The Good News Blog

While most stateside economists seemed agreed that the year drawing to a close was short of good economic news, America’s dismal scientists are (thankfully) more divided in respect of the coming 12 months. BusinessWeek offers an interesting roundup of the opinions and predictions of 58 leading American economists, and the fact that they can’t agree on the coming years is probably good news of sorts.

The economic optimists, BusinessWeek reports, are pinning “their hopes on something called the Zarnowitz rule. Named after the late economist and business cycle theorist Victor Zarnowitz, it posits that deep recessions are usually followed by rapid rebounds … Typically, companies slash stockpiles after a recession hits because they don't want to be stuck with products they can't sell. When demand starts to stabilise, they ramp production back up and rebuild inventories so as not to miss out on potential sales and profits.”

Looks good. Also looking good is this recap of the local year, and some possible lessons for the year ahead, from the chief executive’s chair of Openside’s Stephen Nicholas.

This is the last full week the the team will be in the office.
We will all be back on deck from Monday 11 January.
I will be checking e-mails and phone messages over the break, so if you need assistance before the 11th - please e-mail stephen @openside.co.nz or call 04 831 5462.

From the whole Openside Team - we hope you all have a great Christmas and New Year.

As we are heading into more positive territory, I have penned a few thoughts on the learnings from the recent turmoil. Have a read here

Great to see Tom Reidy of Catalyst90 and Ben Northrop of Run The Red covering the ups and downs of social media in this morning's DomPost

In the spirit of the coming festive season, The Good News Blog will over the next fortnight be offering a wrap on how the corporate and economic year is ending in various parts of the economic world.

And yes, the news is good.

First up is the United States, the country where the bad news really began just over a year ago, but which is currently steaming ahead in the right direction. This week the Dow Jones industrial average climbed to its highest close in 14 months on Tuesday as a weak dollar boosted natural resource companies' shares and economic data reinforced hopes for a sustainable recovery. And sentiment also got a lift as concerns receded about the impact of Dubai's debt trouble after news that Dubai World planned to restructure about $26 billion in debt.

At the same time, Reuters reports, the US manufacturing sector grew for the fourth straight month in November, albeit at a slower pace and with some questions remaining about the staying power of the economic recovery.

Finally, and perhaps most encouragingly given the role American consumer confidence has played in monitoring the past downturn, all the early indications of both traffic and sales are pointing to very good signs for the December shopping season in the US.

The IRD has recently sent out a brochure and covering letter to tax agents to forewarn of a communication campaign they are undertaking to “educate” taxpayers who have or are about to invest/buy property developments off the plans. The key message is that anyone buying these types of investments will be treated as a “trader” for tax proposes. This is regardless of intention.

However, there are a few exceptions to this. For example, it is entirely possible that someone could purchase off the plans and hold the property until completion of the development and then reside in the completed unit. In a case such as this there would be no taxable liability resulting from the investment.

For the majority of cases the purchase off plans,will be followed by a subsequent sale prior to completion of the development. The IRD will be treating these types of transactions as taxable events.

So again we strongly encourage you to always talk to us first – before you lock into the transaction!

The working group looking at the ways NZ could catch up and surpass Australian has come out with their recommendations this week. Amongst the options considered and indeed advocated by the group is the taxation of capital gains on property investments.

Over the past 40 years there has been a trend of New Zealanders investing in residential property. The investment returns are further enhanced through the tax benefits available where any losses incurred through operating the residential property as a rental can be used to offset your tax obligations resulting from other taxable income. Yet the capital gains that may result from holding the residential property is not taxable under the current regime.

The current media focus is clearing raising the attention on the perceived distortions in the tax treatment across the various asset classes.

In addition, the tax legislation relating to associated persons has been revised and the rules enacted in October. The impact is that most former structures that prevented property transactions from being caught by the tax net are no longer going to be effective. Note this only applies to transactions entered into after 6 October 2009, when the legislation came into force.

So again we strongly encourage you to always talk to us first – before you lock into the transaction!

After many years of the IRD warning that the scenario of someone claiming tax deductions relating to living in their primary residence was being actively targeted as a tax avoidance activity, there has finally been a test case that provides clear evidence of what the IRD has in store!

The broad background was the taxpayer had sold their home into an LAQC and retained this property as their home. They then proceeded to claim the resulting tax losses in the LAQC and apply these against other income.

The IRD succeeded in the case to unwind the LAQC, and now the tax payer has very significant tax liabilities, penalties and interest to pay!

We have previously warned our clients that this was a targeted area of interest for the IRD. There has also been millions of dollars of resources allocated to reviewing property transactions for tax compliance. 

So again we strongly encourage you to always talk to us first – before you lock into the transaction!