August, 2019 - Parry Field Lawyers

We’ve already written about the process and steps to set up a charitable trust in New Zealand (here). But what next?

Once you’ve signed a Trust Deed and set up a charitable entity and just freshly received a certificate of incorporation from Companies Office then … congrats! But what next? Here is a list of steps we suggest you consider as a checklist of other things to do:

– Open a bank account – usually can be done with certificate of incorporation – these days expect many queries about proof of funds and about identity of trustees. It may pay to shop around as well;

– Apply to Charities Services for registration as a charity, if you want to be charitable – if you’ve had our input on creating the charitable trust then we will be helping you with this as well;

– Obtain common seal – yes, this is still required – we’ve written more on this here – they can be prepared by this company https://shop.montarga.co.nz/collections/common-seal;

– Keep good records of minutes of the Trustees meeting and other documents like contracts – we even have some templates you can adapt;

– Consider what insurance might be needed? Best to talk to a broker about this as it will depend on what activities you are undertaking;

– Always keep an eye on how much your activities are going on overseas so it doesn’t creep above 25% as that could have implications for your tax donee status (see here); and

– Prepare a terms of use for website and perhaps a privacy policy if collecting information – we can assist if needed.

We hope that checklist is of use to you and all the best as you start on the journey of doing good with the new charitable entity!

Some charities provide benefit partly for New Zealand purposes and partly for overseas purposes. It is also possible for funds to be applied in New Zealand for overseas purposes or applied overseas for New Zealand purposes. If a charity applies too high a percentage of its funds for overseas purposes, then it may not qualify for tax donee status. The percentage permitted by IRD to be applied for overseas purposes is therefore very important.

In relation to this, on 20 September 2018, the IRD issued Interpretation Statement 18/05 regarding the meaning of the phrase ‘wholly or mainly’. The interpretation statement is accessible here at and a shorter fact sheet is here.

This Interpretation Statement is important because an organisation may qualify for tax donee status if it applies its funds ‘wholly or mainly’ within New Zealand. A charity focused primarily overseas will not qualify for tax donee status. In the past, the view accepted by IRD has been that if more than 50% of funds were applied in New Zealand for New Zealand purposes then the organisation would qualify as operating ‘wholly or mainly’ in New Zealand. That percentage has now been changed to 75%. Earlier discussion papers had suggested the figure might rise to as high as 90% but it was later moderated to the lower figure of 75% wholly or mainly within New Zealand for New Zealand purposes.

What the key change actually entails

If an organisation applies more than 25% of its funds for the benefit of overseas purposes, then it may no longer be considered to be operating ‘wholly or mainly’ in New Zealand and could lose its tax donee organisation status. The reason this may impact on charities you advise is that some charities have traditionally sent significant amounts overseas to support works there (disaster relief, orphanages, aid workers etc). It is possible that religious organisations in particular who support people overseas may already be at, or close to, the new threshold, and be unaware of the changes. It could cause them problems in the future if they continue to operate in the same way.

If you’re a lawyer advising a client who does send funds overseas, it would be important to advise them about the new approach.

The key provision itself

The section relevant in the Interpretation Statement 18/05 and related fact sheet is the Income Tax Act 2017 section LD 3(2)(a) which sets out the meaning of a charitable or other public benefit gift. The type of entity that qualifies is:

“a society, institution, association, organisation, or trust that is not carried on for the private pecuniary profit of an individual, and whose funds are applied wholly or mainly to charitable, benevolent, philanthropic, or cultural purposes within New Zealand.”

In clarifying what these definitions mean – “within New Zealand,” means the purposes are what is looked at, rather than the location where funds are spent. “Wholly or mainly” – will mean “75% or more” of funds being applied in New Zealand. Lastly, “funds are applied,” means action of sorts needs to be taken by the organisation to either spend or accumulate the funds.

The Interpretation Statement has been issued to clarify what entities qualify as a donee organisation under that section. The new interpretation will be implemented from the 1^st of April 2019. For those entities that do not have a 1 April balance date the new interpretation percentage will apply from the first day of their income year for 2019/20.

