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Could it happen in New Zealand?

The American entertainer Britney Spears’ conservatorship has recently been in the headlines. She is asking American courts to reconsider the conservatorship which has been in place for some years.

A conservatorship is like a guardianship in New Zealand — a court puts a legal arrangement in place to give a third party control over a person’s affairs if they lack mental capacity in some way.

Britney has claimed that her conservatorship has:

  • Forced her to work, against her wishes, for a number of years
  • Enriched her conservators, who are paid a substantial income, and
  • Prevented her from taking control of, or making decisions about, her own life.

In mid-August, Britney’s father stepped down from his role as conservator; he will work with the court in the appointment of a new conservator for his daughter.

Could this happen in New Zealand?

Many people in New Zealand have Enduring Powers of Attorney (EPAs) that allow them to decide in advance who will take control of their affairs if, or when, they lose mental capacity. It is when a person does not have EPAs that the Family Court will often become involved and can appoint people to make decisions on that person’s behalf. These kinds of appointments are common in New Zealand. However, there are many safeguards, as set out in column 4 of this article, that ought to prevent the kind of abuse Britney claims to have suffered.

The Protection of Personal and Property Rights Act 1988 (PPPRA) allows the Family Court to intervene in relation to a person’s personal care and welfare (where they live, medical treatment, etc) and in relation to their property. The court can only intervene when medical evidence shows that a person is unable to look after themselves, including making decisions about their future and their property.

The PPPRA contains what is known as the ‘minimum intervention principle.’ When making orders, the court is required to make the least restrictive intervention possible in a person’s life. Any orders which are made must enable that person to exercise and develop any capacity they may have, to the greatest extent possible.

Personal care and welfare

The Family Court can make specific decisions about a person’s care and welfare, such as directing that they live in a certain place or it can appoint a welfare guardian.

Appointing a welfare guardian is a significant restriction on a person’s autonomy; an appointment will only be made when a person wholly lacks capacity or does not have the ability to communicate, and when there is no other satisfactory way to ensure decisions are made. If a person only partly lacks capacity and can communicate their preferences, the court can only make specific orders about their welfare, such as an order that they live in a certain place or receive certain medical treatment. It cannot appoint someone to make all decisions.

Property

The Family Court may appoint a property manager when a person wholly, or partly, lacks capacity to manage their own affairs in relation to their property. However, s25 of the PPPRA, states that a person does not lack capacity simply because they make, or intend to make, imprudent decisions in relation to their property.

When appointing a property manager, the court considers the minimum intervention principle. It can appoint a manager in relation to only some part of the person’s property, rather than in relation to all the property the person holds. It can also give limited powers to a property manager. There are a number of restrictions on a manager making decisions about property worth more than $120,000.

Unless the court approves, property managers are not allowed to be paid. If a fee is paid, this would usually be very limited, even for a professional manager, such as a trustee corporation.

A property manager or welfare guardian cannot force a person to work, and if either of those people signed a contract requiring the person to work against their wishes, the person could ask the court to review that decision and/or appoint different managers.

Safeguards

The PPPRA has a number of safeguards built in to protect the person. Each time an application is made to the Family Court for orders under the PPPRA, the court must appoint a lawyer (usually state-funded) to represent that person’s interests. That lawyer has duties to:

  • Contact and meet with the person
  • Explain the nature and purpose of the application
  • Ascertain that person’s wishes, and
  • Evaluate possible solutions, including the minimum intervention principle.

The appointed lawyer represents a significant safeguard, and is present every time a PPPRA case is before the court. They report to the court on what the person wants and their capacity.

They can propose a new capacity assessment if, for example, they think the person has become capable of managing their own affairs.

In addition to this, welfare guardianship and property orders must be reviewed every three years (in some cases, every five years). The court reviews the matter, usually obtains an updated capacity assessment, and appoints a lawyer to act for the person and reports back to the court.

Britney in New Zealand?

It seems less likely that someone in this country would end up in Britney’s position. If Britney lived in New Zealand and was subject to the PPPRA, the court would review her situation every few years, and her views would be put forward by an independent lawyer. If Britney thought she had capacity, the court could order a medical review. If Britney wanted control of her own affairs, or a different person in charge, the court would be obliged to take this into account. There are a number of safeguards built into the New Zealand system which would help prevent Britney’s current situation in the US from arising.


Over the fence

Climate Change Commission: carbon farming

On 31 May, the Climate Change Commission provided Parliament with its final advice on the New Zealand Emissions Trading Scheme before the government sets the first of three emissions budgets later this year. In this advice there was significant consideration on land use and the impacts of afforestation.

