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etter businessISSUE 2 2011Topdressing company spreads its wingsBy his own admission, Des Neill is alate bloomer in the aviation industry,qualifying for his commercial pilot’slicence at age 29.Now, Des and his wife, Elaine own Otago AirspreadLtd, a rural topdressing company they establishedin 2000.The couple, previously sheep and beef farmers atPortobello, have been clients of Polson Higgs forthe past 20 years.Otago Airspread's fortunes follow that of farmersbut some really tough years have given way tounprecedented demand for the company's servicesin 2011.Des has a fleet of four planes, the most recentpurchase a Cresco, which he describes as "theRolls-Royce of top-dressing aeroplanes." Only 38were built - it is number 33 - and there are justthree in the South Island. It is the only one ofthose three that is privately owned, with the othertwo owned by Ravensdown Fertiliser.When Des and Elaine began the business theywere initially flying a piston-powered Fletcher. Thefollowing year, they bought their first turbineFletcher and in 2003 bought the business of DaveReid, at Roxburgh, who was ready to retire, andthen added a second turbine aircraft in 2005.Otago Airspread recently bought the fixed-wingside of Willow Air operation in South Otago, afterowner Jeff McMillan decided to concentrate onhis helicopter business."It's only thanks to the loyalty of our clients thatwe've been able to grow. In the tough times theyrecognised the importance of continuing to usefertilizer even though it was another cost."Henry van Dyk, a partner in the Dunedin officeof Polson Higgs, has worked with Des for the past10 years to help grow Otago Airspread. This hasincluded finance applications to banks for fundingto buy the highly regarded Cresco workhorseand, more recently, the Willow Air business."Businesses need to spend time forward planningso that they have a road map of where they aregoing and they know what they want to achieve.To make sure they are on track, they need toregularly prepare a cashflow report (OtagoAirspread does this every two months) so theycan compare their projections with the currentgiven situation."The key for most smaller to medium sizedbusinesses is to keep an eye on turnover. Often ina service business expenses tend to be fixed andare dependent on a certain level of turnover toensure that profitability is being maintained. If youcan meet your turnover targets, then generally youwill be achieving your profit targets," Henry says.Polson Higgs also looks after all Otago Airspread'sDes Neill... on theexpansion trailwith the help ofPolson Higgs.Photo courtesy of Otago Daily Timesgeneral compliance work including invoicing andPAYE.Henry: "So many small businesses get tied up inadministration and it takes them away fromconcentrating on the core business. Being able topass those tasks onto an advisor leaves them freeto concentrate on their business."Otago Airspread works throughout Otago, withthe exception of North Otago, with a lot ofhigh-country properties, balanced by lowlandfarms.

Last chance for free money growing on treesThe Emissions Trading Scheme (ETS)is moving forward. Despite a recentreview report that encourages sometempering in the pace of change, theETS is in full swing as regards forestsin New Zealand.A key date to be aware of is 30 November 2011,especially if you have more than about 10 hectaresof trees on your land and those trees have beenthere since 1 January 1990. The end of next monthis also a key date if you have harvested trees since1 January 1990 and replanted. Although the actualtrees on your land now were not there at 1January 1990, provided there were trees on yourland at 1 January 1990, then your land and treesare "pre 1990 forest land".If you have pre 1990 forest land, 30 Novemberis crucial because it is the last chance to apply forfree credits (which could be worth about $1200per hectare of forest land) as compensation foryour compulsory entry into the ETS.Polson Higgs partner Noel Walton has beenhelping a range of clients with land from Mangonuiin Northland to Gore in Southland with their pre1990 forest land. To date the work has focusedon helping clients to make choices aboutexemptions, applying for credits or doing nothing(while understanding the implications of doingnothing)."The time for exemptions has now passed. Theonly choices left are to apply for free credits ordo nothing."Doing nothing is a valid option if you think theland is best suited to forestry indefinitely and thetrees will always be replanted after harvesting. Butif you have more than about 10 hectares of pre1990 forest, consider