The “safe harbour exception”

There will be some flexibility in how the percentages will work. An organisation can choose a method to calculate a “safe harbour percentage.” The key steps involved in doing this is to calculate the total funds and then divide that by the amount spent for specified purposes within New Zealand to get the percentage.

If in any year the safe harbour of 75% is not met then IRD can also look at the two preceding years. The purpose of this is to allow for some one off exceptions. It does this by looking at the cumulative figures over the three years. This means that the current year might be at say 70% but the previous two years were respectively at 80% and 90%. By looking at the cumulative total the percentage over the last three years might average 80%. IRD provides some key examples on the guidance of this, see here.

Another option for those sending funds overseas

Schedule 32 of the Income Tax Act 2007 could provide another exception to this new interpretation. If you are a lawyer with a client who will no longer meet the threshold proposed due to the significant funds applied overseas, this provides another option to them.

Applying to be added to Schedule 32 of the Income Tax Act 2007 can give qualifying charities a unique status in the New Zealand tax regime. Schedule 32 status is only granted to a select few (full list here). It provides the ability for those organisation to issue receipts to their donees for donations made to the charity even if applied wholly for overseas purposes.

At times the Government had a flood of requests and even published special guidelines to charities on how to make the application. For those charities that do not have their charitable purposes principally (more than 75%) in New Zealand, then the charity cannot qualify as a donee organisation unless it is listed in Schedule 32.

When applying to be listed under Schedule 32, it is the purposes for which funds are applied which is the most critical point. This may be different to where you spend the money. For example, buying toys in New Zealand to send to children in third world countries would mean that the purposes are overseas, not in New Zealand.

Furthermore, there are other hurdles to be aware of if applying for Schedule 32 status.

The process for applying is long and arduous and IRD has to put a special request to Cabinet for final approval and these happen only once or twice a year.
The purpose of the overseas charity is also important. When applying, Cabinet will want to see that the charity’s purpose falls within these three humanitarian categories; “the relief of poverty, hunger, sickness, or the ravages of war or natural disaster; or the economy of developing countries; or raising the educational standards of a developing country.” Advancement of religion and political advocacy is thus not noted in this list.
You must “tell the story” of your charity, specifically focusing on who the trustees are, what they are involved in and how the charity purposes are being practically carried out. Furthermore, there must be evidence that the New Zealand trustees regularly visit any overseas offices and an audit of the money raised.

Why is this an important change

If someone makes a donation above $5 to a donee organsiation they receive a refundable tax credit/income tax deduction. This encourages people to give to organisations that qualify. If an organisation does not have tax donee status then it will be more difficult to solicit donations.

If you would like to know more information, please contact one of our Partners Steven Moe.

Steven can be contacted on:

E: stevenmoe@parryfield.com

M: +64 021 761 292

A review of the Charities Act 2005 (the “Act”) has been talked about for many years. Originally an intention was expressed that a review happen a few years after the Act had been implemented in order to work out what needed changing. In fact, 13 years have passed without such a review. Some might also argue that if you look at the history of the Act itself that it was rushed through and originally needed more time to work out what it was aiming to achieve and so now a “first principles” review is really what is needed. Whatever the history and reason for delay, a review is now under way.

Before the Charities Act

Prior to 2005 there was no formal registration of charities and therefore no list that could be referred to. The Act introduced such a system, although registration is not compulsory. Therefore, we need to distinguish between charities and “registered charities”, as some charities are not registered. Furthermore, there are many not for profits doing good and yet they would not qualify as charities.

There are also reporting obligations for charities. Since new reporting standards were introduced a few years ago there are four reporting tiers, each of which have different standards to meet:

Tier 1: Over $30 million annual expenses (less than 1% of all charities);
Tier 2: Under $30 annual expenses (6% of all charities);
Tier 3: Under $2 million annual expenses (36% of all charities); and
Tier 4: Under $125,000 annual expenses (58% of all charities).

