Index
Hi <<First Name>>, we trust you’re enjoying this spate of milder weather and the prospect of longer evenings and opportunities to get out and about whether it’s playing sports or purely relaxation.
But before you venture out take time to consider the new rules around home insurance and some of the minefields you will be required to navigate.
Changes To Home Insurance
The Canterbury earthquakes have forever changed the home insurance landscape.
Continual delays, economizing and disputed policy clauses may be partly understandable after a mass disaster, but the lesson from Christchurch is that the onus of protection lies with the individual.
 With the insurance industry's switch from paying full replacement cost to no more than the ‘Sum Insured’, that responsibility has shifted even further.
Now homeowners will need an accurate idea of the cost of rebuilding their home or risk being well shy of the replacement cost if their most important asset is destroyed or badly damaged.
The likely result of this change is that many will be under-insured - whether by design or accident. And the insurer will no longer foot the bill.
In the past we've been unfailingly trusting that we pay insurance and the insurer pays us out. This has shown people really don't know their policies and, even if they do, the insurer can make changes after the event.
So many things are hidden. Don't even begin to expect that what you sign for and what you get are the same thing. You can never have enough information.
The new system requires homeowners to specify the sum insured - the maximum the insurer will pay if their home needs to be rebuilt or extensively repaired. To be fully covered, they'll need to factor in not only construction and material costs, but architect, planning and consent fees, the cost of demolition and removal of debris.
These costs, particularly repair and replacement, are notoriously uncertain and subject to rapid rises. The sum insured will have to rise annually to keep pace, as will the premium.
Premiums were already rising, and the industry is making other changes, including higher excesses and limits on payments for retaining walls and "recreation features" such as tennis courts and swimming pools.
Reinsurers have realised New Zealand is a high earthquake risk country and full replacement cover left them over-exposed.
Most homeowners in standard homes can expect small premium increases, but where people have matai flooring or Italian slate tiles and granite benchtops they will be assessed on their property rather than the average for the region.
Insurer websites have detailed explanations and an online calculator to help homeowners estimate their cost of rebuilding. But the transition remains a soft-sell and many homeowners may be caught out if disaster strikes.
The Australian Cordell residential rebuilding cost calculator, adapted for New Zealand conditions, is accepted by the industry and mortgage lenders as tolerably accurate for the average home, but it is less reliable for architecturally designed, high-spec homes and properties with special features or on challenging sites. However homeowners will need to do a lot more homework - and not rely entirely on the calculator.
Homeowners may need to get qualified quantity surveyors in, to ensure they are not going to miss something and will have to think hard about the features of their home and the replacement costs. A valuer's assessment - costs start at around $400 - should be sufficient guide for most homeowners, but more complex properties will require a building or quantity surveyor.
Lessons learned from Christchurch:
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Weigh up the cost of an assessment and likely higher premiums against the risks of being under-insured.
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The sum is the sum - it provides certainty but what is the cost of that certainty?
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Be sure to correctly record the size of house as the insurer may pay only for the square metres covered.
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Disputes over rebuild materials are common. Homeowners expecting "like-for-like" replacement have found insurers specify lower-quality materials and features, such as replacing native timber flooring or panelling with particle board.
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Most policies have clauses allowing replacement with "materials in common use", this may be a problem for owners of older villas and bungalows.
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Christchurch has highlighted the hidden costs in slab foundations and underground services.
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Borrowers can expect gentle reminders if the bank feels their insurance has slipped significantly below replacement cost.
The fact is that house insurance is a necessity and people can’t own a home without it. Private Insurers cannot be forced to insure but if they won’t provide insurance at an affordable rate then there will be a huge downstream effect on the ability of the average Kiwi to buy a house.
Retirement Scheme Swapping Across The Ditch
The Australian government recently announced that they have made changes to legislation that will allow New Zealanders to transfer their retirement savings from KiwiSaver into a compatible Australian scheme and vice versa.
This legislation is the result of an arrangement between the New Zealand and Australian governments and removes an obstacle between the two countries, providing the ability for people to take advantage of employment opportunities in either country, while still continuing to contribute to a retirement scheme.
Australia’s ruling is that it is compulsory for employees to be involved in a superannuation scheme. This means that previously, any Kiwis working in Australia who were contributing during the time of their employment had to leave that money in Australia when and if they returned to New Zealand.
The Australian Tax Office recently estimated that it is holding NZ$21 billion in lost accounts, which has been put down to contributing Kiwis who have returned home and had to leave their contributions behind as a result. The new scheme will mean that this money can be transferred from the Australian scheme, to their scheme provider here in New Zealand.
The transferring of funds will not incur any entry or exit taxes but the downside is that Kiwis will not be able to use their Australian superannuation fund towards a new home. However any interest earned on the account may be used to do so.
The Australian scheme will have to comply with KiwiSaver in order for the transfer to be made as not all schemes are compatible.
If you have contributed to an Australian superannuation scheme in Australia and want access to your funds, visit www. kiwisaver.govt.nz or contact us.
Changes To Online Tax Returns
The IRD have made changes to the way you file your GST returns.
In September last year the IRD introduced the eGST filing service. Now the decision has been made to remove the ability for the public to access the standard online form, meaning customers will need to change their filing methods and register to file their returns through MyIR.
The IRD will have sent a letter to all clients in July notifying them of the change. In addition to this a new GST email service has been established to alert customers registered with MyIR that their GST return is available, three days before it’s due.
For more information on the changes to online GST returns or for assistance with your GST returns, contact us.
Changes To Parental Leave And The Minimum Wage
On 1 July 2013, the rate for Parental Leave and Employment Protection increased. The change has been made in line with the alteration to the average weekly wage.
The maximum amount available to eligible employees and the self-employed increased from $475.16 to $488.17 gross a week.
The minimum parental leave payment for self-employed persons increased from $135 to $137.50 gross a week.
Each rate is calculated based on the employee’s average weekly earnings and those eligible for the scheme are entitled to 14 weeks.
New mixed-use assets rules, lease payments and other measures now law
Tax Rules On Lease Inducement Payments And Surrender Payments Now Law
A recent change in legislation introduced new rules on the tax treatment of lease inducement payments and surrender payments. From 1 April 2013, such payments are deductible for the payer and taxable for the recipient and are subject to spreading rules.
If you are negotiating or renewing commercial leases, we recommend you contact us to ensure any tax considerations are correctly taken into account.
Renting Your Beach House Out?
As previously signalled in earlier newsletters, new rules on claiming expenses for mixed-used assets such as holiday homes (assets being used both privately and for earning income) have been passed in to law.
Previously expenses have been subject to a private to business ratio (including when the asset was available for use even if it wasn’t being used). The new rules restrict the deductibility of this expenditure by limiting the expenditure allowed for the period that the asset is available for use and not used.
Even though these rules have just been enacted, they actually apply from 1 April 2013. If you own any assets such as a holiday bach or a boat and rent these out during the year, please contact us The government has publicly stated they are expecting an extra $50m in revenue from these new rules, so they will be enforced.
Thought for the month: "The mind is a wonderful thing. It starts to work the minute you're born, and never stops until you get up to speak in public" - John Brown
Shane Storey
Managing Director
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