March 2008

In this Issue...                    

1. July Tax Bill Introduced

2. October Tax Rate Changes

3. Implications of Change to tax rates

4. Refund of Imputation Credits

5. GST Change in Use Adjustments Proposal

6. FBT Rate for Low Interest Loans

7. Nine-Digit IRD Numbers

8. Taxation of investment FIF income

9. Shares offer inflation protection – sometimes

10. OCR reduced to 7.5 percent

11. News about the Office

1. JULY TAX BILL INTRODUCED

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill is one of the many bills that the government is trying pass before the 2008 year general election. It was tabled in Parliament on 2 July 2008 and was referred to the Finance and Expenditure Select Committee for the Committee to report back on 6 October 2008; the last date the House can sit before rising for the close of Parliament.

The Bill is important for the proposed changes that it makes to current taxation law and has been overshadowed by other bills in the rush to the elections. If it is not passed prior to the election then it is likely that it will be passed in its present form after the election.

The main changes are to the following areas of tax:

• Raising certain tax thresholds
• Relocation payments and overtime meal allowances
• Payroll-giving
• Reimbursements and honoraria paid to volunteers
• Definitions of "associated persons” reformed
• Shareholder continuity issues
• Emissions trading units
• General insurance risk margins
• Tax-pooling rules
• Migrant workers
• GST on certain loyalty transactions
• GST and exported secondhand goods
• Film and Government funding
• Taxation of life-insurance business
• International tax rules

Raising certain tax thresholds

The Bill provides for the raising of certain tax thresholds, largely aimed at helping to reduce tax-compliance costs for small and medium-sized enterprises, although some will also apply to individuals and businesses generally.

Those will include the following:

• PAYE limit for monthly returns increases from $100,000 to $250,000.
• FBT limit for annual returns increases from $100,000 to $250,000 of PAYE.
• GST compulsory registration for taxable supplies of $40,000 increases to $50,000 and six monthly GST period from $250,000 to $500,000.
• Use of Money interest safe harbour residual income tax of $35,000 increases to $50,000.
• Trading stock exemption for stock cost of less than $5,000 increases to $10,000.
• Financial arrangements can apportion interest on a straight line basis for arrangements of $1.5m increases to $1.85m, and cash basis methods to include trusts and companies.

The amendments will apply from 1 April 2009.

Relocation payments and overtime meal allowances

Amendments specifically ensure that payments by employers, when relocating their employees and providing them with overtime meal allowances, are exempt from income tax and fringe benefit tax if certain criteria are met. These changes are designed to remove uncertainty about whether, and from when, these payments are tax-free.

The key features of the proposed new relocation rules are as follows:             

• Payments are tax free where an employee relocates to a new location. The rules apply to existing and new employers.
• The location must not be within reasonable travelling distance.
• The payment must reflect the actual expenditure incurred and be incurred within certain time limits.

Only actual costs of relocation which are listed by the IRD are eligible relocation expenses and those include the following:

• Relocation consultants and house hunting trips.
• Immigration assistance and tax advice.
• Health checks and special documentation required.
• Cost of selling existing home and acquiring replacement.
• Cost of finding rental accommodation in the new location.
• Cost of removal, transport and storage of household effects, cars, boats and pets.
• Connection and disconnection fees of utilities.
• Transport costs (eg airfares).
• Costs of accommodations for up to two months.
• Private school application fees and school uniform expenses

The key features of the proposed new overtime meals rules are as follows:

• Payments are tax free where an employee contract provides for payment or the employer has a policy of paying.
• The allowance reflects actual expenditure or is a reasonable estimate of costs.
• There is more than two hours of overtime.

It is proposed that the amendments apply from 1 April 2003 to endorse the approach taken by many taxpayers for the 4 years preceding the current tax filing year.

Payroll-giving

The Bill introduces a voluntary payroll-giving scheme that will allow employees to make regular payroll donations from their pay to charitable organisations of their choice. It is available to employers that electronically file the monthly PAYE schedules. It will also enable employees to receive the tax benefit of their payroll donations each payday, in real-time, without the need to have donation receipts. The employees are rebated at 33 1/3%. People who make donations other than through payroll-giving will continue to claim the charitable donation tax credit at the end of the tax year.

It is proposed that the changes apply from 1 April 2009.