The statistics on the percentage of charities in each tier comes from the latest annual report from Charities Services for the period 1 July 2017 to 30 June 2018 (https://www.charities.govt.nz/assets/Resources/2018-Annual-Review-Report).

That report also notes that Charities Services received 1,087 applications in that period (815 approved, 268 withdrawn, 4 declined). In the same period 1,069 were deregistered (506 for failure to file returns, 563 voluntarily). These figures do explain why the total charities on the Charities Services site seems to hover around the 27,000 mark at present because as new ones are approved, a similar number are deregistered.

Reasoning behind the review

In the Terms of Reference of the Charities review, the rationale for it was set out as follows and this provides some context:

“Stakeholders in the charitable sector have sought a review of the Act for a number of years. The Government agrees that it is timely to review whether the Act is working effectively for the charitable sector, volunteers, our communities (including Māori) and the wider public, the Government, and others with an interest.

“The review will take into account the experiences of stakeholders over the last 13 years, and lessons from other jurisdictions …

“The purpose of the review is to ensure that the Act is effective and fit for purpose. This comprehensive legislative review will focus on substantive issues arising under the Act, while recognising and building on the Act’s strengths.”

https://www.dia.govt.nz/vwluResources/CharitiesReviewTOR/$file/CharitiesReviewTOR.pdf

The scope of the review

The review does not go back to first principles. A review of that sort would be costly and time consuming. Rather, policy statements have made it clear that the fundamental aspects of the Act, such as a registration system and public access to information about charities, are sound. The Act is ‘fit for purpose,’ hence the review is about refining the Act and how it works in practices, rather than completely overhauling it.

Specifically, the scope of the review focuses on “substantive policy matters,” as set out in Appendix One of the Terms of Reference. This considers whether additional purposes of the Act itself are necessary; matters of refinement and editing of regulatory framework; registration related content; the obligations of individuals working on the boards and in senior management positions of registered charities and the interrelationship of the Act with other legislation such as the Incorporated Societies Act 1908 and how they all align.

Operational issues are not going to be included in the review

If you are interested in more detail then we suggest you look at the Department of Internal Affairs website which is devoted to the review and has extensive material (accessed here).

Who will carry out the review?

Six external experts, representing a diverse range of backgrounds, experiences and cultures, consulted by the Department of Internal Affairs will be involved in the review of the Act.

They are – Sue Barker (Director of Sue Barker Charities Law); Charmaine Brown (Director of Creating Success and Trustee of Autism Intervention Trust); Donna Flavell (Chief Executive Officer of Te Whakakitenga o Waikato Incorporated and Trustee of Waikato Raupatu Lands Trust); Anaru Fraser (General Manager of Hui E! Community Aotearoa); Everdina Fuli (Research Advisor at Te Whare Wānanga o Aotearoa); and Dave Henderson (former positions include Chair of Kidney Health New Zealand and External Relations Manager for Hui E! Community Aotearoa).

When the review will occur

Originally planned for at the end of 2018, the consultation will now occur in March and April of this year. Input from the charity sector, stakeholders and the general public is invited and will provide information crucial to the review. During the consultation, there will be community meetings and hui, held throughout the country, where people can give feedback and ask questions to learn more about the review process and the charity laws of New Zealand.

Section 5(2A) of the Charities Act 2005 states that “the promotion of amateur sport may be a charitable purpose if it is the means by which a charitable purpose referred to in subsection (1) is pursued”. So, what sports actually meet these criteria for a charitable purpose?

The purpose of section 5(2A) is to ensure that the promotion of a sport can be a charitable purpose. While promoting a sport is not in itself a charitable purpose, the purpose of a charity could include the promotion of a particular sport for the purposes of promoting health or for the advancement of education, as is established in the section.

Recently, after six years of Swimming NZ being a registered charity, the Charities Registration Board decided to de-register it. The reasoning behind this was that it no longer had charitable purposes due to the competitive and elite nature of the high performance programme. This in itself does not promote a sport but instead promotes sporting success which does not benefit the public. They decided that while there was some promotion to health, the focus on promoting success in the sport outweighed this.

