Warning: Sell residential property within five years and you could now be taxed. The Brightline Test extension is live!

Written by  Lana McCarroll - Legal Executive (Property)

The government has now passed legislation which extends the bright-line test from its original 2 to 5 years. This means that before you consider selling any property within five years of purchase you should consider the effect of this law before you proceed.

Who does this legislation apply to?

This legislation applies to ALL vendors who sell a residential property within 5 years of purchase  - irrespective of the vendor’s intention at the time of purchase.

For sale and purchase agreements signed after 29 March 2018, this means that if a vendor subsequently sells within 5 years, and the property is not their main home, then they will be taxed on any gain made on the sale.

For any properties purchased under agreements dated before 29 March 2018, then the previous timeframe applies.  That is the same rule but with a two year timeframe.

Another important point under this law is that any vendor selling may only use the main home exemption twice within the 5 year period.

Read more here.

Pay your employees, or pay the price

Written by Ashley-Jayne Lodge - Partner (Employment)

Last week the Employment Court found retailer Smiths City Group Limited (Smiths City) has breached the Minimum Wage Act 1983 by failing to pay employees for morning meetings held before the store opens. Smiths City are required to conduct an audit to quantify the cost of non-compliance, and then make payment to those employees who have been underpaid.

Smiths City, like many retailers, hold a 15 minute morning meeting for its sales staff prior to the stores opening each day. Staff are expected to attend those meetings, but receive no additional remuneration for doing so. The Labour Inspector issued an improvement notice requiring Smiths City to fix its practices. Smiths City disagreed with the Labour Inspector’s views, and the case made its way through the Employment Relations Authority, and then the Employment Court.

Read more here.

What July's new AML/CFT obligations will mean for you as our client

On 1 July, law firms will become subject to the requirements of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).  We have been hard at work implementing these requirements into our client experience.  This article is intended to outline what the changes will mean for you, as our client.

What is AML/CFT?

AML/CFT is part of a global movement for countries to introduce practical measures aimed at eradicating the ability for criminals to profit from their crimes, and also to prevent the supply of money to terrorist organisations. 

The Government is introducing these measures in stages.  You may have noticed it has already been implemented in particular businesses, such as banks and casinos.  Law firms are one of the next industries to be subject to the AML/CFT requirements.
Law firms in particular have been identified as a way in which criminals attempt to move money and assets.  The measures being introduced are intended to help us to detect such activity, and thereby contribute to the global effort of deterring corruption and crime. 

So what will it mean for me, as a client?

The new measures under AML/CFT will require us to collect and verify more information about our clients, to ensure we know exactly who they are, and what it is they are doing. 

In particular, it will require us to conduct what is called “customer due diligence” (CDD) on our clients.  This will come in different forms for different transactions or legal work, but will usually mean that we will be required to collect and verify your identification and physical address.  Just like at the bank, this will typically involve sighting and storing copies of an acceptable form of ID and some form of proof of physical address. 

In some circumstances, depending on the nature of the work or the entity/individual involved, we will be required to make more extensive inquiries.  This may involve us asking you some questions about the source of your wealth, or the source of funds being used in a transaction. 

When using entities like companies and trusts, you will typically be required to identify the actual individuals involved in the entity, and we will then conduct CDD on those individuals. 

Is there anything I need to be doing now?

For existing clients of Cavell Leitch, once the AML/CFT requirements are implemented, we will only require this information when you provide a new instruction to us, and where our current records are insufficient to satisfy the requirements. 

For any new clients joining us, we will be incorporating these measures into our new client engagement procedure.  This may require you to come into our office the first time we act for you, with the necessary documentation.

We have been working hard to implement these new requirements as smoothly as possible into our client experience.  We hope you will recognise the importance of these measures in deterring criminal activity in New Zealand and maintaining its international reputation as a safe and reliable place to conduct business. 

If you have any questions about what this might mean to your relationship with Cavell Leitch, do not hesitate to contact a member of our team.

Supreme Court puts foot down

Written by Kirsten McMullen - Senior Associate (Litigation)

The Supreme Court has released a short and sharp decision which acknowledges that Judges can make mistakes, but mistakes won’t always afford a further right of appeal.

