Things that can go wrong with family home trusts

We often hear from firms that they’re not too worried about trusts as they don’t act as trustees for ones that are GST registered or trading. However, no professional trusteeship is without risk.

The following are some things that can still go wrong with family home trusts:
1. Ultra vires acts (“beyond one’s legal power or authority”) such as purchases, loans, investments and guarantees made without the full knowledge and consent of all trustees.
2. Assets not insured or inadequately insured– Most insurers no longer insure a home for full replacement value but for a ‘sum insured value’.   The trustees are liable for ensuring that the home held in the trust is adequately insured.   Trustees can potentially be liable for the difference.
3. Assets not insured in trust’s name, leading to a claim being delayed or declined.
4. Invalid removal of trustees.
5. Poor investing. It doesn’t need to be a trading or dedicated investment trust for the ‘prudent person’ standard to apply.
6. Non-payment of liabilities.
7. Invalid recording of all current beneficiaries.
8. Potential advisor liability where trust mismanagement results in a loss to the trust.

Gifting used to be the opportunity to get the trustees together. But now that it’s disappeared for many trusts, many firms believe that a trust annual review is the best-practice way to engage with the trust and trustees and ensure compliance.

Please note that above points are merely food for thought.  Before becoming a trustee, make sure you get proper legal advice on what your commitments and potential liabilities may be.  If you would like clarification on any of the above points, please  contact us

PPSR – Personal Property Security Register

Do you let your customers take delivery of your products prior to payment?  How do you protect your ownership of these assets in the event of non-payment? How do I protect myself with a major item I have purchased?

The PPSR (Personal Property Securities Register) is an on-line register created by the the NZ government to assist you with protecting your business assets. It is an important tool for managing aspects of your business risk. Without registering your assets on the PPSR you severely impair your ability to recover the asset should a debtor/customer/lessee default in payments or enters into liquidation. The PPSR registration at least converts you to a secured creditor status instead of being part of the unsecured creditor pool where recovery is materially impaired. The exposure to a bad debt write off in any business can be large and while they unfortunately occur from time to time,  the cost to the unsuspecting business without PPSR security protection is significant.


  1. You hire/lease equipment to a business that subsequently enters liquidation. Despite having a lease agreement and/or a Romalpa clause, without PPSR registration your leased asset is unsecured.
  2. You have charged a debtor/customer for a significant product/item that is due payable post delivery e.g. payable on the 20thof the month following. In the event the debtor/customer then enters liquidation before payment is made the asset is now unsecured without PPSR registration. Your company policy should perhaps be any debtor > an amount ie $5,000, then need to PPSR register that product(s) sold to that customer to ensure it is secured until payment is received.
  3. You buy a second hand asset for your business but a finance company has a secured PPSR interest on the said asset because the seller owes money on the asset & now the finance company seeks repossession.
  4. The PPSR can be used as a customer credit check tool – enquiring and assessing what registered secured interests are logged against it.
  5. If you have stock held on consignment outside the business premises or on contract warehousing then this is another example of the need to register the assets on the PPSR

We encourage you to take the time to look into utilising the PPSR to protect your business. Contact us or refer to and for more information.

How to get paid faster

How can you get those customers who don’t pay on time to get into gear?  A question that has been studied for decades.

For a while now the field of behavioural economics has been trying to tackle the truly big questions about why people think and act the way they do in relation to spending money.  Behavioural economics principles can explain a whole bunch of behaviours – including why your customers don’t pay up.

“In behavioural economics, we study how people make economic decisions,” Professor Lionel Page told The Pulse.  Page is the research leader of Queensland University of Technology’s Behavioural Economics Group, and he’s been looking at how the worlds of psychology and economic theory intersect.

Economists used to try to predict how people would make financial decisions based on two guiding principles:

  • That people care solely about the most advantageous financial outcome when making a decision
  • That people are good at analysing probabilities and acting accordingly

But as it turns out, people make financial decisions based on a broad set of variables.  If that weren’t the case, then people simply wouldn’t give to charity as there’s no positive financial outcome for them.  We also do things like panic and make dumb decisions because we have too much information to take in at once.  That’s where analysing behaviour and applying psychological principles to economic decisions comes in – and it can help you get paid faster.

Suggested Solutions

Using technology solutions can help you get paid faster, but there are other principles you can use.

Social Norms

The first, Page said, was to use the idea of ‘social norms’.  “That’s using social influence by placing the behaviour of people who are different from the norm in relation to other people who are not,” he explained.

“For example, if 90 percent of your customers pay on time, it’s a matter of making it known to debtors that ‘it’s very important that our customers pay us on time, and 90 percent of customers pay on time, so we’d appreciate if you could be one of them’.”