The impact of this decision by the Charities Registration Board is that sporting organisations set up as charities will need to prove that they are existing to promote health as opposed to promoting success in the sport, and ultimately be benefiting the public.

An article which discusses this in more detail was posted by the New Zealand Law Society and can be found here.

So, to answer the question above, any sport can meet the criteria for a charitable purpose as long as it relates to the promotion of health, the advancement of education or anything else that proves to be beneficial to the community, and it will need to be able to prove that it does continue to promote these.

The Charities Services website provides a helpful overview on this topic which can be found and here.

We offer legal advice on all aspects of charitable trusts and are happy to answer any questions that you might have. Contact Steven Moe at stevenmoe@parryfield.com or 03-348-8480 for more information.

The High Court decision in Lee v IAG[1] provides clarification both on what measure of indemnity should be used, and how to calculate it.

An ‘indemnity’ policy is short hand for a policy that obliges an insurer to pay the insured enough to put them back in the position they were in before the loss happened (old for old basis). The occurrence of the peril (like a fire or earthquake) puts an obligation on the insurer. When do they have to pay? In an indemnity policy, the payment trigger is the happening of an insured event. This is unlike ‘replacement’ policies. In these policies, only once the insured has incurred the cost of repair must the insurer reimburse.

So, what does it mean to be indemnified? What does it mean to be put back into the position you were in before the loss happened?

As with all contractual relationships, the starting point is the contract itself. Some indemnity policies explain how the indemnity is to be calculated.

But what if the contract does not explain the measure and says “We will indemnify you for any insured loss”?

Fortunately, we have the benefit of centuries of common law authorities to guide us. It is ancient law that where an indemnity policy is silent on the appropriate measure, the indemnity is a question of fact. The question will be answered with particular regard to the nature and intentions of the insured party and the purpose served by the insured property.[2]

Lee v IAG concerned a three-story commercial building on Manchester Street. IAG originally paid $672,750 being its estimate of the ‘market indemnity value’.[3] By the time the proceeding came to Court, IAG had accepted that the appropriate measure of indemnity was actually the “estimated cost of restoring [the] business assets as nearly as possible to the same condition they were in immediately before the loss or damage happened using current materials and methods.”

The question before the Court was how that ‘estimated cost’ was to be calculated. The Court was asked to give guidance about the extent to which betterment should apply. The Court concluded that the estimated cost is found by allowing to restore “the property to the same condition as it was before the event that caused the damage or loss, and deducting for any betterment to the insured because the restored building in whole or in part be in new condition rather than old.”[4]

The critical point is that betterment should be deducted by reference to the extent which the restored building is in a better physical condition.

This requires a qualitative comparison between what was there at the time of loss and what will be put back. For example, if a brick wall collapses, the replacement of it with a new brick wall, while ‘new’ may not necessarily be any better than the previous wall; in such a case, it may not be appropriate to make a deduction for betterment.

By contrast, if the same wall being replaced previously had old, decaying lime mortar that was now being replaced with new cement, the new mortar is better than the old and would justify a better deduction.

The case makes four key points:

Reduction in market value is not necessarily the correct measure of ‘indemnity’;
When the indemnity is to be calculated by reference to estimated building costs, betterment will only apply to parts of the repair that leave the building better off than it was;
Assessing whether a repair leaves the building ‘better’ is a qualitative exercise, made by evaluating the extent to which new parts of the building are any better than the parts of the building they are replacing.
It follows that allowing for secondhand materials may obviate the need for deducting for betterment.

Should you need any assistance with these, or with any other Dispute matters, please contact Paul Cowey at Parry Field Lawyers (+64 3 348 8480).

[1] Lee & Or v IAG New Zealand Limited [2018] Llyod’s Rep. IR 345

[2] Earthquake Commission v Insurance Council of New Zealand [2015] 2 NZLR 381 at [109];

Reynolds v Phoenix Insurance Co Limited [1978] 2 Llyod’s Rep 440 (QB) at 451.