the simple maths that youmight get credits worth about $1200 per hectare(say $12,000 plus) while the costs of getting thefree credits are anything up to about $4000providing you with a return of at least 3 to 1. Andyou still harvest and replant as you were going todo anyway.Noel is happy to talk to any interested peopleabout trees, land use and the ETS. In conjunctionwith Forest Management Ltd, Noel is able toarrange applications for free credits provided theapplication is under way by 1 November. It ispossible the 30 November deadline may beextended, but don't bet the farm on it. Treat 30November 2011 as your last chance to harvestthe free money on offer.For further discussion or assistance with claimingcredits, please contact Noel Walton in Christchurchon 03 372 0353.Big changes for small entitiesProposed changes by the Government "tosimplify the financial reporting framework forsmall and medium-sized businesses andregistered charities" may be less appealingthan at first glance.The aim is to reduce red-tape and, hence,reduce compliance costs for small and mediumenterprises.Although laudable, our view is that they willlead to additional costs for some while otherswill continue to require relevant financialinformation for their purposes as owners andmanagers, as well as for external parties suchas banks.The changesThe proposal looks at removing what iscurrently called general purpose financialreports and replacing them with targetedreports for tax purposes.Broadly, it is proposed that new simplifiedaccounts will be applicable for entities that haveturnover of less than $30 million and assets ofless than $60 million. However, requirements willdiffer depending on whether your entity is acompany, a trust, a limited partnership or charity.For some charities and not-for-profit entities theproposals will undoubtably lead to additionalaccounts preparation costs as parts of this sectorhave previously had no guidance about theaccounts they need to prepare.Importance of informationWhile these proposals will affect the format ofthe financial accounts that are required from alegislative perspective, we will continue to workwith you to provide financial information that isrelevant to your business and the decisions youneed to make.If the proposal goes ahead as planned, the comingmonths will see our own professional body - theNew Zealand Institute of Chartered Accountants- developing a framework for the new reportsthat "finds the balance between cuttingunnecessary bureaucracy and having the righttools for solid financial management andassessment of business health," according toTerry McLaughlin, NZICA chief executive.What do you need to do?We are currently in "watch this space" territoryand await more detail before we can assessthe impact on your business.Polson Higgs will be looking to providefeedback to NZICA about any proposedsimplified framework and we welcome anyfeedback from your perspective. Please feelfree to contact your Polson Higgs advisor ifyou wish to discuss these proposed changesfurther.We will, of course, keep you up to date withfuture developments.

Saving on your leviesIf you are self-employed, a non PAYE shareholder employee or new tobusiness and want to reduce your ACC levies - or if you have fluctuatingincome and need certainty, an alternative option under ACC may beavailable to you.ACC Coverplus is the standard product that self-employed peopledefault to. However, an alternative product, Coverplus Extra, can provideyou with more flexibility on cover and save on ACC levies.Under ACC CoverPlus Extra, you can choose the level of benefit. Aswell as giving certainty at claim time, you can save money on levies anduse those savings to broaden your personal protection or offset thecosts of your other insurances.Polson Higgs has recently worked with some clients who have beenable to save as much as 40% on levies and these savings have more thancompensated for the cost of any other forms of protection such aspersonal life, trauma and income cover.With ACC it is important to remember that it will only cover you if youhave an accident. It does not cover you if you are unable to work dueto illness. The likelihood of being off work for an extended period dueto illness is substantially higher than it is for accident.Because ACC Coverplus is based on previous years' earnings, anyoneinjured in their first year of business will only be entitled to the minimumweekly compensation. Under Coverplus Extra you would be entitled toa pre-agreed amount of compensation that more accurately reflectscurrent income.So don't get caught when it is too late. The best time to review this isbefore anything happens. If you would like us to review your coversthen please talk to your Polson Higgs Advisor or contact Polson HiggsInsurance Services on 03 3720 346 or email lachie.gunn@ph.co.nzHas ACC overcharged you?When you receive your ACC invoice,have you found yourself asking any ofthese questions?