Business and Tax Updates October 2024: IBBZ Accounting

Summary:

As we approach the end of October, the holiday season is just around the corner. With Christmas fast approaching, it's the perfect time to reflect on the successes of the year and prepare for the festive season ahead. For many businesses, the holiday season is a key time to fine-tune year-end strategies, ensure financials are in order, and begin planning for the new year.

At IBBZ Accounting, we understand the importance of getting your finances in shape for a smooth transition into the new year, especially during this busy time. As we approach the close of the year, consider reviewing your financial strategies and making any necessary adjustments before the Christmas break.

As the holiday spirit begins to fill the air, we want to take this moment to extend our heartfelt gratitude for trusting us with your financial needs. Let's finish the year strong together and welcome a prosperous 2025 with confidence.

Key Business Updates

1. The RBNZ cuts OCR to 4.75% as Inflation Slows and Economic Pressure Ease 

In October 2024, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50 basis points to 4.75%, marking the second consecutive cut this year. This decision was driven by slowing inflation, which is now within the target range of 1-3%, and a subdued economy. The Monetary Policy Committee highlighted that while inflation is converging towards the 2% midpoint, business investment and consumer spending remain weak, and the economy has excess capacity.

This larger-than-expected cut is intended to stabilize inflation without causing instability in employment or interest rates. Economists have generally supported the cut, expecting it to bring relief to businesses and households, particularly in terms of lower lending rates. 

2. Digital Boost Learning

From November 1, 2024, Digital Boost resources will move to business.govt.nz and its YouTube channel, ensuring businesses can continue accessing learning videos and guides. The current Digital Boost platform, along with the Checkable tool, will be discontinued on October 31, 2024. Businesses should use Checkable and download their Digital Action Plan before this date to retain their progress. 

Important Tax Changes

1. Recent Case: Tax Treatment of Repairs vs. Capital Improvements in Rental Properties

In the case Lawrence v Commissioner, the court had to decide if the money spent on fixing a rental property could be claimed as a tax deduction or if it was considered a long-term improvement (capital expenditure), which is not immediately deductible.

Case Overview: 

The owners bought a rental property in Tauranga, and although a building inspection found no issues at the time of purchase, they later discovered water leaks. Initially, they did small repairs, but it soon became clear that major work was needed. They ended up doing significant renovations, including removing the roof, replacing windows, and doing other structural work to fix the issue permanently.

The owners didn't want to spend the money, but they had no choice because they couldn't sell the property with such serious problems.

Legal Issue:

The big question was whether the costs they incurred were for repairs (which are tax-deductible) or improvements (which are not).

Court’s Analysis:

The court looked at whether the work:

• Rebuilt or renewed a large part of the property
• Changed the property’s character (e.g., how it looked or worked)
• Was part of one big project.

The court found that the work wasn’t just small repairs. It involved major improvements that changed the building and extended its life. For example, they replaced the roof, added new drainage systems, and fixed almost every part of the property, inside and out.

Court’s Conclusion:

The owners argued that the work was just fixing the property so they could keep renting it out, but the court disagreed. Since the work made the property last longer and perform better, the court ruled that it was a capital improvement, not just a repair. As a result, the costs were considered capital expenditure and couldn't be deducted as repairs.

2. Law Change: Unit Titles and Additional Pre-Disclosure Requirements for Sale

If you own a commercial unit title property or are a landlord of such a property, there have been recent legal changes you should be aware of.

These recent changes impact the rules governing unit titles and their application to property owners.

Key points of these changes include:

• Sellers are now required to provide more detailed information in the pre-contract disclosure statement before entering into a sale and purchase agreement.
• Even after the sale agreement is signed, additional information is required before the settlement is finalized.
• Buyers may delay settlement or cancel the sale under certain conditions if criteria are met.
  

The Unit Titles Act 2010 and its regulations now mandate that sellers provide comprehensive information to potential buyers. Additionally, buyers have enhanced rights if these information requirements are not fulfilled.

Before entering into a sale and purchase agreement, sellers must provide a pre-contract disclosure statement. This must include financial statements, details on maintenance issues, weather tightness, and related matters, as well as body corporate general meeting minutes from the past three years. The legal amendments also cover the governance of body corporates, including how meetings are conducted.

The changes elevate the standards for body corporate managers. Large unit titles (those with 10 or more units) must hire at least one body corporate manager, with the role now clearly defined in the legislation.

Moreover, the law ensures that proper planning is done for maintenance, requiring body corporates to maintain a long-term maintenance plan for at least the next 30 years. Additionally, a long-term maintenance fund must be established, and the Ministry of Business, Innovation, and Employment (MBIE) has been granted greater enforcement powers.