[3] Lee & Or v IAG New Zealand Limited [2018] Llyod’s Rep. IR 345 at [4].

[4] At [54]

INSURERS EXPOSED TO PAYING INTEREST FOR DELAY

Lee v IAG[1] is the first Canterbury earthquakes decision to give substantial guidance on interest for payment delay.

Both the Judicature Act (for proceedings pre 1 January 2018) and the new Interest on Money Claims Act give the Court the power to decide when interest should apply to insurance monies owed to an insured party.

The starting point is to identify from when can the insurer be said to be default of its obligation to pay.

The Court set out some of the key factors, noting that “every case turns on the individual insurance contract and the facts. Insurance practice will be relevant but not decisive.”[2]

Importantly, the Court confirmed that interest can be available from a date prior to the filing of proceedings.[3]

The Court observed that “there is a well arguable case that a reasonable time to assess the claim must be allowed before it can be said that the insured is wrongly without its money, and the insurer wrongly benefitting from that money.”[4]

However, noting the other side of the same coin, the Court also noted that interest may run from the date of the loss or damage. The Court particularly referred to situations where the insured needs to quickly replace the loss. The Court held “the loss or damage is immediate and although it may take time to investigate and assess, the economic effect of loss or damage is immediate. That may influence an award of interest from that date.”[5]

The starting point when considering from which date to award interest is the date of loss. The Court recognised, however, that this may not be “necessarily the end point for assessing interest” because other factors may mitigate or justify delay in the running of interest.

Statutory interest is an issue that particularly arises in indemnity insurance policies which impose a payment obligation. This is quite different from a reimbursement obligation which is more often a feature of replacement insurance policies. However, the same principle applies to both: interest is a live issue once the obligation to pay arises – but the timing of that obligation will be quite different between indemnity insurance contracts and replacement insurance contracts.

When insureds are settling their claims they should be alert to the issue: have I been kept out of my money, and has the insurer wrongly been benefitting from it?

Should you need any assistance with these, or with any other Dispute matters, please contact Paul Cowey at Parry Field Lawyers (+64 3 348 8480).

[1] Lee & Or v IAG New Zealand Limited [2018] Llyod’s REP. IR 345

[2] At [86] (a)

[3] At [86] (d)

[4] At [86] (2)

[5] At [86] (f)

Can I get legal costs when I settle out of court?

Since the limitation period of 6 years became a live issue for insurance claims arising from the Canterbury earthquakes homeowners have had a difficult choice, begging for an extension of time or pay the extra cost of filing court proceedings.

The High Court, in Black Rock Administration Ltd v IAG New Zealand Limited[1], shows that an insurer’s decision to refuse a limitation extension will carry adverse consequences.

In Black Rock, proceedings were commenced after IAG wrote to Black Rock’s solicitors denying cover to a significant part of property claimed by Black Rock for earthquake damage, and after IAG expressly declined a Limitation extension. Ultimately, IAG accepted cover, and paid Black Rock for its repair costs. The Court found that “the need for Black Rock to initiate proceedings was precipitated by IAG’s refusal to waive its rights under the limitation statutes.”[2]

This led the High Court to conclude that “it is indisputable that Black Rock had to initiate the proceeding as a result of how matters stood between the parties prior to its commencement.”[3] While the High Court accepted that IAG’s decision to reserve its limitation rights was “a legitimate choice”, that choice “has ultimately carried with it, consequences.”[4] In this case, costs against IAG.

Who is the successful party where the dispute settles out of Court? The relevant issue is “the position between the parties at the time the proceeding commenced, rather than the history of the matter to that point.”[5]

The Court found that the amount Black Rock obtained after filing its claim was “significantly more than was on offer at the time the proceeding was commenced.”[6]

IAG’s decisions to both deny cover and not offer a limitation extension, were relevant factors in determining that costs should be awarded against IAG.

IAG had already agreed to pay the repair costs, plus $20,535.86 claims preparation costs. In addition it was ordered to pay Black Rock’s legal Court costs of $26,495,.