• What exactly am I paying for?• How do I know this invoice is correct?• Am I getting the best cover for the best price?Polson Higgs is able to provide a full range of ACCSupport Services to our clients. We can manageyour ACC by receiving your ACC invoices andchecking they are correct before forwarding themto you for payment. We can look at your ACCcover as a whole and suggest ways to maximisethe benefits and minimise the costs.We are able to assist with the review andreassessment of historical invoicing errors by ACC.In our experience of providing ACC SupportServices to clients, we have found four commonsituations where more ACC has been paid thannecessary. ACC has no time limit on allowingreassessments and providing refunds. If you thinkyour situation may fit one of these areas, pleasegive us a call and we'll check the details with you.1) ACC CoverPlus invoice for self-employedpeople (an orange invoice). Where ACC liableincome is a loss greater than $1000, ACC hasbeen assuming the employment status is full-time,even if it has previously been recorded as parttime.By changing the status to full-time, youbecome liable to pay the minimum level of cover.If you work part-time i.e. less than 30 hours aweek, you have no obligation to pay any ACC.EXAMPLE A farming couple has a partnershipthat makes a loss of $20,000. The wife's share ofthe loss is $10,000 and she helps out on the farmfor 20 hours a week. ACC will change her statusto full-time and assess her on the minimum levelof liable income ($26,000). An invoice will beissued by ACC for about $1500, when she hasno obligation to pay any levies as she workedpart-time and recorded a loss.2) Choosing the right Classification Unit. If youare a partner or shareholder employee of abusiness, your ACC classification unit can matchyour activity in the business rather than the businessACC classification unit. This sometimes allows fora classification unit with a lower value to be usedwhen levies are invoiced.EXAMPLE A husband and wife run a supermarketand are both shareholder employees of thecompany, receiving a salary of $70,000 each. Thehusband works in the office and on the shop floor,so his correct classification unit is the businessclassification of supermarket and grocery stores,with a levy cost of $1.80. The wife works in theoffice and, if she applies for ACC CoverPlus Extra,she can choose a classification unit of officeadministrative services with a levy cost of $0.36.This will result in a net saving of $1008 each year.If the business is a partnership, there is no needto apply for ACC CoverPlus Extra to choose adifferent classification unit.3) Not paying more than the maximum. TheACC maximum level of liable income is currently$106,473. If you have received total income for2011 over the maximum and from more thanone source, you may have been over invoiced.EXAMPLE A doctor is employed by his companyand receives a shareholder salary of $100,000.ACC levies are invoiced to the company on thisamount. The doctor also works for the hospitaland receives $100,000 in wages, with ACCdeducted from these wages by the hospital. Thedoctor's total income has exceeded the ACCmaximum but each employer's ACC amounts willappear correct. ACC need to be advised in writingto make a reassessment of all ACC levy's paidand issue credits to each employer.4) ACC CoverPlus Extra and ShareholderRemuneration. If an agreed level of cover isprovided by using ACC CoverPlus Extra, there isno longer an obligation to pay ACC on theshareholder salary paid by your company.EXAMPLE John has ACC CoverPlus Extra for$50,000 and receives shareholder remunerationfrom his company of $100,000. As ACC have notlinked his ACC accounts correctly, John hasreceived an invoice for $50,000 of liable incomeand the company has also received a shareholderemployee invoice for liable income of $100,000.The company should not have been invoiced.If you require more information about your ACCobligations, please contact Johnathan Brass, 03479 4842, johnathan.brass@ph.co.nz

