Coping with the new compliance rules
2607POSTED:
GRA Blogs
Articles by The Professional Trustee Team
New legal and regulatory requirements are slowing things down and costing people time and money, especially if they leave things to the last minute before involving their professional advisers. The following story illustrates.
Recently, a client faced the problem of failing to obtain bank funding from a registered bank. They did not contact us in advance of their settlement, attempting to deal with their finance problems by themselves. Consequently, they have been forced into using a non-bank lender, which comes at a very high finance and time cost. Had they communicated with us well in advance of the settlement, we may have been able to assist them in finding a finance solution via brokers we work with, resulting in reduced costs to the client. Additionally, because the client hadn't factored in the extra time and paperwork involved in obtaining finance from a non-bank lender along with the new AML (anti-money laundering) requirements, settlement was delayed meaning they also had to pay penalty interest to the vendor.
New legislation
During 2018 we saw many changes in the legal, regulatory and finance environments. The changes don't seem to be abating either, with new tax laws due to be introduced next year.
In particular, AML legislation has imposed an increased compliance regime on accountants, professional trustees and clients in relation to transactions such as buying and selling real estate and obtaining finance. My previous blog comments on the AML legislation in greater detail. The legislation now means parties spend greater time, along with higher fees, when undertaking relatively normal personal and business transactions. Next year real estate agents will also have to grapple with this legislative beast, complicating matters further.
Early and clear communication with your advisers is vital
Ultimately, the new compliance regime has meant more time than ever before is needed to complete the requisite paperwork to affect a transaction. As such, communicating early with all the different professional advisers involved, including your professional trustee, enables a transaction to be completed in a timely manner. Adequate and early communication also provides opportunities to achieve increased asset protection and to realise tax planning objectives.
As happened in the story at the start of this article, failure to communicate with your professional advisers at the start of a transaction, e.g. the purchase of a property, may mean you cannot settle the purchase by its due date. This is especially so when bank finance is involved. Many people think having pre-approval from a lender will automatically guarantee them finance. This is not so.
Understanding finance criteria
A pre-approval of finance is usually conditional, often on the property being an acceptable form of security to the lender, and on serviceability calculations completed by the lender at the time an application for finance is made. The property you may wish to buy may not be an acceptable form of security to the bank.
Furthermore, you may fail the bank's benchmark calculations when you make your application for finance. Banks have historically assessed a borrower on a principal and interest basis, usually adding a 2% margin to the interest rate they intend to charge a borrower. This methodology is used even when the borrower is intending to borrow funds on an interest-only basis. That margin has recently increased from the 2% benchmark (and you can read more about this in Salesh Chand's recent blog on finance challenges for property investors). Consequently, borrowers are failing to achieve finance and are often forced to resort to non-bank lenders. Involving a non-bank lender frequently means additional time must be spent by the professionals involved in the transaction, including the professional trustee.
Case study – getting organised in advance
A client a few months back took up the opportunity to communicate early with us, advising me of their intention to purchase a family home about 7 weeks in advance of their settlement. This enabled us to provide advice and structure their affairs so they could make their borrowings tax effective. A great outcome all round and the client was thrilled, as this will be the first year they will ever receive a tax refund through the tax structuring we were able to achieve.
Summary
In summary, the new compliance regime affects almost everyone involved in a transaction these days. To achieve the best outcomes, early communication with qualified advisers such as your accountants and professional trustees who are competent in structuring, taxation and finance matters is strongly recommended. Help us to help you by letting us know of your plans well in advance.
On a Christmas note, I want to personally wish you a very merry and safe Christmas. May you enjoy many moments of love, fun and friendship and may Santa be kind to you.
The Professional Trustee Team
© Gilligan Rowe & Associates LP
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
Comments
Testimonials
We started not knowing what we can do, how to do it and most importantly - how to get there. By doing this journey we changed along the way. The knowledge is overwhelming and its exciting to scratch the surface. We now have a better understanding along side a team of experts to achieve our goals. Thanks GRA for sharing your knowledge (and time) to help us join the GRA family. We look forward to our future with GRA as we grow and develop to reach our goals - Julia and Simon, June 2018
Seminars and workshops for property investors, business owners and anyone seeking to create and protect their wealth.
View all our upcoming events
Property 101by Matthew Gilligan
Investing in residential property?
Put this at the top of your reading list.
If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.
- How to find the right property
- How to negotiate successfully
- Renovation do's & don'ts
- Property management
- Case studies and examples
- and much, much more...
Free Resources, Tools & Downloads
