed Trust.
While the implications of Clayton are fact specific, it is a current reminder of the critical importance of both effective asset planning and Trust drafting. If you think your situation may be effected by the decision of Clayton, it is recommended that you contact us for professional legal advice.
Tax changes for settlements and the proposed ‘bright-line’ test
From 1 October 2015 there are new requirements around disclosure of tax information when buying, selling and transferring New Zealand property. There is also a new proposed ‘bright-line’ test that will apply solely to residential land transactions to clarify and supplement the existing laws around taxation of property transactions.
The disclosure changes, which do not apply when the party is dealing with their ‘main home’, require the parties to a property transaction to provide their IRD numbers. Also, where applicable, to provide their taxpayer identification number from any overseas countries where they have to pay tax on their worldwide income.
Where a Trust is dealing with property, the IRD number to be supplied must be the IRD number for the Trust itself – not the trustees’ personal IRD numbers.
One effect is that entities involved in property transactions will need an IRD number to complete the transaction. It is therefore advisable to consider the time it may take for you to obtain an IRD number when agreeing to time frames in any property transaction. There are some specific exempt transactions to this, for example, where the property sold satisfies the requirements of the ‘main home’ exemption.
Tying into the new disclosure requirements is the proposed bright-line test that will apply to residential property transactions entered into, on, or after 1 October 2015. This proposed test (which has not as yet been enacted and may be subject to changes before being passed) is intended to complement our current property tax rules.
The bright-line test is expected to require income tax to be paid on any gains made from the sale of residential property within two years of purchase. The current proposed exceptions are if the transaction relates to the ‘main home’, to a relationship property transfer, or to inherited property.
Under existing law, gains from the sale of land can already be taxed as income if that land was acquired for the purpose or intention of disposing of the land. This law remains unchanged but has proved problematic for the IRD to implement as the IRD cannot always prove intention on the part of the taxpayer. The proposed bright-line test was introduced in part to resolve this problem for the IRD.
As the bright-line test is only intended to apply to residential land, there is also an associated definition of residential land. Residential land means land that has a dwelling on it, or for which there is an arrangement to build a dwelling, or bare land that is capable of having a dwelling on it due to its area and nature.
If you are involved in or anticipating entering into a property transaction in the near future it is important that you make sure you can comply with these new disclosure requirements and have considered the bright-line test and its potential effect.
If you are uncertain about how this might affect you, please call us at ARL Lawyers —we have a team of experts who can advise you.
It is not an offence per se to have alcohol in a public place.
Using Tauranga as a famous example, parts of Papamoa are liquor-free from 9pm to 7am each night, while other popular public areas are liquor-free permanently, such as Mount Maunganui, Mount town and main beach, and Tauranga CBD. From 26 December to 6 January the ban in these public areas is significantly extended to cover other past problem areas, including Pilot Bay, Marine Parade and its adjacent beach, and Papamoa beach.
Alcohol in an unopened container can typically be transported through a liquor-controlled area to a private residence, although this should be prompt. Storing alcohol in a vehicle will not protect you. Recent changes mean a breach of a liquor ban will likely mean an instant $250 fine and your alcohol confiscated.