Always more to learnLearning should happen constantly; on the job, throughcoaching and mentoring and professional developmentcourses. One of our goals at Polson Higgs is to helpour clients improve their business by providing themwith the tools and practical knowledge they need.We aim to deliver the best development solutions forour clients' businesses and respect that their time isvaluable. With this in mind, we can customise learningprogrammes to specific needs and hold programmesin-house where appropriate.Key benefits of customised programmes• Training times crafted around your schedule.• The ability to address specific employee trainingneeds.• Reduced travel time with on-site training.• Convenience. Programmes are delivered at a time,location and pace that fit in with your businessschedule.Recruitment tool a real coupPolson Higgs is developing a new web-based talentmanagement system, designed specifically for thebusiness environment.This system allows us to help you find, hire and retainthe best people and take control of your recruitment.Administrative time is reduced, cutting time to hire,reducing overall advertising costs, and guaranteeingrobust recruitment processes.UPDATEImportant reminderThe Employment Relations Act now requires everyemployee to have a written employment agreement.This can be either an individual agreement or a collectiveagreement. Employers are required by law to retaina signed copy of the employment agreement or thecurrent signed terms and conditions of employment.The employer must retain the "intended" agreementeven if the employee has not signed it. Employees areentitled to a copy on request.If you need help to ensure you comply with thislegislation, our Human Resource Consultants are ableto assist you with this. Please contact Alisha Ross orRoss Hanson in our Dunedin office, 03 477 9923.Christchurch clientsWe now have two car parks available for ourChristchurch clients to use when they meet with us.These are located at Wilsons car park, 82 Gloucester• Everyone gets the same story, which helps toimprove some processes across an organisation.• More cost effective than public courses.Some of our in-house programmes proving particularlypopular are:• Performance management.• Business Models.• Coping with stress.• Strategic Planning.Some clients ask "What if we invest money in our stafftraining and development and later some of the staffleave?" The answer is simple - what will happen if youdon't develop your people and they stay?To learn more about our professional developmentprogrammes and discuss the best fit for your company,please contact us at training@ph.co.nzIn such a competitive people market, it is importantto view such technology with the value it will providearound growing a talent pool network and allowinginternal referrals to be recognised.For further information please contact Ross Hanson,Human Resources Leader and Senior Consultant,Business Services Group - 03 474 9708.Street (next to Santorini Restaurant).Please note that the two client parks are signpostedas Polson Higgs Visitors and are available on a 'first infirst served' basis. We appreciate your considerationin sharing this space with others throughout the day.Senior appointmentDunedin partner Stephen Higgs has recently beenappointed as chairman of Motor Trade Finance, anationwide vehicle finance network, providing directaccess to finance for consumers and small to mediumbusiness. He is also secretary of CRT. Stephen playsan active role in the governance and management ofmany business clients, large and small.CRT cardA 2% rebate applies when you pay your Polson Higgsaccount using your CRT card. To make thesearrangements, please contact Helen Connor at PolsonHiggs, 03 474 9711.Accounting for non-accountantsWe regularly hold short courses for business people and administrators keen to understand what theirfinancial statements can tell them about the key drivers in the profitability of their business. These halfday seminars are suitable for people with limited or no accounting knowledge who want to understandthe make up and meaning of their figures in order to use accounting information for improved decisionmaking in their business. The next course will be in Christchurch, November 15. Contact Alisha Ross,03 477 9923, alisha.ross@ph.co.nz for more information.DIRECTORY OF SERVICESThe services offered by our divisionsinclude:BUSINESS SERVICESAUDIT/ASSURANCETAXATIONINFORMATION TECHNOLOGYWEALTH MANAGEMENTRISK & INSURANCEBusiness Consulting GroupHUMAN RESOURCESMARKETINGBUSINESS INTELLIGENCETRAININGCONTACT DETAILSChristchurchT 03 366 5282 F 03 366 4254E info@ph.co.nz W www.ph.co.nzPARTNERSFrank Burgess - TaxationGeoff Bolderston - Business ServicesPhillip Roth - Business Services, ConsultingMichael Rondel - Audit & Assurance,ConsultingNoel Walton - Business ServicesFrazer Weir - Business ServicesASSOCIATEBrian Clarke - TaxationAshburton127a Victoria Street, AshburtonT 03 307 2482 F 03 477 9795E info@ph.co.nz W