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. The tax rates that currently apply are:
Companies: 28%
Trusts: 33%
Individuals:
Under $14,000 - 10.5%,
$14,001 to $48,000 - 17.5%,
$48,001 to $70,000 - 30%,
$70,001 and over 33%
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 required 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 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 want to gift off the balance owing to me by the trustees of my family trust - is there any reason not to? Answer: Whether or not to gift off an outstanding debt requires serious consideration and a balancing of (sometimes) competing interests. Factors to take into account include:
- whether you wish to qualify for a residential care subsidy in the future (gifts in excess of $27,000 can be included in your means for the purposes of means assessment);
- creditor protection concerns;
- whether you will be solvent following the gift;
- gifty duty liability in other jurisdictions;
- relationship property considerations;
- preservation of rights.
Question: My partner and I have sold our family home to a LTC (look-through compnay). 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 a LTC 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.