The Commission recommended the Emissions Trading Scheme be amended to manage exotic afforestation and provide assistance for local government in mitigating the local impacts of afforestation.

If the government implements the Commission’s recommendation, carbon farming returns for planting exotic trees, such as Pinus, will decrease, while the carbon farming returns for planting native forest blocks will either remain constant or increase.

With a large proportion of carbon sinks across New Zealand planted in Pinus, this will have an impact on both existing forestry blocks and blocks that will be planted in the future. The Commission has instead shifted its focus to reduce gross carbon dioxide which is largely produced by burning fossil fuels.

We will watch how the Commission’s recommendations progress during the year, and will provide more information as it comes to hand.

Dairy worker border exception process

In order to address an acute shortage of experienced dairy sector workers, in June the Minister of Agriculture approved a Class Border Exception for 200 migrant dairy farm workers, along with their families, to enter New Zealand. There were 150 positions available for herd managers or assistant farm managers and 50 farm assistants. In addition, 50 general practice vets (and their families) were granted exemptions to enter New Zealand.

An assistant farm manager must earn over $92,000pa and have at least two to four years’ work experience; herd managers must earn above $79,500pa. Farm assistants must earn above the median wage which is classified as $27.00/hour and roles must be in regions that have acute shortages of dairy sector workers.

All workers must come into New Zealand before April 2022. Employers must make a commitment to pay the costs for Managed Isolation and Quarantine (MIQ) and pay their worker’s salary whilst they are in MIQ.

It is estimated that the workers will be on the farm approximately 17 weeks from the initial application.

What is a ‘state of emergency’?

In late May, the mayors in mid-Canterbury declared a local state of emergency due to the significant flooding affecting the region. Then, in mid-July, a local state of emergency was declared in the Westport area. Many people are curious about what this entails and to understand the powers given to the authorities in a local state of emergency. We explain…

The Civil Defence Emergency Management Act 2002 defines a local state of emergency as a declaration by an authorised person, such as a mayor or the Minister of Civil Defence, that an emergency has or is likely to occur within an area. A local state of emergency lasts for a minimum period of seven days from the date and time of the declaration.

The local civil defence group (which includes emergency services, police and volunteers) is then deployed who may, for example, set up first aid posts, provide shelter to those affected and assist with the rescue of people in danger. In a nutshell, a local state of emergency allows the authorities to protect people and the community.

Most importantly, the leader of the civil defence group has the power to enforce the evacuation of an area, authorise entering a premise to save lives and enforce road closures; all of these were implemented when Ashburton’s stock banks were at risk of breaching the township and Westport was flooded.


Postscript

Mature workers toolkit

The government’s business website has launched a ‘Mature workers toolkit’ to help employers to get workers aged 50 years-plus into small to medium-sized businesses.

The toolkit has a range of guidance, support tools and resources that employers can use to help attract, recruit and retrain mature workers. It includes:

  • A worksheet to help write compelling job advertisements
  • A build-your-own-policy for on-the-job learning
  • Tips on leading and working with mature workers, and
  • Case studies.

With more people working later in their lives, it’s important that the skills and knowledge of mature people are retained in our workforce. Seek NZ’s May Employment Report shows the demand for staff continues to increase. “Job ads increased by 5% month-on-month and are almost triple the volume that they were this time last year,” reports Seek NZ.

Fifteen per cent of our population is aged over 65; this is expected to increase to 20% over the next 20 years. It is important that the value this group of people gives to business is acknowledged not only by employers, but also by their staff.

To find out more, go here and search for Mature workers toolkit.

Bright-line test extended to 10 years

In March the bright-line test was extended to 10 years.

The bright-line test was established in 2015 to tax the profit made on selling residential property where sold within two years of purchase. The bright-line period was extended to five years for properties purchased from 29 March 2018.

Now, if you have a binding agreement to purchase on or after 27 March 2021 and you sell the property within 10 years, any profit will be subject to income tax.

For residential properties that are ‘new builds’ the five-year period still applies. Rules are currently being developed about which new builds qualify for the shorter bright-line period.

Do note however, in most (but not all) circumstances your family home is exempt from the bright-line test. The March 2021 announcement also saw changes as to how the family home exemption is calculated for properties subject to the bright-line test.

To know more about the bright-line test and how it may affect you, please feel free to contact us.


Bright-line and interest deductibility

In March 2021, the government announced three changes to property tax rules that are likely to affect anyone with residential property investments. The changes include extending the bright-line period from five years to 10 years, changing the main home exemption ‘test’ and removing the ability to deduct mortgage interest from rental income.

