NZ Taxation assignment help for Tim Neil and Lacey Neil

Background – Part A

In 1985, Tim Neil and Lacey Neil (“the Neil’s”) purchased around 3.5 hectares of land near Westgate (“the Land”) for dairy and poultry farming. The purchase price was $750,000, which was funded by way of a bank loan of $500,000 and a cash deposit of $250,000. In 1986, a house was built at the elevated end of the block and The Neil’s resided in this house. The cost of the construction was $200,000. Subsequent to this purchase and some 12 years later, Neil’s decision to incorporate two discretionary trusts and transferred the Land to the trusts. They were the settlors and trustees of the trusts, which was called SN Trust and LN Trust. The beneficiaries of the trusts were the children and grandchildren of The Neil’s.

Prior to the transfer of the Land, Neil’s engaged TM Valuers Limited to establish the current market value of the Land. The valuers estimated the current market value of the land at $2.5m excluding GST. The valuer’s report (on page 42) did note that the “land was currently used for horse grazing, dairy and poultry farming with a dwelling site”.

Neil’s decided to use this value as the basis for settling the Land into the trust. Contemporaneous to the settlement, the trusts executed an acknowledgment of debt to the Neil’s. Around the same time, Neil’s prepared a gifting deed relieving the trusts from paying this debt.

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Around two years subsequent to settling the land into the trusts, the trustees made an application for resource consent to subdivide the land into five lots. Resource consent was granted three months after the application. The total cost of resource consent was $100,000. The Neil’s retained the largest lot which had nice views of the Auckland Harbour. The remaining lots were to be sold to interested purchasers via a confidential tender process. The trustees signed an exclusive listing agreement with Roy White Real Estate to sell the lots.

The real estate agent advised that the trustees should subdivide the remaining four lots into fifteen lots as this would return a higher financial yield. Resource consent for this new subdivision was obtained within three months of the application. Due to the increased demand for the lots, Roy White has been successful in selling seven of the

lots. The remaining lots are on the market and the land is currently being used for horse grazing. Two weeks ago, the trustees have received a letter from Inland Revenue Department saying that the trusts may have to be pay income tax on the profits. Further, this letter states that if the trustees made a voluntary disclosure, they may be entitled to a reduction in any penalties that would be imposed. The trustees are very stressed after getting this letter and are unsure as to their rights and obligations. The trustees have come to your firm, Minimise Tax Limited to seek advice on the tax treatment of the profits.

You are required to:

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In your letter of advice, using the ITAC model, outline the taxation implications of the profits on the seven lots.  You are required to consider the following at a minimum:

–     Coverage of the key definitions under section YA1 of the ITA 2007

–     Key statutory provisions under Land Transactions

–     Statutory exclusions under Land Transactions

–     Key statutory “Income” provisions for “schemes for profit” and “personal property”

–     Statutory test for purpose vs. intention

–     Ascertaining purpose or intention

Cases

–     Statutory test for purpose vs. intention

–     Ascertaining purpose or intention

–     Key precedents in establishing a “business”

Background – Part B

Just Juices Limited is a very successful business specializing in the production of organic apple juice. It was incorporated in Australia several years ago. Over the last 5 years, it has gained substantial market share in Australia. Recently it has signed an exclusive contract with a major airline to supply its product. Its products are available in 90% of the supermarkets and service stations in Australia. The company is a 100% owned subsidiary of Just Juices Pty Limited, which was also incorporated in Australia. The parent company is involved in the procurement of A-grade applies within Australia.

The management and administration of Just Juices Limited take place from 99 Sylvia Park Road, Auckland as it does not have an office in Australia. The overall strategic direction of the company is exercised by the directors from Australia.

You have been approached by Tim Brown Limited (accountant of Just Juices Limited) to assist in determining the tax residency of the company.

Required:

In your letter of advice, using the ITAC model, outline the taxation implications of the residency of the company. You are required to consider the following at a minimum:

–     Coverage of the key definitions under section YA1 of the ITA 2007

–     Key statutory provisions under the residency of a company

–     Implications of residency of a company;

–     Application of the DTA

–     Application of the tie-breaker tests

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Cases

–     Key precedents in establishing residency of a company

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