Reimbursements and honoraria paid to volunteers                             

Specific tax rules have been introduced for the treatment of payments that reimburse expenditure incurred in undertaking voluntary activities. Reimbursement payments received by people who meet the qualifying criteria for being considered a volunteer will be treated as exempt income under the new provisions. The exemption will apply to the following types of payment:

• Actual or reasonable estimates of expenditure incurred
• Transport costs incurred in getting to and from volunteer location; and
• Other costs incurred in the course of volunteering.

A volunteer must be a New Zealand tax resident who freely undertakes an activity in New Zealand chosen by them that provides a benefit to another person for which there is no purpose or intention of private pecuniary gain. The rules also make it clear that a payment characterised as an honorarium, even if it includes an element of reimbursement for expenditure incurred, is treated as a withholding payment and the PAYE rules apply to the whole payment.

The new rules for the treatment of reimbursements paid to volunteers will apply from 1 April 2009.

Definitions of "associated persons" reformed                                

The Bill makes amendments to strengthen and rationalise the definitions of "associated persons" in the Income Tax Act 2007. The definitions are mainly used in an anti-avoidance capacity to counter non-arm's-length transactions that could undermine the intent of the income tax legislation. There are a number of major weaknesses in the existing definitions and, in particular, those applying to land sales. The current weaknesses in the definitions pose a risk to the tax base, and the Bill proposes amendments to the income tax legislation to address them.

The new rules introduce aggregation rules that associate two companies that have related party shareholders where each has more that 50% ownership or control of one of the companies.                                                          

The new rules will have significant effect on trust structures, and accordingly structures that use trusts are most at risk. The rules therefore will impact on developers, land dealers and builders that have investment properties in trusts to avoid land tainting issues. The most burdensome provision is the new tripartite test. Whilst previously it only applied to GST, the new provisions apply across the board. The tripartite test associates two persons if each are associated with a third person (ie if A is associated to B and B to C then A is associated with C). The common structure of development company and investment trust that is presently not associated may now be caught where the beneficiaries of the trust are the same as the shareholders of the company.

Other significant changes include:

• A new person/trustee test to include spouse, de facto or civil union partner, or infant children (including adopted) that have benefited or are eligible to benefit.
• A new trustee/settlor test to include settlor or person with power of appointment or removal.
• A new two trustee with a common settlor test to include both trusts.
• A new partner/partnership test to include partnership and another person associated with a partner (daisy chain effect).

The Bill also rationalises other income tax provisions that employ similar concepts to associated persons, such as the definition of "related persons" in the dividend rules. It reduces the degree of blood relationship from four to two degrees, but includes married persons or persons in civil union or de facto relationships with the effect of the test passing through two degrees of those relationships.

It is proposed that the amendments will generally apply for the 2009/10 and later income years. However, for the purposes of the land provisions the associated persons reforms will apply to land acquired on or after 1 April 2009.

Shareholder continuity issues

The Bill introduces provisions to ensure shareholder continuity is preserved for certain restructuring arrangements that result in no change of economic ownership of a group of companies. The changes preserve shareholder continuity and ensure no unintended consequences of the continuity rules, as they apply to imputation credits and losses, as a result of restructuring.

The amendments will apply from 1 April 2008.

Emissions trading units                                     

The Bill provides for the tax treatment of emissions trading units. Most costs of emissions trading will be tax-deductible, and the Government subsidy (the award of "free" emission units by the Government) of emissions costs will generally be assessable. The specific taxation treatment varies depending on the emissions type, of which there are four:

• non-forestry, which is generally dealt with on an accruals basis.
• post-1989 forestry, which is dealt with on a cash basis.
• pre-1990 forestry, where the land is held on capital account (outside the tax system).
• pre-1990 forestry, where the land is held on revenue account (special rules apply).

There are special rules for the surrender of emission units to the Government and for the timing of the recognition of income arising from the Government subsidy. Emission units will be treated as excepted financial arrangements that are revenue account property. Thus, emission units will generally be deductible on acquisition, but added back at cost at year end to the extent that they are still on hand.

Amendments are also made to the Goods and Services Tax Act to deal with emissions units. Both the supply of emissions units and the actual or deemed supply of any services in exchange for emission units are zero-rated.
It is proposed that the amendments take effect from 1 January 2009.

General insurance risk margins

The Bill provides for deductibility for movements in a general insurer's outstanding claims reserve (OCR) provided certain requirements are met. Those requirements include the need to document the movement and how it is determined, to show that the deduction reflects the company's business experience, and is made for sound commercial or business reasons and not for income tax purposes.

Tax-pooling rules                                                   

The Bill introduces a number of changes to the tax pooling rules.