This information can be forwarded in an email before threats to pay up or else – and can be effective.

The UK’s famous ‘Nudge Unit’ used a similar principle when trying to get people to pay taxes.  By highlighting to those that didn’t pay that they were in the minority in a letter, they were able to increase the number of people who paid their taxes on time by five percent.  While that may not seem huge, it was a very worthwhile return on effort because the ‘cost’ was simply a letter.

Supplier relationship

A second solution Page suggested is that that small business owners could lean on a supplier relationship when chasing payment.  “A non-monetary motive can be the social ties you’re building with people,” he said.  “People are sensitive to it – they feel they have a friendly and respectful relationship and don’t want to be judged.”

Page said while a ‘contractual letter’ saying pay up or else may be effective, it also risked losing a customer in the longer term.  “You could say ‘in order for us to continue to provide you an ongoing service like we have for X number of years, it’s very important for us to be paid on time’,” he suggested.  “You remind the customer of this bond.”


If you are having trouble getting paid and need help implementing a solution, please don’t hesitate to contact us.

The CBCA team

The Age of Change

Five key ways you can prepare your business for the future now:

In the mid 1800’s no-one would have expected the motor car to be invented, and definitely not in production lines created by Henry Ford 1913.   When the World Wide Web was rolled out in 1990, many thought the internet was a fad and would die off like flared jeans.   Since the industrial revolution, technological advancement has leapt forward at an accelerated pace and business owners, both large and small, need to keep up.  Who would have thought the digital camera would bring down a company like Kodak?   This article highlights five things to think about to prepare your business for the future.

Change your mindset

If you are one of the majority of New Zealand business owners that sit behind the curve when it comes to adopting new technology, try to change your thinking by looking not just at the costs and other barriers, but at the opportunities that you might be missing.  If you have trouble working through costs vs benefits vs opportunities that may be lost, seek advice from a professional consultant who can help you with this.

Imagine a different future

Think about some of the things that might change in your industry, and imagine how you might respond to them. Look at what has changed in the near past and what change is being forecast by those ‘in the know’.  For example, if you are a builder, would 3D home printing put you out of business, or would your company be the one supplying the technology and coding the machinery? What would it cost to make the change, and how could you begin focusing resources to make the shift?  Technology aside, look at other environmental factors that may affect your business in the future such as economic conditions, industry factors, personnel resources and competitive advantage.

Listen to new ideas

Have a conversation with a scientist. Talk to a new graduate. Spend a day in a business outside your own industry. Looking at things from the outside and getting alternative perspectives on our own approach can be extremely useful in not only identifying potential changes but also new concepts and opportunities that might let you lead disruption.

Be alert to signs of change

Technological disruption can seem to sweep into a business from nowhere. But there are always warning signs if you are prepared to look for them. Uber didn’t arrive in New Zealand first, catching the taxi industry by surprise. The industry had ample time to develop their own ordering apps if they wanted to be prepared for the company’s inevitable arrival here.

Create a dynamic business

Once you have accepted that change is inevitable, it can have an enormously positive effect on your business. If things are always done in a certain way, it might be time to challenge the perceived wisdom and try a different approach. Bringing in fresh talent and new ideas can stimulate change. And investing in innovation can prepare you to move quickly when change arrives.

Five IRD changes you should know about ….

1. Home Office Calculations
A new method will be available for calculating your home office expenses from 2017-2018. IRD changes allow this method to use rates determined by Inland Revenue, based on the average cost of utilities per square meter of housing. This will exclude mortgage interest, rates and rent. You will still be able to claim a portion of the mortgage interest, rates and rental costs for the year based on the percentage of floor area used for business purposes.
You need to keep invoices and records for your home office expenses just like the other business expense records that you will be claiming. The premises must be separately identifiable as part of the house used primarily for business purposes- this can also include your garage.
You will still have the option to calculate your home office expenses the usual way.

2. Foreign Trust Disclosures
IRD has made changes to Foreign Trust disclosures, although a Foreign Trust generating foreign income will still not be subject to New Zealand tax obligations. The new requirements are as follows:
• Registration of Foreign Trusts disclosing details for the settlor, trustees and beneficiaries.
• An Annual return is required to be filed with IRD including details of any distributions and financial statements. This information will be available to the tax departments of other countries.