www.ph.co.nzDIRECTORByron Pearson - Audit & AssuranceDunedinT 03 477 9923 F 03 477 9795E info@ph.co.nz W www.ph.co.nzPARTNERSStephen Higgs - Business ServicesGraham Crombie - Audit & Assurance,ConsultingTim Dunn - Business ServicesSteve Dunbar - Business Services,InsolvencyMichael Turner - TaxationHenry van Dyk - Business ServicesDIRECTORRhodes Donald - Wealth ManagementLachie Gunn - Insurance ServicesASSOCIATECarole Greer - Audit & Assurance(Disclaimer: Polson Higgs and its staff do not accept anyresponsibility for any errors or omissions, or for any loss resultingfrom reliance on, or the use of, the information contained inthis newsletter. The information is of a general nature only,and is not a substitute for financial or otherprofessional advice. For personalised financial advicewe recommend you contact us.)Printed on 100% recycled material

tax updateOctober 2011Repeal of Gift Duty - what arethe issues?The repeal of gift duty has just come into effect,providing an opportunity for people to deal withdebts in their lifetime and possibly bring forwardsome of their overall goals.While gift duty itself collected very little tax, andmost people have probably never paid gift duty,it has influenced behaviour for many years.Many business people will be owed money fromfamily members or family trusts and will haveprovided for the forgiveness of these amountsin their wills.However, the decision to gift off amounts shouldnot simply be driven by the repeal of gift dutyas there may be other tax or commercialconsequences. In particular, while a loan isoutstanding, the lender has the right to call forcapital repayments and this provides a mechanismfor ensuring a flow of funds as well as perhapsa degree of control over the operation of theentity that owes the money.Trust structuresLikewise, issues such as relationship property,creditor protection, possible accrual rule incomeand rights under the family trust, will need to beconsidered before making a decision to giftamounts from now on.Key considerations• Overall objectives with family debt.• Advantages of having amounts owing.• Do loans provide a flow of funds for futuresecurity?• Do loans provide protection to the familyfrom errant children and possible futurerelationship property issues?• What advantages are achieved by forgivingdebt now?To discuss these issues please call your PolsonHiggs advisor.Following the Supreme Court ruling that two Christchurch orthopaedic surgeons, Ian Penny andGary Hooper, paid themselves unrealistically low salaries to avoid paying the 39 per cent tax rate,we are considering the implications for clients, and watching what further moves the IRD make.The implications of the case could be significant as it opens the door for the IRD to look at manybusinesses. However, taxpayers should not over-react. Minister of Revenue Peter Dunne has saidthat small businesses would not come under "intense scrutiny" as a result of the decision. This remainsto be seen.IRD will need to carefully consider the decision and how far it reaches. It has already said that casesof this nature, where salaries are low, are not automatically tax avoidance. A number of factors needto be considered when setting salaries including the businesses financial situation and the need forcapital.If you are concerned about your structures, please call us.CanterburyEarthquakeTaxChangesThe recent Taxation (Tax Administrationand Remedial Matters) Act 2011 coversboth guidance and relief to those whohave lost their property in the Canterburyearthquakes and aftershocks.Applying to both the Canterburyearthquakes and future events, it clarifies:• The timing of when loss of profitsinsurance payouts become assessablefor income tax - the earlier of paymentmade or a reasonable estimation ofthe claim.• The timing of when the actual disposalof the asset for depreciation purposes- changed from the date of the event,to the date when the payment ofinsurance proceeds can be reasonablyestimated.Applying only to the Canterburyearthquakes and aftershocks, the Actapproved the rollover of depreciationrecovery on assets destroyed. Thisprovision covers plant and equipment,fixtures and fittings, leasehold alterationsand buildings.Previously, there would have been a taxcost to the owner on the differencebetween the book value of the asset,and the net proceeds from insurance,where the insurance proceeds wereeffectively treated as the sale price ofthe asset. Property owners in this specificcase are able to apply the difference overthe replaced assets within CERA'sjurisdiction and certain timeframes andother criteria are met.Please contact your Polson Higgs advisorif you have any questions.