In Myall v Tower Insurance Ltd [2018] NZSC 35 the Court was required to exercise its gatekeeping powers in considering whether to allow a second appeal, after the case had already been through the High Court and Court of Appeal.

The case concerned Mr Myall whose Tower insurance policy entitled him to rebuild his earthquake damaged house.  Unfortunately, Mr Myall was under-insured in that his certificate of insurance listed a house area of 650m2 when its actual area was 799m2. Under his policy, Mr Myall was entitled to the cost of rebuilding his house to the same condition and extent as when new, and up to the area as shown in the certificate of insurance.

Read more here.

Directors and personal guarantees – managing personal exposure

Written by Jennifer Loming - Senior Associate (Business)

While company directors may face claims from several sources (e.g. legislative breaches), the most common claims are from those whom they have offered personal guarantees in connection with the company’s activities.

Personal guarantee

A company director that signs a guarantee to support or guarantee the obligations of a company means that the director will be personally liable for the company’s debt, obligations and commitments if that company is unable to meet its obligations.

Personal guarantees are given by directors of companies quite routinely, especially for small to medium size businesses that manufacture or supply products.  If you lease business premises, personal guarantees are often a mandatory requirement from the landlord.  If the business has ongoing accounts with their suppliers to provide materials on credit for the business, the directors of the companies are often required to provide personal guarantees to their suppliers.  In most instances, these businesses will not be able to trade smoothly without having the personal guarantees in place.

Read more here.

Trusts, Gifting & Residential Care Subsidies

Written by Maria Young - Partner (Trusts and Estates)

A common feature of asset plans is for people to set up a Family Trust with the intention of divesting themselves of assets, thereby improving their chances of being eligible for a Residential Care Subsidy (RCS).

The individual (“Settlor”) or couple (“Settlors”) sell the family home to the trustees at market value. These trustees then owe the Settlor/Settlors a debt equivalent to the home’s market value.

As gifts of $27k or less did not attract gift duty prior to 01 October 2011, the Settlor/s then usually gifted off the debt at the rate of $27k per year.  Where it was a couple it was common practice for both spouses to gift $27k each annually.

When gift duty was abolished altogether in 2011 it became possible to forgive the remaining balance of such debt or to transfer assets directly to a trust without incurring any gift duty.  However, that was a change to the tax laws only.  There is much more to consider.

Read more here.

More RMA reform on the horizon

Written by Andrew Schulte - Partner (Resource Management)

As predicted by many commentators, the election of a new Government in 2017 has meant a flurry of interest in further changes to the Resource Management Act (RMA).

This has included calls for a fundamental review of the “resource management system” including the RMA, along with a review of the most recent set of changes and calls to repeal recent new provisions that were seen by some as misguided (such as the idea of “deemed permitted activities”), having an adverse effect on public participation in RMA processes (including rights of appeal), or placing too much power in the hands of the Minister for the Environment. Though relinquishing the latter may prove a stern test.

The Labour led Government has made it clear that water quality is a major issue it wants to confront, including the introduction of the goal of swimmability into the National Policy Statement on Freshwater. This could well include further controls on the types and amounts of discharges from industry and, in particular, farming, that can have an effect on water quality. However, many of these changes are already underway so the extent of any policy “shift” will remain to be seen.

Read more here.

Illuminate Seminar Series - Lessons learnt from dodgy directors: Recent observations

Wednesday 4 July, 5pm - Cavell Leitch 

We have developed presentations covering the legal topics you are interested in. This series will include presentations from a range of our specialist teams and cover both professional and personal areas.

There will be no charge for these events and drinks and nibbles will be provided. These presentations will offer you the opportunity to learn and ask questions in a relaxed and social atmosphere.

Please email rebecca.smith@cavell.co.nz for more details and to register for this event.


As a full-service law firm, we have experts in nearly every area of the law.

For more legal articles written by Cavell Leitch experts click here.

If there is a topic you would like to have more information on or an article that you think needs to be covered by one of our experts, please email rebecca.smith@cavell.co.nz.