Should you need any assistance with these, or with any other Dispute matters, please contact Paul Cowey at Parry Field Lawyers (+64 3 348 8480).

[1] [2018] NZHC 3450.

[2] At [17].

[3] At [21].

[4] At [23].[5] At [22].

[6] At [20]

The much-anticipated final report of the Tax Working Group (TWG) was released on 21 February and, unsurprisingly, recommended the introduction of a broad-based, realised capital gains tax regime. The Final Report is substantial at two volumes and 206 pages, 94 of which are dedicated to a discussion on a capital gains tax (CGT) regime.

Whilst there are some changes from the Interim Report released last September, the recommendations are substantially the same as those contained in that report. Interestingly, only eight out of eleven of the TWG members support the introduction of a comprehensive CGT regime.

As always, the devil is in the detail and it will take some time for the entire 206 pages to be digested. However, a summary of the recommendations is as follows:

What will be taxed?

The following assets (included assets) would be subject to CGT: all forms of land except the family home, shares, intangible property, and business assets. The TWG recommends excluding personal use assets such as cars, boats, jewellery, fine art, collectibles, and other household durables.
Only gains arising after “valuation day” would be taxed.
Taxpayers would have up to five years to determine the market value of assets as at valuation day. If a valuation is not obtained, a “default rule” would apply. According to prominent Wellington property investor, Troy Bowker, that could impose a $4.5billion compliance cost on affected taxpayers (450,000 small businesses incurring on average $10,000 in valuation costs). The TWG specifically recommend against adopting the Australian approach of only taxing assets acquired after the date of introduction.

When will it be taxed?

CGT would apply on a realised basis only but would be subject to a number of concessions/exclusions referred to as “rollover relief”.
Rollover relief would apply to all inherited assets, assets donated/gifted to donee organisations (charitable entities), certain involuntary events where the proceeds are invested in a similar replacement asset e.g. an insurance event/natural disaster, a business restructure where there is no change in ownership in substance, small business rollover where proceeds from included assets are reinvested in a replacement business.
In terms of gifted assets, rollover relief would apply where the gift is to the person’s spouse, de facto or civil union partner but otherwise would not qualify for relief.
CGT will be imposed at the person’s marginal tax rate. The TWG does not recommend an adjustment for inflation or that the tax rate should be discounted (as currently the case in Australia).
The cost of an asset including capital improvement can be deducted against sale proceeds to arrive at the taxable capital gain. However, holding costs such as interest or rates will not be claimable against personal use assets.
Capital losses should be capable of set-off against both ordinary and capital income i.e. they should not be ring-fenced and claimable against only against capital gains. However, there are several exceptions proposed to this rule – the most notable being that capital losses from personal use assets cannot be claimed against either ordinary income or capital income. Others include losses generated from associated person transactions, where rollover relief is available but the taxpayer chooses not to apply them, losses arising on assets held on valuation date.

Transitional Rules

A number of transitional rules for assets held on valuation date are also proposed including:

Flexible and default valuation rules for valuation date assets should be mandated by Inland Revenue.
A median rule for assets held on valuation date whereby the “cost” to be deducted from proceeds to determine the capital gain amount will be the middle value of actual cost (including improvements), valuation date value (including improvements), and sale price. The intention is to stop artificially high valuations being adopted at valuation date.
Transitional rules are also recommended for immigration/emigration, and where an asset changes use from private to a CGT asset and vice versa.

Who is taxed?

Consistent with our existing tax regime, a New Zealand tax resident will be subject to CGT on worldwide assets. Non-residents will be subject to CGT only on New Zealand-sourced capital gains.

Company Matters

There is some discussion dedicated to the potential for double taxation and double deductions for gains and losses in the corporate context. For example, a company sells an asset and derives a capital gain on which it is taxed. A shareholder then decides to sell their shares before that capital gain has been distributed. Inherent in the value of the shares is the capital gain derived by the company. This potentially leads to the same gain effectively being taxed twice i.e the company is taxed on realisation and the shareholder is taxed again on the same underlying gain via the increased share value.