Changes to the bright-line regime

The bright-line test was established in 2015 to classify as income the profit made from buying property and selling the same property within a set period. Once captured as income, tax must be paid on that income at your marginal tax rate.

Initially the bright-line period was two years from the date that you acquired the residential property. This was extended to five years from 29 March 2018. From 27 March 2021 onwards, if you purchase residential property and you sell it within 10 years, any profit from that sale will be subject to income tax.

The government has indicated, however, that for new build investment properties, the five-year period still applies, rather than the longer 10-year period.

The government has stated that a new build investment property will be a self-contained dwelling with its own kitchen and bathroom, which has received a code of compliance certificate. The government is consulting with interested parties until 12 July and it is proposed that any agreed measures will apply from 1 October 2021.

Main home exemption

There are, of course, some exemptions to the bright-line test.

If you are selling your main home and you don’t have a pattern of buying and selling properties (generally selling your main home two or more times within two years), the sale may not be captured under the bright-line rules.

Previously, if your property was your main home for most of the time that you owned it, the exemption would apply. For example, you buy a property to live in; over a four-year period you spend 18 months working overseas, during which time you let the property out to cover expenses. Under the old rules the property would still be your main home and you wouldn’t have to pay bright-line tax on any profit from the sale.

This test has now changed; a property can be your main home for periods of time and not others. The new rule takes into account that you may be called to work in other regions or countries and, in this respect, you are permitted to live somewhere else continuously for up to 12 months. If you live elsewhere for more than 12 months, however, and want to sell your home within the applicable bright-line period (10 years for any older property purchased after 27 March 2021), bright-line tax will apply to the period (over 12 months) you spent living elsewhere.

Using the same example from above, you acquire your property on 1 April 2021 and live in it for six months. On 1 October 2021 you work overseas for 18 months before moving back into your property on 1 April 2023; two years later you decide to sell it.

Inland Revenue will calculate how much the property increased in value and you will need to pay tax for the six months that the property was not your main home.

Interest deductibility

The final change affects interest deductibility. Previously, if you had a mortgage secured against your rental property, you could treat the interest paid as a loss. This could be offset against the income earned by way of rent or sale profit. From 1 October 2021, this will no longer be the case.

Initially the change will only apply to properties purchased after 27 March 2021. Over the next four years, however, the ability to deduct your interest as an expense and offset this against your property income for all properties, including those purchased prior to 27 March 2021, will be phased out completely.

You will be able to claim back 75% of interest paid for the 2022-23 tax year; 50% for the 2023–24 tax year; 25% for the 2024–25 tax year; and from 1 April 2025, you will not be able to treat any interest as a loss.

You should also note that if you borrow money after 27 March 2021 and secure that loan over a property purchased before that date, the interest deductibility rule will be applied as if the property was also purchased after 27 March 2021 and you will not be able to claim back the interest.

These changes make it more important than ever to get legal and accounting advice before you decide to purchase or sell your rental investments.

If you’re thinking of a change, or you want more advice on how the changes will affect you, please feel free to talk with us.


Property briefs

Government housing package: other notable points

The big ticket items of the government’s recent housing package included the extension to the bright-line test as well as landlords no longer being able to offset their tax with interest paid on their rentals. We have covered these two items here.

There are, however, a number of other features of the package that may make it easier for New Zealanders trying to get onto the property ladder and to help increase the housing supply.

Increases to income and price thresholds for First Home Grant

Since 1 April 2021, more New Zealanders can qualify for government assistance to buy their first home. Income thresholds for singles applying for the First Home Grant have increased from $85,000 pa to $95,000 pa as well as an increase for a couple’s combined income from $130,000 pa to $150,000 pa.

Similarly, the price thresholds for both new homes and existing homes in many areas of the country have also been increased. With the rapid rise in house prices leaving the scheme’s original house price caps desperately out of kilter from the real-time housing market, first home buyers have suffered. Some had to rely on parents for additional funding or others have been completely priced out of their local housing market where prices had risen well above the threshold for government assistance.

The increases vary between regions and differ depending on whether you are looking to buy a new or existing home. There is a full list of the changes to the house price thresholds in your region here. With more people now being eligible to apply for the First Home Grant to subsidise the purchase of their first home, we hope that more Kiwis will get the assistance they need to help get them on the property ladder.

Housing Acceleration Fund

Property developers will also get a helping hand from the government’s housing package. A $3.8 billion boost to development has been announced and will subsidise the cost of providing services and infrastructure to ‘build-ready’ land. In subsidising these significant upfront costs which often slow housing development, the government hopes to increase the supply of a range of affordable, public and mixed housing.

