New purchase price allocation rules
The purchase price allocation ("PPA")
income tax rules came into effect on 1 July 2021.
These rules are particularly significant to those selling and purchasing
commercial property and businesses. PPA is where parties allocate the total
purchase price among the various types of assets in a transaction, such as
buildings, stock and plant etc.For transactions entered prior to 1 July 2021,
parties could allocate the purchase price to assets outside of sale and
to achieve more favourable tax outcomes. For example, a vendor would allocate
less of the purchase price to a depreciable asset to reduce their income upon
sale and accordingly their tax liability, whereas a purchaser would allocate
more of the purchase price when buying the same depreciable asset to increase
their expenses and thus reduce their tax liability.
The new rules provide for prescribed PPA, which ideally should be included in
agreements and based on market value to uphold NZ's tax base.
The rules apply to mixed asset transactions i.e., business asset sales, farm
and forestry sales, commercial property sales and high value residential sales
which generally involve two or more categories of assets.
The rules do not apply to mixed asset transactions below $1 million and
residential sales below $7.5 million; however, it is still best practise to
agree on the PPA where applicable.
It is suggested that the agreed PPA is included within sale and purchase
agreements before they are entered, and where it is not agreed or for urgent
or unconditional transactions, provision is made within the agreement for the
parties to agree on the PPA within a certain timeframe following settlement.
Once the PPA is agreed, each party must use it when completing their next
respective tax returns.
The PPA must be based on market value, and where IRD considers the agreed
allocations do not reflect this, it can prescribe a different PPA.
Inside this edition
New purchase price allocation rules
Enduring Power of Attorneys - A brief
Modifying or extinguishing restrictive
Smart watches for our kids - How safe are
Personal grievances - A brief overview
When rural farm debt requires solutions
Three Waters debate
Where parties to a transaction cannot
agree on a PPA prior to filing the next relevant tax return, the vendor can
determine the PPA within 3 months from settlement by notifying IRD and the
purchaser. If the vendor fails to do this, the purchaser may determine the PPA
within 6 months from settlement by notifying IRD and the vendor. If the
purchaser does not notify both parties, the IRD determines the PPA, and the
purchaser may be denied any entitled tax deductions until the next tax year.
To avoid the situation above where the vendor may in the first instance
unilaterally determine the PPA where it is not agreed from the outset, it is
important to raise this issue when discussing the terms of a transaction,
together with obtaining the relevant tax and legal advice prior to entering a
It is also suggested that independent market values are obtained for the
assets involved to reduce the risk of IRD overturning a PPA agreed between the
For tailored advice on the new PPA rules, you can contact your legal and tax
Life can be
uncertain and we never know what is just around the corner. No matter what age
you are, anyone could have an accident or become seriously ill. In these
circumstances, someone needs to step in and make sure the bills are paid, the
kids are looked after and you are being cared for properly by the people
around you making decisions.
An Enduring Power of Attorney ("EPA") is a document which appoints someone to
make decisions on your behalf or sign documents for you, in the event that you
become incapacitated. In this document, you are known as the "donor" and the
person that you appoint to act on your behalf is known as the "attorney". An
attorney can be any person of your choosing who you trust to carry out your
wishes; however, they must be over the age of 20 and mentally capable. You
also have the ability to appoint more than one attorney to manage your
affairs; however, you must specify whether all of the attorneys have to agree
on decisions or if any of the attorneys can act individually. In addition, you
can name successor attorneys, in the event that your first choice passes away
or becomes mentally incapacitated themselves.
There are two different types of EPAs, one which relates to property and one
which relates to personal care and welfare. The property EPA relates to
everything you own, including property, bank accounts, investments and
chattels, whereas the personal care and welfare EPA relates to the way you are
cared for and medical related decisions. With a property EPA, you have the
choice whether the EPA can be invoked only if you are mentally incapable or
whether it can be effective as soon as you sign the EPA. This option is
beneficial if you are overseas or temporarily unable to deal with your own
finances but still have mental capacity to make decisions.
A personal care and
welfare EPA can be invoked when a medical practitioner undertakes an
examination of you and determines and certifies that you are mentally
incapable. Once this EPA kicks in, your attorney has the power to make
decisions on your behalf that relate to anything regarding your care and
In the event you become incapacitated and you are unable to make decisions for
yourself but you have not signed an EPA, then it may be necessary to apply to
the Family Court for an order. The only people who can apply to the court for
an order include a family relative, a social worker, a medical doctor or the
manager of the facility where you are being cared for. The court then appoints
an independent lawyer to look into matters and report to the court. Once this
report is completed, the court makes a decision on who to appoint as your
"manager" to look after your property and who to appoint as your "welfare
guardian" to look after your personal care and welfare. This process can
become costly and timely in addition to being stressful for your loved ones,
so it's better to be prepared and have an EPA ready to go, just in case the
A restrictive covenant is a contract
between two parties that is restrictive in nature; a promise not to do
something. The unique feature of restrictive covenants is that once they are
noted on your title, they run with the land and bind subsequent owners. Some
of the issues that can arise are around their interpretation, modification or
removal and remedies (if available).