• Transfers from the tax pool to all other tax types (GST, FBT, RWT etc) in the event there is tax to pay in those accounts relating to a voluntary disclosure or tax audit.
• Taxpayers will have 60 days from the date of the notice of assessment to access tax pooling funds to pay the reassessed amount of tax.
• Transfers of balance between tax-pooling intermediaries.

The amendments will apply from 1 April 2009, apart from the amendment to allow transfers of money between tax-pooling intermediaries, which will apply from the date of enactment.

Migrant workers                                                                    

The Bill provides several remedial amendments to reduce compliance costs incurred by migrant workers who come to New Zealand to work under the recognised seasonal employer policy. The compliance costs will be reduced by correctly deducting tax from migrant workers during the year and removing the requirement for these workers to file end-of-year tax returns.

The amendments will apply from 1 April 2009.

GST on certain loyalty transactions

The Bill provides for an amendment to GST for certain loyalty-programme operators to defer the imposition of GST until the redemption of loyalty points. The new rules will ensure that the correct GST rate is imposed on loyalty points, and in particular zero-rated supplies.

It is proposed that the amendment apply from the date of enactment.

GST and exported secondhand goods

The Bill provides for changes to GST to allow exported secondhand goods to be zero-rated when the exporter has claimed a secondhand goods input tax deduction. The change ensures that exported secondhand goods that are not brought back into New Zealand are treated in the same way as exported new goods. It is proposed that the amendments apply from the date of enactment.

Film and Government funding

The Bill provides for the new film grant — the New Zealand Screen Production Incentive Fund (SPIF) grant — announced in Budget 2008. The tax amendments are being made to turn off the immediate deduction incentive provided in current law for films that attract SPIF grants. It is proposed that the principal amendment apply from 1 July 2008. Changes to the Large Budget Screen Production Grants will apply from 1 April 2009.

Taxation of life-insurance business                                          

Significant changes are proposed to the taxation of life-insurance business. The key features of the proposed new rules are as follows:

• taxation of life-risk business on actual profits in a manner similar to the way other businesses are taxed.
• extension of the tax benefits of the portfolio investment entity (PIE) rules to all savers in life products.
• Under the present rules, life insurers are taxed on all profits derived from providing life insurance (life office base) and all gains from benefits accruing to policyholders (policyholder base), but with a credit for tax paid at the life office level.

The new rules tax life insurers on two bases, the shareholder base (representing income derived for the benefit of shareholders) and the policyholder base (representing income derived for the benefit of policyholders).                

Most of the changes affecting the taxation of life-insurance business, including the benefits of the PIE rules, will apply from the life insurer's first income year, beginning on or after 1 April 2009. The new rules also provide, at the election of the life insurer, a lead-in period for up to five years for existing term life policies sold up to 31 March 2009. 

The Government is of the view that investors in savings-types insurance products are currently over-taxed in comparison with other savings investors. The change intends to further extend the application of the portfolio investor rules to provide tax relief to those types of investors. There will be an administration cost in applying the new rules and that may have an affect future premiums.                              

Review of international tax rules

The Bill provides for the first stage of reforms to New Zealand's international tax rules, and proposes changes to the Controlled Foreign Company (CFC) regime to reduce the existing grey list to Australia only. The intention is to provide a level playing field to those who have invested in companies outside of the eight grey list countries who are required to attribute CFC income to New Zealand. The change will mean that a number of taxpayers will need to consider the CFC regime for the first time.

A CFC is a foreign company where there is a group of 5 or fewer New Zealand residents whose total control interests are more than 50%.
The Bill provides a concession to the CFC rules for "active income". Shareholders in CFCs will only be required to pay tax on "passive income" attributed to New Zealand. Tax will be paid on "active income" when that income is repatriated to New Zealand by way of dividends, interest and royalties.

The broad categories of passive income include dividends, interest, royalties, rents, and other specified kinds of income. There is no definition for "active income". A CFC with passive income of less than 5% of gross income will not be required to attribute that income to New Zealand and will not therefore pay tax on that income in New Zealand.

Other key changes proposed include tax exemption for most types of foreign dividends paid to resident companies, and the introduction of rules to prevent the shifting of debt from CFCs with an active income exemption to New Zealand (where a tax deduction maybe available for interest incurred). The interest allocation rules will not apply where the tax resident has 90% or more of assets in New Zealand or less than $250,000 of interest deductions.

The proposed application date is 1 April 2009.

