This is a story of a bank and a careless email.

Since Alan Bollard reduced the OCR in response to the Christchurch earthquake, three year fixed interest rates on residential mortgages have been somewhere just under 7%pa.  With floating rates down around 5.75%pa, there hasn’t been a lot of incentive or urgency for Kiwis to fix their rates.

But in the past fortnight we have seen the June quarter annual inflation figures well above expectation – as well as higher than expected economic growth.  Many borrowers are figuring that time has run out for comfortably biding time floating while planning to fix just before rates rise – and we are already seeing some fixed rates creep upwards.  Many folk who are a little risk averse with interest rates are starting to figure they should “do it now”.

So here is the response from a bank on Friday to one client’s request to negotiate a favourable 36 month fixed rate:

 

Thank you for your email.

With regards to your enquiry on a negotiated rate for clients Xxxxx Limited, I am pleased to advise that we can offer 5.75% for 36 months to retain your client.

Based on the information supplied, can you please confirm if your client would like to proceed with the fixing of their 02 suffix. 

If accepted the offer will only be valid as quoted until 5.00 pm at the end of the next business day (25th July 2011)

 

Amazing.  A 36 month fixed rate of 5.75%pa has been unheard of ever – except maybe during a few brief weeks in the depths of the GFC around February 2009.  Surely that was a typo?

Of course our client responded within the deadline for accepting that nice rate – and also arranged to break their other existing fixed rates in order to jump onto this rather incredible deal.

Soon afterwards, the bank contacted our client explaining that the 5.75% offered in Friday’s email was indeed a typo – and that it should have read 6.75%.

Hmmm.  So now where does the bank stand?

 

From my Commercial Law 101 days I know that the three main prerequisites to the formation of a binding contract are these:  (1) offer and acceptance (2) consideration (3) an intention to be legally bound. 

 

It seems to me that all three essential elements are covered right there in the email history between our client and the bank.

And as luck would have it, the director of our client company had a previous career as a lawyer – and she knows a lot more about offer and acceptance than I ever will.  She pointed out to the bank in no uncertain terms that they had made a written offer which was accepted – and that a binding contract had been made by email.

The bank relented – and our client’s company will now enjoy the very nice rate of 5.75%pa fixed for the next three years saving a rather healthy sum.

So the moral of this story actually has nothing to do with interest rates or the unnamed bank.  Really it’s all about this:

 

“Be very careful about what you commit to by email.  Contracts made by email are legally binding in the same way as contracts made in writing or face to face.”

 

Quickbooks are encouraging users with older versions to upgrade by offering a carrot. 

We’re not in the business of necessarily pushing Quickbooks in preference to other packages like Xero, MYOB, Cash Manager, Bank Link or the many others.   But if you are a Quickbooks user and you haven’t yet upgraded to the 2010 / 11 version, this seems like a no-brainer: 

The QuickBooks 2011/12 release is less than a month away – and if users of older versions upgrade to QuickBooks 2010/11 now, you will be entitled to an additional free upgrade all the way to version 2011/12.  This offer applies to those who upgrade to 2010 / 11 from 16 April until the official release of version 2011 / 12 on 16 June.

The Quickbooks promotional material lists the new features of the 2011/12 version as follows:

 

Customisable company snapshot.  The new company snapshot tool allows you to customise fields and graphs to design a ‘snapshot’ that presents the most significant information that impacts your business decisions – with the ability to drill down into transaction, customer or supplier details.

Office 2010 compatible.  With the 2011 / 2012 version it is easier to export data from QuickBooks into Microsoft Office 2003, 2007 and 2010.

Wildcard search.  The wildcard search feature makes it easier to find customers and suppliers. 

  

Free upgrade redemption forms will be included in the QuickBooks 2010/11 box.  To redeem your free upgrade you need to ensure this form is filled out and send back to Reckon no later than 16 June.  And if you don’t have a redemption form, here’s >>>one you can download as a pdf.

  

 

 

Employers have until 1 July 2011 to bring personnel files up to date for each employee. 

The majority of employers already maintain personnel files for each employee – but many do not meet the new standard under the recent amendments to the Employment Relations Act 2000.  Many personnel files that I have seen contain little more than the original job application and CV and a copy of the signed employment agreement.

 

But from 1 July, here’s what must be contained in each personnel file: 

• Signed copies of employment agreements;
• Copies of intended employment agreements that have been provided to employees – even if they have not ultimately been agreed;
• Copies of any policies, handbooks, terms or conditions that apply to the employee.