3. PAYE Salary for company shareholder or provisional taxpayer
If you are a company shareholder or a provisional taxpayer, then you have the option to elect to be paid a PAYE salary throughout the financial year. Although you will still have tax to pay at the end of the year, the amounts are likely to be less due to the PAYE contributions made during the year.
The limitations and risks associated with this option are as follows:
• Electing to be a PAYE Salary Earner means that you will have to choose this option for as long as the company continues. You do have the option to reduce your salary.
• There is potential for clients to pay themselves more salary than what the company is generating as profit if they are not monitoring the company performance regularly, or not maintaining proper records.
• You will be required to estimate your provisional income for the year and if the provisional tax is underpaid for the year, the amount of tax underpaid will be subject to use of money interest rate of more than 8% per year.

4. Changes to Safe Harbour Rules
As part of the changes to provisional tax rules, the current safe harbour threshold for which use of money applies, has increased from $50,000 to $60,000. This also now applies to companies as well as individuals.
This means that if the tax due is less than $60,000 based on the standard uplift, there will be no use of money interest applicable.  Use of money interest may apply from the third provisional tax instalment date if the provisional tax payments haven’t been made based on the standard uplift.

5. Mileage Rates for Motor Vehicles
From the 2016-2017 income year, the mileage rates have increased from 72 cents per kilometre to 73 cents for both petrol and diesel fuel vehicles. IRD has further provided two different rates for hybrid and electric vehicles as follows:
• Hybrid – 73 cents per kilometre
• Electric – 81 cents per kilometre

If you need help with Tax advice including end of financial year preparation, then contact us here

Shareholder current accounts explained

What is a shareholder current account?
What are Drawings?
The shareholder current account is essentially a loan  from a shareholder.
When companies are registered the shareholder pays a share capital (often only $100). You would see this recorded under Retained Earnings on the company’s Balance Sheet.
Any amount put in by the shareholder in excess of the share capital is called funds introduced and is recorded in the shareholder current account.
During the life of the company, funds taken out or put into the company by the shareholders is recorded to the shareholder current account. Funds put in by the shareholder increases the current account. Funds taken out by the shareholder reduces the current account.
What are drawings?
As a shareholder, if you are not paying PAYE on any money that you are taking out of the company, then you are essentially taking drawings out of the company. A company is a legal entity so any funds that it generates is not your money, even if you are the only shareholder in it.
Likewise if you are putting money from your personal bank into the company then it is your funds introduced into the company.
Are drawings a tax deductible expense for the business?

Simple answer is No, drawings are not a tax deductible expense of the business. So you will never see drawings in the Statement of Financial Performance/ Profit & Loss Account of the business.
Drawings are posted in the Shareholder Current Account.
Can a shareholder take drawings from a business?
Yes, however you cannot take out funds that is in excess of what you had actually put into the business.

  •  So, what if you have taken out more than what you had put in?


This will create a situation called an overdrawn shareholder current account. This means that the company must either pay FBT to the IRD or charge the overdrawn shareholder, interest at the IRD prescribed interest rate. The prescribed interest rate is set by the IRD on a quarterly basis and for the quarter ended 31 March 2017 this was at 5.77%.
The interest becomes taxable revenue of the company and it further exacerbates the shareholder current account overdraft balance.
How to fix an overdrawn shareholder current account?
There are a few ways to fix an overdrawn current account but we will focus on three common ways.
1. Repay the loan from the company.
2. Declare a shareholder salary, the company needs to earn a profit to allow a shareholder salary to be paid. The shareholder salary will be taxed in the hands of the shareholder.
3. Declare a dividend.
Any one of the above or a combination of them can be used to clear the overdrawn shareholder current account.
Points 2 and 3 above will be limited to any retained earnings or past capital gains and the company must be solvent both before and after a dividend or shareholder salary is declared. A company that has made profits and has paid tax will generally have retained earnings.

Paying a Dividend.The advice in this article is general in nature. Your specific circumstance may vary therefore you should seek our advice for your situation.  Contact

Private Use of Motor Vehicles

If you make a vehicle available to an employee, their associated persons, or shareholder-employees for private use, you'll need to pay fringe benefit tax (FBT) whether the vehicle is used or not.

Travel between work and home is generally classified as private use.  Contact us and we can talk you through whether the travel between home and work is deductible, and when travel between home and work will be treated as work-related use (rather than private use or enjoyment) for FBT purposes.

 You are required to keep records for any motor vehicle made available for private use.  If a private use restriction is in place, you must keep a record of quarterly checks to make sure the vehicle isn't used for unauthorised private use.

 There are exemptions for FBT if the vehicle is a work-related vehicle.  Adequate records must be kept to support the days claimed as FBT exempt under the work-related vehicle exclusion.

 Inland Revenue's FBT guide has more information on general and daily motor vehicle exemptions.

 NB:  Sole traders and partners in a partnership don't pay FBT on business vehicles they use.  Instead they make income tax and GST adjustments for private use.


Contact us for more information on FBT and private use of motor vehicles.