1. MOTORHOME CASE STUDY
Mr and Mrs V are shareholder employees in a specialist consulting company based in Hamilton. The company was incorporated on 1 April. Most of the company’s clients are located in the North Island and require regular on-site visits.
The couple own a motor home and have found it convenient to use the vehicle to travel to see clients, for overnight accommodation as well as a mobile office when away from home. Mr and Mrs V are unsure of how best to treat the motorhome and its related expenses for tax purposes and have asked for your advice. Please advise them on:
- The deductions that would be allowed if they kept the motorhome in their own names and used it for the business
- The deductions that would be allowed if the company owned the motor home and any Fringe Benefit Implications (to be taught after the teaching recess).
You DO NOT need to consider GST implications
Details:
The motorhome was custom-built for a total cost of $154,000 (incl. GST) in December. This cost consisted of $56,000 for the panel van, and $98,000 for fitting it out as a motorhome, i.e. the base vehicle was 36% of the total cost and fitting-out was 64%.
The vehicle was valued by a registered valuer at $138,000 incl. GST on 1 April. It has a GMV (AKA gross laden weight) of 4005 kg. The mileage averages about 8,000 km per year, of which 6,400 km (80%) is for business use.
The vehicle is typically used for 35 overnight stays per year; 20 nights (57%) relate to business use.
Total expenses (including fuel, road-user charges, insurance, etc. but excluding depreciation) relating to the vehicle are approximately $4000 (incl. GST) per annum. The couple opted not to bring their personal vehicles into the company, and, instead will claim the standard mileage rate for business-related travel.
KEY QUESTIONS
What are the options for deducting the motorhome-related deductions?
2. LAND
Mike has purchased a property “off the plans” with his friend David. David and Mike have decided to sell the property after 3 years. Mike knew the property market was rising but he is only investing because David is a good
friend. Advise Mike on the tax implications Mike was really pleased that the developer has completed other high
quality developments in the past Mike has approval in principal for the bank loan.
Mike’s partner Ann is a developer and runs her own successful business finding good property buys and then selling them over a year or two once she finds a private buyer.
Ann is not a real estate agent and like to think of herself as an ‘astute investor’.
Mike and his friend David are investing in this property together. It was actually David who told Mike that he should
invest with him.
3. INCOME
Joan, a backpacker on a working holiday in New Zealand, is offered a role at a local café. She is offered a pay rate of $15 per hour and free accommodation. She has been working in New Zealand for 7 months and intends to stay on and start studying in New Zealand afterwards. The café owner has registered Joan for PAYE and this is paid on time to IR. What other tax issues should Joan be mindful of?
4. BUSINESS SALE
Mike has just sold his furniture making business to an old friend of his, Yuan. Yuan is very keen to continue operating the business successfully. Mike has been paid a non-competition amount of $35,000. Mike has told you that he wants to support Yaun as much as possible.
While Mike is free he will keep “popping into the store everyday” just to make sure things are running smoothly.
KEY QUESTIONS
a) Is the $35,000 Mike received an amount of income for him?
b) If Mike tells Yuan not to pay him the $35,000 out of ‘natural love and affection’, is this an amount of income for Yuan? Are there any other tax implications?