2. OCTOBER TAX RATE CHANGES

The personal tax rate changes take effect on 1 October 2008.

The new rates are summarised below.

New Rates from 1 October 2008:                                    

Income to $14,000      12.5%
$14,001 - $40,000       21%
$40,001 - $70,000       33%
$70,001 and over        39%                                             

Employers will apply different PAYE rates. The effective rate for the year will be the composite rates listed below.

Income Range - Composite tax rate applied

$0 - $9,500              13.75%
$9,501 - $14,000      16.5%
$14,001 - $38,000     21%
$38,001 - $40,000     27%
$40,001 - $60,000     33%
$60,001 - $70,000     36%
$70,001 and higher    39%

PROVISIONAL TAX

Provisional tax payments amounts will change for payments due after 1 October 2008.
Standard option (safe harbour)

The formula to calculate provisional tax liability from 1 October 2008 is:
RIT(2008) - $730 × 105%
(or 110% if using 2007 RIT)

Ratio method                                                                   

The current ratio percentage will apply to payments prior to 1 October 2008. The Inland Revenue Department will calculate new percentages and advise taxpayers of the changes from 1 October 2008.

Estimation method

Taxpayers who estimate their provisional tax can choose to apply the 2009 composite rates and do not have to wait until 1 October to do so.

3. IMPLICATIONS OF CHANGES TO TAX RATES

The implications of the change to the tax rates are summarized as follows:

From 1 October 2008 to 1 April 2010

• The biggest proportional change will be for taxpayers on lower incomes – there is a $11.92/wk tax reduction for taxpayers on income of $38,000.
• That change will flow through to higher incomes. The total weekly tax saving for taxpayers on income of $40,000 is $16.54.
• The increase in the 39% tax threshold from $60,000 to $70,000 will also provide a tax saving. At income of $70,000 will result in an overall weekly saving of $28.08.
• Proportionately, a taxpayer on $9,500 pays 17% less tax from 1 October. A taxpayer on $40,000 will pay 11% less tax and a taxpayer on $70,000 will pay 8% less tax (other payments and benefits aside).

From 1 April 2010

• The increase in the income bracket taxed at 12.5% from $14,000 to $17,500 provides further tax reductions. For taxpayers earning $38,000 there is a weekly tax saving of $17.64, and at income of $40,000 there is a tax saving of $22.26/wk.
• There is no change for earnings in the $17,500 to $70,000 bracket.
• Taxpayers on the top marginal tax rate would also receive a tax reduction with the increase in threshold from $70,000 to $75,000. The weekly tax saving for taxpayers on $75,000 is $39.57.

From 1 April 2011                                                                      

• The threshold for low income earners is increased further, but the increase in the threshold is less i.e. 2008: there is a decrease in the tax rate and an increase in the threshold by $4,500, and 2010: no rate change and increase in the threshold by $3,500, and 2011: no rate change and increase in the threshold by $2,500.
• The people on mid-range incomes would also receive an increase in the 21% threshold of $2,500 and the people on the top marginal tax rates would receive a $5,000 threshold increase. There is a weekly tax saving of $21.73 for taxpayers on $38,000, $32.11 for taxpayers on $42,500 and $55.19 for taxpayers on $80,000.                                           
  

The election in November puts threat on the rates legislated for the 2011 and 2012, and those may not survive the 2008 year.

4. REFUND OF IMPUTATION CREDITS

The Government is considering a proposal to refund imputation credits to shareholders who are not able to fully use the imputation credits allocated to them, such as foreign shareholders, tax exempt entities, or people who have a lower tax rate than the company tax rate.

The Government is concerned that the existing regime where there is no refund of imputation credits results in tax exempt organisations making investments that pay a before tax return, for example interest. Allowing for the refund of credits would take away the distortion that currently exists.

• A charity that pays no tax on all other sources of income is subject to tax at 30% (previously 33%) on fully imputed dividends, even though it has no actual tax liability on the receipt of the dividend.
• Shareholders whose marginal tax rate is below the company tax rate that have excess imputation credits, must carry the credits forward to offset against future income tax payable.

The Government estimates that this initiative could cost around $400 million per annum.

The Government has ruled out the option of refunding foreign shareholders their tax in New Zealand because it believes that any foreign shareholders who earn their income through investments in New Zealand companies should be taxed as such. Non-resident shareholders can mitigate their New Zealand tax liability to a degree by utilising the Foreign Investor Tax Credit Regime.