The TWG concludes the market will take care of this issue in terms of widely-held entities and in relation to closely held entities, these issues can be managed by distributing said gains before the share sale.

Imputation continuity rules

Of particular interest is the suggestion that the continuity rules for imputation credits be removed (these rules currently require the same shareholders to hold at least 66% of the shares in a company in order to carry forward imputation credits).

Liquidation

The TWG acknowledges that the rules dealing with distributions from a company on wind-up will need to be modified to ensure pre-CGT gains are not subject to tax on final distribution.

Foreign shares

The current regime dealing with interests in foreign investment funds (FIF) is to be retained with some possible refinement to the ability for individuals and trust taxpayers to switch between the fair dividend rate and comparative value methods. However, CGT will be imposed on foreign shares which are not currently subject to the FIF regime. This includes holdings of less than 10% in Australian resident listed companies, greater than 10% holdings in Australian resident companies, and a foreign share portfolio with a cost of less than $50,000.

There is also some discussion around portfolio investment entities including KiwiSaver funds. At a very general level, the proposal is that these entities will also be subject to CGT on investments not dealt with under the FIF regime.

The Dissenting Views in the TWG

Robin Oliver, Joanne Hodge and Kirk Hope all disagree with the TWG’s recommendation to introduce a comprehensive CGT regime. Their collective view is that the costs of introducing a CGT regime as proposed by the TWG would clearly outweigh the benefits. Such a regime would impose efficiency, compliance and administrative costs that would not be outweighed by the revenue collected. They also have concerns over the timetable to introduce the rules.

They suggest an incremental extension of the tax base over time i.e. extending the tax base on an asset-by-asset basis. In their view, an extension to the taxation of residential rental properties is the most obvious starting point.

Closing Comments

A lot will be said over the coming months about the proposed regime and, if the government is to get it across the line, we may find some areas are watered down, especially the applicable tax rate.

There is also one obvious recommendation that the TWG has overlooked entirely and it is this: we recommend Jacinda wanders down the hallway and has a quiet word with Winston to determine whether he is in support of a broad-based CGT regime. If not, the Interim and Final Reports will make for useful doorstops but that’s about all. A quick discussion could save us all a great deal of time and effort debating this issue, not to mention millions of dollars of taxpayer funds drafting legislation and undertaking the consultation process.

The short answer is, it depends. Key factors include what the employment agreement says about varying the agreement, how significant the proposed change is, why there is a need for the change, whether the change is to the employee’s benefit or not and whether the employer and employee agree.

This article considers the situation where the employment agreement states, as is common, “This agreement may be varied by written agreement between the employer and employee”, the change proposed is more than inconsequential and is not to the employee’s benefit.

Good Faith

The starting position is that the employer and the employee are required, when bargaining for a variation to an employment agreement, to “deal with each other in good faith”. At a minimum that means being “responsive and communicative” towards each other and “active and constructive in continuing a productive relationship.”

In short, in the situation outlined above, employers should tell employees well in advance of the proposed change, the reasons for it, and the possible consequences if the change does not go ahead. A possible consequence may, depending on the circumstances, be that the employee’s employment is in jeopardy. However, that should only be raised if that is a genuine possibility, rather than as a threat.

Employees should be given an opportunity to give feedback on the proposal, including any concerns or alternative suggestions. Employers should maintain an open mind to suggestions made and be willing to vary their proposal if feasible.

Employees should also be told, prior to giving feedback, that they are entitled to get independent advice on the proposal and given sufficient time to get that advice, if they so choose.

If an employee’s employment may be in jeopardy if the change does not proceed, then employees should also be given an opportunity to have a support person or representative with them when they give their feedback.

Employees should not simply reject proposed changes out of hand and refuse to discuss them with the employer. They should engage with their employer and be prepared to discuss concerns and put forward alternatives, with a view to trying to reach resolution if possible.

What should happen if agreement is reached?

If agreement is reached, the terms of the existing agreement should be followed in recording that variation. For example, it should be recorded in writing, signed by both parties, and attached to the agreement.

