William Potter is a plumber currently operating as a Sole Trader in Levin. William has approached you, a tax accountant, for your advice on certain tax matters.
William's brother, Harry is returning to New Zealand after living in the UK for 12 years. Harry is also a plumber so William is looking at the possibility of them operating together as a partnership.
1. For each alternative business structure (sole trader and general partnership), outline two advantages and two disadvantages. Note that, for each structure, two of your points must relate to tax and two must relate to personal liability.
2. Discuss Harry's position with respect to New Zealand Tax Residency.
3. William is registered for GST and asks for advice on the GST implications of the following transactions:
a) $500 sponsorship of the local water polo team, the Potter Penguins
b) He attended an Australasian Plumbing conference in Adelaide and the airfare cost $600 and the Conference Fee $700 (New Zealand Dollars).
c) William owns the building which he operates his business from. Above the plumbing workshop is a small flat which William rents out to a student for $100 per week.
d) William imported a set of exclusive bath ware from France costing $10,000 for a celebrity client.
e) William buys a second computer for $800 (for Harry to use in the business) from his neighbor who is not registered for GST.
4. William has heard that GST is rising to 15% and is concerned that this will be a larger cost to his business. Discuss.
5. William has received the following amounts and asks if they are assessable for income tax purposes (cite legislative references in your answer):
a) William was called up for Jury service in January 2010 and received $350 in Jurors fees.
b) In 2009 William overpaid his provisional tax and received $250 in Use of Money Interest from Inland Revenue.
c) Rent of $5,200 from the flat above the plumbing workshop.
d) An elderly aunt died recently and left William a legacy of $3,000.
e) The Horowhenua Plumber's Guild gave William a $500 scholarship to assist him in attending the Australian plumber's conference.
6. William has paid the following amounts and asks if they are deductible for income tax purposes (cite legislative references in your answer):
a) Membership fees of $250 for the Horowhenua Plumber's Guild.
b) $450 in fines for using his cell phone while driving.
c) Travel expenses for his son, Charles, to attend the National Secondary Schools Water Polo Tournament.
d) Advertising of $500 in the Levin community newspaper for his plumbing business.