The Housing Acceleration Fund is available to a range of key stakeholders in both the private and public sector but it will rely on local government playing its part in opening up suitable land to allow more housing development projects to take place. Developers involved in housing development should speak to their local council first for more information about whether they are eligible for assistance from the fund or for what stages of housing development the fund is available.

Kāinga Ora Land Acquisition

The government continues to support affordable housing by lending Kāinga Ora an additional $2 billion to assist with land acquisition for social housing development projects. The increased capital is expected to see the rate of acquisition of land increase which, along with the funding boost for development of public and mixed housing, aims to increase the supply of housing across the country.

Apprenticeship Boost

Finally, the apprenticeship subsidy scheme (Apprenticeship Boost) is extended for a further four months. Employers taking on apprentices can access a $1,000 per week wage subsidy for first year apprentices and $500 for second year. This extension will help ensure that enough skilled tradespeople are trained to take advantage of the government’s plans to increase housing supply by not only enabling a greater workforce to achieve the government’s affordable housing goals, but also by providing private developers with a sufficient pool of skilled workers to draw on to keep up with housing demand.

Whether you are a first home buyer trying to find your feet in the property market, a property developer looking for a financial boost to kick-start your latest housing development project or an employer with apprentices, the government’s housing package will help address the supply issues affecting the housing market and will give a financial leg-up for those working to increase supply.



To jab or not to jab?

Your employee doesn’t want a Covid vaccination?

While many Kiwis are queuing up and eagerly awaiting their Covid vaccinations, not everyone is willing to take ‘the jab’. Recent headlines of sacked border staff who refused their Covid vaccinations have highlighted the difficulty many employers will face in deciding if their staff can reasonably be required to be vaccinated.

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Postscript

Check your passport is current

With a travel bubble opening with Australia, do check that your passport is still valid before making a reservation.

The Department of Internal Affairs says around 300,000 people currently hold expired passports.

As well as being the best regarded form of identity for AML and other requirements, it would be a pity to have your travel delayed if, at the last minute, you discover your passport has expired. To apply for a new passport go here.

Leave and pay entitlements during Covid response and recovery

Over the past 14 months or so, employers and employees have had to work together during national and regional lockdowns, working from home as a requirement and/or choice and many other employment-related situations. Employment law obligations do not cease during these periods and employers must ensure they are acting in good faith towards their employees, while also trying to navigate these complex and rapidly changing situations.

Covid has thrown up some uncertainties for employers when calculating their employees’ entitlements when they are unable to work from home, self-isolating, unable to travel (where necessary) and so on. The wage subsidy regime was introduced in 2020 to cover a portion of employees’ wages during the first nationwide lockdown and has been reintroduced periodically as needed. In addition, the Covid-19 Leave Support Scheme provides support for employees who cannot work from home or need to self-isolate. To find out more about the Scheme go here.

This is a complex area of employment law and it’s important to get it right. For more information, go here.

If you would like more guidance on ensuring you are paying everyone correctly, please get in touch, we are happy to help.

A reminder about major changes to tenancy laws

This year heralds some significant changes to tenancy laws:

Changes from 11 February 2021: Several changes to the Residential Tenancies Act 1986 took effect on this date. These include an increase to either the 63 or 90 days’ notice period for termination of a periodic tenancy and an increase in the level of awards the Tenancy Tribunal can make from $50,000 to $100,000.

There are further changes that take effect from 1 July and 21 August 2021; and from 1 July 2023 and 1 July 2024.

To read more about this go here.


A variety of clauses to suit different situations

Negotiating commercial leases can involve a significant amount of crystal ball gazing – particularly when some leases can last decades. As recent times have shown, the landscape at the start of a lease can be miles away from the situation at the end of the lease. One area where the shifting sands can bite for long-term leases are the rent figures. Without appropriate rent review clauses to adjust the rent, any landlord could find themselves with a vastly undervalued rental as the lease progresses.

Types of rent review

Not all rent review clauses are alike. There are various methods of calculating changes to rent, these include:

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Reverse mortgages

Increasing in popularity

The current combination of increasing living costs, rising house prices and low interest rates has seen more than property-seekers signing up to home loans. On the other side of the coin, some older homeowners are seeking ‘reverse mortgages’ from their lenders in order to release the growing equity in their property.

What is a reverse mortgage?

A reverse mortgage is a lending structure that allows you to access the equity you have accumulated in your home or other property. With a reverse mortgage, you borrow money from a lender using your existing home as security in order to, for example, supplement your living costs or complete renovations rather than for the purpose of acquiring a new property.

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