If the change is solely to the advantage of the employer, an employer should also consider offering the employee some sort of “consideration” (i.e. benefit) in exchange, in order to ensure that the change is binding. This could be a one off payment or a pay increase or some other benefit.

While it is not clear legally that consideration is always required where the parties agree to a change, it is prudent to do so to limit the risk of a future dispute.

What if agreement can’t be reached?

This can be a difficult one. On one hand, the law recognises, as a general proposition, an employer’s prerogative to manage or organise its business. On the other hand, that is not an unconstrained right and the terms of the employee’s employment agreement cannot be ignored.

Consequently, where the proposed change effects an express term of the employee’s employment agreement (e.g. their hours of work) and the agreement states that any variation will be by mutual consent, it will be more difficult for an employer to unilaterally effect a change justifiably, particularly a substantial one.

Nonetheless, in some circumstances, a unilateral change may be permitted, where, objectively, that change is “fair and reasonable” and reasonably implemented. Whether any such change meets that test has been said by the Courts to involve “questions of fact and degree”, i.e. how significant is the change and why and how is it being introduced. Consequently, the individual facts of each case will be critical in assessing whether a change is likely to be upheld or not.

Either way, as with changes by agreement, where the change is solely for the benefit of the employer, the employer should offer some benefit in exchange for the proposed change. This also increases the chances of agreement being reached.

Drafting new employment agreements – a take home message for employers

If you are an employer, we recommend that new employment agreements include scope for changes to be made by the employer where business needs justify it. While employers will still need to follow a fair process, in the event of disagreement, more flexible agreement terms potentially provide greater flexibility in implementing change.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact Hannah Carey – hannahcarey@parryfield.com at Parry Field Lawyers (033488480).

At the start of last year, we were gearing up for the introduction of the General Data Protection Regulations (GDPR). The GDPR is the widest reaching, most stringent set of data protection laws the international platform has seen to date. Nine months later, we are starting to see its impact.

The consequences for non-compliance have been varied. Under the GDPR, the highest sanctions can see a fine of up to €20 million, or 4% of global annual turnover, whichever is higher. A new report by international firm DLA Piper counted just below 60,000 GDPR data breaches reported since its introduction. Despite these numbers, less than 100 fines have been issued by regulators. The DLA Piper researchers attributed this low response with regulators still finding their feet in their heightened supervision roles. Google has been given the highest fine so far at €50 million. At the lower end, an Austrian betting shop was fined €4,800 plus legal costs when their security camera trained on the entrance also captured the footpath outside. It was held in breach of the GDPR as monitoring of public space is not allowed.

Despite being EU legislation, the GDPR can still impact businesses in New Zealand. You will likely need to comply with the GDPR if you:
– have a branch or subsidiary in the EU;
– monitor the behaviour of EU residents (e.g. monitor how many EU customers visit your website); or
– sell goods or services to people who live in the EU.

While there are yet to be any fines outside the EU, NZ companies should not take a relaxed approach to GDPR compliance. As the Regulators establish themselves, we may see more attention turned towards businesses outside the EU.

We would encourage you to get in contact with us if your company doesn’t have a privacy policy or if you’re worried your current policy won’t meet the requirements. Parry Field Lawyers has created a privacy policy template which is GDPR compliant.

Even if you don’t deal with EU customers, it is important to have a robust privacy policy in place. Contact Steven Moe at StevenMoe@ParryField.com or Kris Morrison at KrisMorrison@ParryField.com to see how we can help.

What the key change actually entails

The key provision itself

The “safe harbour exception”

Another option for those sending funds overseas

Why is this an important change

Before the Charities Act

Reasoning behind the review

The scope of the review

Who will carry out the review?

When the review will occur

What will be taxed?

When will it be taxed?

Transitional Rules

Who is taxed?

Company Matters

The Dissenting Views in the TWG

Closing Comments

Good Faith

What should happen if agreement is reached?

What if agreement can’t be reached?

Drafting new employment agreements – a take home message for employers

Christchurch CBD

Christchurch

Rolleston

Hokitika