Australia has taken an approach of allowing limited access to credits for some tax exempt organisations. Australia operates a range of anti-avoidance measures to ensure that credits are not streamed to take advantage of the regime. New Zealand would need to consider similar anti-avoidance measures if it were to provide refunds of imputation credits.

5. GST CHANGE IN USE ADJUSTMENTS PROPOSAL

The Government is considering a number of changes to GST designed to strengthen the business-to-business neutrality of GST.

The proposals include:                                                           

• A 'reverse charge mechanism', for land, going concerns, and high value transactions, whereby the purchaser accounts for the vendor's GST output tax on a supply, and will offset their input tax entitlement (if any) against it.
• Treating associated entities as a single economic unit so that if the supplier defaults in paying the GST on a supply made to the associate, the recipient will lose their input tax claim.
• The power to put caveats on land titles so the IRD is notified of a sale.
• Increasing the time for IRD requesting more information, initiating an audit, or releasing a GST refund from 15 to 20 working days.
• Valuing one-off change in use adjustments at market value rather than the current lower of cost or market value.

 

One-off change in use adjustments

The IRD proposes compulsory one-off adjustments at market value where total change in use occurs for an asset which was fully used within a GST registered taxable activity. Currently, the GST Act determines that valuation for an output tax adjustment should occur at the lesser of the cost (including any input tax recovered) or market value. The IRD's reasoning for this proposed change is that this would align output tax adjustments for a total change of use with the sale of an asset or with the treatment of an asset upon deregistration.

The IRD also proposes to eliminate periodic output tax adjustment for "low value assets" (assets with a value of $20,000 or less). That change should remove assets like computers, office equipment, or low value cars from the need to make periodic output tax adjustments.

The IRD also refers to the Lundy case. Part of the outcome of that case was that a recovery of previous periodic output tax adjustments is possible when the asset will be returned to exclusively taxable use for GST purposes. The IRD is now proposing to introduce legislation which will negate the decision in Lundy on this point. Under the proposed changes, any previous output tax adjustments would not be refundable upon return of the asset to a fully taxable use.                                

The Judge in the Lundy case also stated that periodic output tax adjustments should be capped to the extent of the original input tax claim in relation to an asset. Whilst the IRD agrees with this in principle, it intends to continue with periodic output tax adjustments, irrespective of the original input tax claim. Again, this is based on the principle that any consumption in New Zealand should be subject to GST.

The IRD considers proposed capping should only apply if an asset will be fully removed from a taxable activity, e.g. by way of sale or a one-off output tax adjustment (see proposal above). The GST due as a result of a sale of the asset or a one-off output tax adjustment should then be reduced by the excess of the previous periodic output tax adjustments over the initial input tax claim.

6. FBT RATE FOR LOW INTEREST LOANS

The prescribed rate used to calculate Fringe Benefit Tax on low-interest, employment-related loans will rise from 10.57% to 10.90% from 1 October 2008.

7. NINE DIGIT IRD NUMBERS                 

The IRD are now issuing 9-digit IRD numbers to new taxpayers. That means that from now on, there will be a combination of 8-digit and 9-digit numbers.

All current numbers remain as 8-digit numbers and all new customers get a 9-digit number in completing IRD forms or in display of IRD numbers on business stationery.

8. TAXATION OF FIF INVESTMENT INCOME

The changes to the Foreign Income Fund (FIF) rules came into effect on 1 April 2007, and taxpayers caught by the new rules are now required to change the disclosure of income in the tax treatment of investments in overseas companies. Investment advisors have taken up the initiative by providing reports specific to their clients to assist in the complex task of dealing with the tax disclosures.

Those reports are invaluable but need to be treated with some caution as what has become evident is that a "one size fits all" reporting basis does not always work.

The following is a list of issues found in using the information in the first year of these new rules:                                                                        

• Reports are given to all clients, including individual with less than $50,000 of overseas investments and therefore exempt from the FIF regime.
• Failure to identify investments that are forced to use only the FDR or CV method. This is of particular importance where a "forced CV" investment has made a loss, as this loss can be claimed. In other cases, losses are not claimable.
• FDR and CV calculations provided to companies with income interests of less that 10%. A company does not have the ability to choose the CV method in that situation.
• The assumption that all Australian (and New Zealand for that matter) equity investments are exempt from the FIF regime. Of the approximately 1900 listed companies in Australia, approximately 490 are exempt from the FIF regime.
• Reports stating FIF losses calculated under the CV method are deductible. They are treated as $nil in the tax return where the interest is less than 10% with no ability to carry forward or offset losses against other.
• FDR calculation that failed to take into account dividends received in relation to shares purchased and sold during the income year.
• Presentations that show FDR and CV calculations and a summary of dividend income from overseas investments, and do not advise that overseas dividend income does not need to be disclosed in the return.