There are two primary ways to modify or extinguish a restrictive covenant (or
easement); either by agreement or by statute. As we all know, sometimes the
'by agreement' route can be as troublesome as trying to herd cats.
If you are unable to obtain a collective agreement to the modification or
extinguishment, then sections 316 and 317 of Property Law Act 2007 may be your
next port of call.
An application to the court can be made under section 317. There are six
grounds under which an application can be made for an order to modify or
extinguish the easement or covenant.
The first ground relates to whether there has been a change which means that
the covenant should be modified or extinguished. This could come in the form
of a change of use in the land, the character of the neighbourhood or any
other circumstance the court considers relevant.
The second ground relates to the change in nature or extent of the impediment
that the ground creates i.e., a covenant that restricts building to a type of
building that the land was zoned for at the time the covenant was created.
Should the zoning subsequently change, the courts may be agreeable to making
an order that a change in nature has occurred and the covenant may be modified
The third ground is by agreement or
waiver from all the parties that have the benefit of the covenant. The fourth
ground relates to the fact that the change to the covenant will not
substantially injure the person entitled to it. The recent case of Synlait
Milk Limited v New Zealand Industrial Park Limited 2020 set down a two-stage
approach for this ground, which noted that on top of the 'no substantial
injury' requirement to the owner of the benefitted land, a further stage was
included which looked at the justification to changes in the neighbourhood. In
this instance, the land had been rezoned and there were other industrial
plants in the area.
Section 317(2) allows for compensation to be paid, as determined by the
courts. This refers to what reasonable compensation person A would need to pay
to person B to have/agree to have the covenant extinguished/modified.
Section 115 of the Land Transfer Act 2017 refers to redundant easements. This
is another route that can be utilised to extinguish an easement, in the
circumstance where all or part of the land that has the benefit of the
easement no longer adjoins the land that has the burden, either by a result of
a subdivision or any other reason. The result of which provides that the
easement no longer has any practical benefit.
Careful consideration should be given to any challenge, because not only is
the result of the court process uncertain, it can be long and costly.
The internet of toys and internet of
things are interchangeable; they both refer to smart devices that, at their
most basic, are physical objects that connect to the internet, which in turn
allows them to send, receive and exchange data with the user. Smart watches
come under this terminology.
Like any other device that connects to the internet, these items are open to
the risk of having security and privacy breaches. How this data is then used
is one of the main concerns.
There are many well documented risks associated with these devices; smart
watches can be hacked for their GPS location, conversations can be listened to
and the camera used to spy.
The Norwegian Consumer Council (Forbrukerradet) have previously reported on
the hacking of these devices that have camera and speaker capability and that
also track the location of your child via GPS.
The responsibility of checking privacy and security
of a product are placed with the purchaser; the parent.
The Norwegian Consumer Council have looked into the terms and conditions of
various smart devices and toys and noted there were issues in relation to
privacy, security and rights, with a distinct lack of regard for any of these,
even on a basic level. Further issues were found in terms of data retention,
termination and transfer of information to third parties.
The companion apps to these devices can be equally as disappointing in terms
of security. The regulation of these devices is, to put it mildly, confusing.
Devices are made in one location and then sold all around the world. Once a
product enters another jurisdiction, that product should adhere to their
specific laws and policies.
The privacy principles of the
New Zealand Privacy Act 2020 govern how personal information should be
collected and handled. In particular, privacy principle 4 has a particular
focus on children,
providing that personal information may be collected by an agency only by
lawful means and on the particular circumstance of each case. When having
regard to children, it is to be fair and that it will not intrude upon the
personal affairs of the individual.
If a person feels their privacy has been interfered with, they can follow the
complaints procedure under section 70 of the Privacy Act 2020 by making a
complaint to the Privacy Commissioner or the Ombudsman.
The complaints procedure appears to be relatively straight forward; however,
how complex the process may become when a complaint is made about an overseas
organisation is unclear.
The underlying message here is for parents to do their research and read the
terms and conditions before purchasing a smart watch for their children.
Particular consideration should be given to whether you will be provided
notifications as to a change in terms, limiting the use of personal data, the
deletion of data from the app, the ability to set automatic deletion of
location data after a set period of time, to be able to delete your account
and a clear note of where possible data is stored (and transmitted to).
