Owning rental property is an addiction here in New Zealand. Just about everyone I know has a rental property. Some even rent or flat share in more “desirable” locations than they could afford to buy in but have one or two rentals in other suburbs.
Yet with all these rental properties, the government sees very little tax revenue because of the level of negative gearing put in place. Whether you own the rental property through a trust, a company (usually an LAQC – Loss Attributing Qualifying Company) or even just as an individual, the gearing most people go for is the costs associated with that property barely cover the mortgage and rates, and then the depreciation on buildings and the like can be applied to other PAYE based income.
At face level, I see no reason to worry about this, it is within the letter of the law. However, as Wespac recently found out, the letter of the law is not sufficient protection. (Westpac loses massive tax case on all counts)
This should alarm mum and dad property investors. Some will say the IRD won’t worry about these people. They are not banks. They are not rich corporations. To this I say, the rental property industry is a $200 billion industry. It is only a matter of time that the effort put into the banks will then be applied very seriously to this industry.
If you are a small property investor, now is the time to look at how you have structured it, but more importantly why. The questions you need to be thinking about is what was your intent. The big banks that recently lost all made financial transactions that were following the letter of the law, but gave them huge advantages in reduced tax to pay. This ended up falling into the realm of tax avoidance.
Now, look at your specific situation, have you structured your situation to follow the letter of the law, but are following pretty close to the wind? If so, it will only take IRD one or two cases before they can then apply a blanket judgment on all similar cases.
Will you be caught? That’s what you really need to think about. I’m no tax lawyer or accountant, but I can see a world of hurt coming for rental property investors. I’m just glad I won’t be one of them!
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Rogue art dealer Ron Coles has now got a lot more to worry about.
After entering into a deal, promising to sell artworks for cash creating a simple but effective money laundering scheme. However, after his disappearing act, the artwork is nowhere to be found, nor is the large sums of cash the bikers handed over.
Stealing a million dollars from criminals will most likely end up outting Coles to an early grave.
Coles is likely to have more concern about the bikers on his tail than the overstretched law enforcement officials who have pretty much said they are too busy to track him down. The bikers however will not stop until he is found, and “taken for a little ride”.
Coles has been playing a game of cat-and-mouse with an angry hoard of investors for months. It is now a race for who will get to him first.
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I have worked with loads of starts ups over the years, and even had quite a few myself.
Something that always astonishes me is the cash burn these companies have. The money sack is literally being shovelled into the proverbial furnace at an amazing rate. It seems that the costs just creep up and without cash flow, the result can turn ugly very quickly.
Bootstrapping everything is generally the way to go, unfortunately most people who head down the start-up path have never even heard of it. They want everything just right. Everything perfect.
Unfortunately that is a recipe for failure, or has been in every start-up I have worked with, and all the numerous case studies I have read about successful and not so successful start-ups.
Bootstrapping is critical, but over time certain other factors seem to be critical as well. Culture is one.
The following is a list I have compiled from experience, other blogs, white papers and just chewing the fat with people who have been there, done that. It is focused on technology start-ups on a New Zealand scale, but can be applied to many others.
1. Supply snacks, soft drink and fruit. Saving one trip a day across five staff is an hour per day of extra productive time. It also makes the staff feel appreciated. Happy staff are productive staff.
2. Build a culture of teamwork by bringing in lunch at least once a week. Make it a meeting. Even better, do it four days a week and have a no meeting policy. Saving two hours per staff member per week if you have regular meetings. All other meetings should be short and done standing up with no more than three to five agenda items. Use an alarm clock.
3. Got extra space? Sublease it month by month. It can slow the cash burn substantially.
4. All developers should have two monitors. No ifs, no buts. It will save at least 30 minutes a day. That’s an extra two and a half hours from every developer per week. You do the sums!
5. Comfortable ergonomic chairs are a must. Cheap desks will suffice, but a developer who is uncomfortable is unproductive.
6. Payroll (contract or permanent) and all professional services like Accounting should be outsourced. Keep it simple and streamlined. Let contractors invoice rather than use expense claim processes.
7. Use OpenOffice – why give Microsoft your money when you can get the tools for free.
8. Put contractors on daily rates so they can be treated more like salaried staff. Provide bonus incentives for on target delivery, not penalties for being late and they will deliver.
9. Ensure good coffee is available in-house. See (1) above. It will save another hour per day easily.
10. Allow people to work off hours. Commuting is a waste of time for everyone. Let folks start at 6am or 11am and you’ll cut their commute in half. It can save one to two hours a day by having very flexible time.
11. Don’t waste money on strategic PR companies or web design companies, set up WordPress, turn it into a CMS and save yourself tens of thousands of dollars a month. Pay a student to do market research and undertake any advertising work.
12. Pay for a good time and billing tool. The habits started now will see the company through to success. Accuracy of time allocation is critical, and all decision makers need to have it readily visible, not just the CEO.
13. Downtime through video games, a quiet area or a stereo with headphones is essential for the well being of the staff. Make the space. It will improve productivity and that’s always a good thing.
That’s my list. Most of it just takes a little bit of cash each week and can reap the benefits very quickly. You save at least two hours a day per developer by applying the above. That’s like having another developer if you have a team of four or five.
If you are running a start-up and want to chat directly about how to organize some of the above, feel free to drop me a note. I am happy to help.
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