The reports are however a useful resource and time saver for the preparer of tax returns to further analyse and decide on appropriate tax disclosures for different needs and circumstances.

9. SHARES OFFER INFLATION PROTECTION - SOMETIMES

The article below is an abridged version of an article featured in the Bay Money section of the Bay of Plenty Times on 3 September 2008. We contacted John McCool, Investments Advisor at ABN AMRO Craig and requested a reproduction of the article for our newsletter. If you wish to discuss any matter relating to the article we can provide you with a full copy of the article or you can contact ABN AMRO Craig directly.

"How long your savings will last in retirement will depend on how markets perform and how well the Reserve Bank controls inflation.                                               

An investor who invested all of their retirement savings into American shares in 1972 – and drawn an annual income from these savings – would have been penniless by 1985 thanks to the 50% fall in the American share market in the mid-1970s.

This decline in the share market occurred at the same time as the oil crisis and a sharp increase in inflation which meant a retiree's annual drawings had to increase rapidly to keep up with the rising living costs. The combined effect was a disaster scenario.
The terrible irony of this example is that from 1972 to 2000 the American share market provided an average return of 9.0% a year, which should have been ample to provide this investor with a decent income and mean their capital would have lasted 28 years, not 13.                                                                     

Unfortunately, all of this return happened in the 1980s and 1990s, but by then our hapless investor had no capital left and missed out on all these returns.

The recent sharp falls across share and property markets is similar to the 1970s experience and is a reminder of the importance of including fixed income in a portfolio.

Certainly, shares should, over time, provide better returns than fixed income, but for many people such risk-taking is simply not viable. Retirees with no other income and limited capital cannot afford to be hit by a severe market downturn like we saw in the 1970s, and again in 1987, 1990, 2000 and this year. Sometimes investment theory needs to be modified for reality.

But retreating completely to fixed income is not the answer. Although share investors were hit hard during the 1970s, so were people who thought they were playing it safe by having all of their savings in term deposits.

Using the historic data from the Reserve Bank, we estimated that a person who invested their savings completely into six month term deposits in 1970 and withdrew an income stream equating to 6% of the capital – which was increased by inflation each year – would have run out of money in just 12 years.

This sad result is due to the fact that over the 1970s inflation was often higher than the after-tax interest rate being earned on the term deposits. Over the 1980s and 1990s investors in both shares and deposits fared better, with investors in shares enjoying the highest returns.

Shares should be a vital component of a portfolio to provide growth. But, to avoid a disaster scenario, fixed income still has an important role to play. Perhaps the most telling lesson from this analysis is that we need to keep a close eye on central banks to make sure they keep one step ahead of inflation, and for those that argue that a bit of inflation isn't such a bad thing, take a look at the 1970s."

Cameron Watson
Chief Investment Officer
ABN AMRO Craigs.

10. OCR REDUCED TO 7.5%                   

The Reserve Bank reduced the Official Cash Rate (OCR) from 8.0 percent to 7.5 percent on 11 September 2008. This is the biggest reduction in recent years and the second cut in five years with the other happening in July 2008 when the Reserve Bank cut the rate from 8.25%.

Reserve Bank Governor Alan Bollard cited the reasons for the cut relates to the slowdown of the New Zealand and global economies in the wake of continued financial market turmoil, and the New Zealand business sector coming under pressure from both rising costs and falling demand.

The rate cut comes in spite of inflation expectation of 5 percent in the September quarter and to continue at elevated levels through 2009. The rate reduction has been brought forward in anticipation of easing of inflation rate pressures.

The Reserve Bank expects further official cash rate reductions and the timing of those will depend on further inflation and on exchange rate adjustments.

11. NEWS ABOUT THE OFFICE                  

New Staff

We are pleased to welcome Marisa Hyne a chartered accountant to the team. Marisa recently returned from travelling in Europe with her family and also a brief stint as an accountant for Sonisali Resort (Fiji). The addition of Marisa's tax skills will be of value to the team and clients.

End of Year

We are planning the end of year closure of the office for a longer period this year to allow staff the opportunity to use more of their holiday entitlement. The additional week's holiday introduced 1 April 2007 has had a significant effect on staff entitlements. We will advise the closure dates in our December 2008 newsletter.