A personal grievance ("PG") is a type of
formal complaint by an employee against their current or former employer if
they believe their employer has acted unfairly or unreasonably towards them.
Personal grievances can be raised if a matter has not been able to be resolved
by the employee communicating directly with the employer and is raised in
accordance with the Employment Relations Act 2000. Employees have 90 days to
raise a PG from when the first grievance occurred or came to the employee's
A PG can be raised against an employer for a number of reasons, including but
not limited to the following:
* Unjustified dismissal where an employee has been fired or made redundant
without the employer following the correct process.
* Discrimination where the employee feels they are being treated unfairly due
to factors such as age, gender, religion, ethnicity or sexual orientation.
* Racial or sexual harassment including unwelcome requests or suggestive
A comprehensive list of potential reasons why a PG can be raised is detailed
in Section 103 of the Employment Relations Act 2000.
In addition to raising a complaint against an employer, employees can also
raise a complaint against a "controlling third party", where they work in a
triangular employment situation. This situation is where someone is employed
by one employer but is working under another business or organisation that is
in charge of what they do during the course of their day-to-day work life,
such as recruitment, labour hire or temping.
In order to
raise a personal grievance, employees should first talk to their employer in
an attempt to resolve matters. If discussions have not resolved matters, a
formal written email or letter to advise of a PG and requesting a meeting, is
the next step. The written email or letter must clearly explain what grounds
the PG is being raised on and why the employee believes they are being
unfairly treated. Once the employer is notified of the PG, they should attempt
to resolve the issue either with the employee or by setting up a mediation. If
a mediation is required, Employment Mediation Services offers free mediation
services in the workplace and a lawyer is not required for this process.
Following on from mediation, if the issue is still unresolved, an employee can
make a PG with the Employment Relations Authority ("ERA"). The ERA is an
independent organisation that is the step below the Employment Court. The ERA
process is more formal than mediation but less formal than the Employment
Court, and it is their role to assist with resolving employment matters by
looking at the facts and making a decision based on its merits.
If an employee is aggrieved by the decision of the ERA and matters are still
unresolved, they can consult a lawyer who will look into how the process was
conducted and advise whether there are grounds to take the case to the
Employment Court. In any case, if an employee is having problems at work, the
first step is to have open and honest discussions with their employer to
express their concerns in the hopes these issues can be resolved quickly and
efficiently without the need for external intervention.
When rural farm debt requires solutions
have their financial ups and downs and farming businesses are no exception. A
new act, the Farm Debt Mediation Act 2019, is designed to assist, while also
avoiding the spotlight which often publicly shines when debt needs addressing.
The mediation services under this Act are under the control of the Ministry
for Primary Industries who are able to provide independent mediators. Those
mediators are an integral part of a process that is structured to
confidentially assist secured creditors (primarily banks) and their farming
borrowers to attack debt related problems when those issues initially arise.
While mediation decisions are not necessarily binding and do not always
produce an agreed result, they are today a compulsory first step in a process
looking to point farmers and their lenders in the right direction when loan
repayment becomes a problem
There are often many strands around farm debt, with an end result of
preventing the parties from separating out the wood from the trees.
Legal advisors are often introduced to these types of debt problems early and
therefore have a role to play in advocating at a mediation while helping their
farming clients prepare for one.
There are always cash flow issues in rural businesses. Down times between
seasons and the like. Stress levels rise with loan concerns at certain times,
freezing borrowers into inaction. This mediation gets the parties talking.
Primary production businesses involved in agriculture (including sharemilkers),
apiculture and horticulture should all be up to speed with this possible
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Three Waters debate
Water is a
precious and essential resource for us all. Its use and sustainability are
constantly under review to ensure it is treasured and used in the most
efficient and effective way.
The future of water use is a hot topic again. There is a wide-ranging debate
gathering momentum. Costs around everything to do with water use are high and
are always destined to be higher as the population of New Zealand grows. In
the current discussion the areas of storm water, waste water and drinking
water are all in the spotlight, hence the reference to three waters.
Management of the waters has a direct link to the price we all have to pay to
use all branches of this commodity. Reform proposals contemplate gathering the
three strands into four new water related entities.
Economies of scale is mentioned as a solution to keeping, increasing and
maintaining all pipes, pumping stations and other plant, together with all the
All sectors of New Zealand life are affected, so everyone has an opinion as to
how a re-structure will best serve them. Accordingly, it is important to join
this debate, make submissions and be proactive.
Your legal advisers are able to assist in many ways as clients look to
formulate their individual and collective responses to a far-reaching issue;
one requiring an innovative and workable future plan delivering the benefits
we all deserve.
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