 

In theory Labour Inspectors are charged with ensuring compliance with these new requirements.  But it doesn’t seem very likely that they’ll come knocking on the door.  More likely, non-compliance would come to light if there was an employment relations problem that found its way to mediation or to the employment relations authority.   In those circumstances, non-compliance is not a great look.  And on that note, maximum penalties for non-compliance have increased to $20,000.

We recommend that employers go further than the new minimum requirements and include the following documents in each employee’s personnel file – and that these documents are also scanned and saved electronically.

 

Recruitment

• The job advertisement
• Intended position description
• Job application and CV
• Interview notes
• References and reference check notes
• Any skills testing you may have conducted pre job offer
• Any intended employment agreements provided to the employee.  Be mindful that under the recent amendments to the ERA, an employer who provides an employee with a defective employment agreement is liable for a penalty
• Any correspondence or notes in relation to negotiating amendments to the intended agreement
• A signed copy of the final letter of offer and employment agreement along with any signed variations over time
• Copies of any policies, handbooks, terms or conditions that apply to the employee
• Employee contact details, emergency contact details
• Signed IR330 form
• Copy of the KiwiSaver information provided along with any covering letter
• Any correspondence in relation to KiwiSaver – including any opt-out form

 

Induction

• Copy of the induction programme followed
• Any induction material provided to the employee

 

Performance Reviews

• If a trial period applies, copies and notes from the 30, 60 and 90 day reviews
• Copies and notes from periodic performance reviews
• A record of any career development plans agreed
• A log of any training undertaken

 

Salary

• Notes of any salary reviews
• Notes from any meetings or discussions around salary
• Any correspondence relating to salary or salary increases

 

Disciplinary

• A record of any disciplinary correspondence, interview notes,  investigations, warnings or mediation records
• Any grievance forms, records of meetings and correspondence in relation to any grievances

 

Termination

• Letter of resignation
• Termination notice if applicable
• Notes from any exit interview
• Reference provided

 

 

And of course, proper leave and pay records must be also maintained.  Remember also that the contents of a personnel file must be made available to your employee on their request.

 

 

 

As usual on budget day, it’s all ears on the live stream at Elevate CA. Here are our first impressions and some initial comment as Bill English reads Budget 2011 …

 

2:05pm

Bill English is explaining the theme of Budget 2011. This will be all about building savings and investment because as a country we need to save more, spend less and reduce our reliance on foreign debt.

 

Sounds sensible so far.  But a big ask in the context of last year’s big tax cuts and the underwhelming growth since then. Especially at a time when the country is also screaming out for investment in schools, faster broadband, better transport infrastructure and an improved national grid.  And of course rebuilding our second largest city.

 

2:12pm

John Key and Bill English are masters of public relations. Remember how the case was made for massive changes to the tax system ahead of last year’s budget?  It needed to be done, but who else could have increased GST to 15% with barely a whimper of protest?

 

This year the pre-budget rhetoric has been around the need to balance the books and get back to surplus. As we listen to the live stream, this point is coming through loud and clear. But the point I’m not hearing is that perhaps those big deficits wouldn’t be as severe if not for the generous reduction in the top personal tax rates in last year’s budget? 

 

2:15pm

KiwiSaver.  Bill English is now getting onto the much anticipated KiwiSaver announcements. 

 

Personally, I’m no fan of KiwiSaver.  To me it’s a meal ticket for the funds management industry. I’d rather see KiwiSaver funds invested as guaranteed loans to the NZ Government – receiving the same rate of interest earned by the foreign lenders to the government. What better way to reduce the country’s reliance on overseas debt than for the government to borrow $8 billion (the amount already in KiwiSaver) from individual Kiwis rather than from foreign lenders?

And what better way to retain in NZ some of the massive interest payments that flow out of the country? Government guaranteed, no fees – and I’ll bet the investment would outperform the average of KiwiSaver funds after fees too!

 

But of course that is NOT what we’re hearing right now in the live feed.

What we ARE hearing is that the $1,000 kick start KiwiSaver contribution will remain. But the annual $1,043 KiwiSaver tax credit is to be halved to $521. In addition, both the minimum employer and the minimum employee contributions will increase from 2% to 3%.  And as an unexpected detail, the employer contribution will no longer be tax free. 

 

The idea is that the mix of contributions to KiwiSaver accounts will change with less coming from the tax credit and more coming from both individuals and employers. The rationale is that there is no benefit in the government borrowing $1 billion per year offshore only to deposit that amount to individual’s KiwiSaver accounts. That is no different from you or I borrowing $1,043 from BNZ and depositing it at Westpac then kidding ourselves that we’re saving.

 

This does seem sensible, but just a thought: Surely for KiwiSaver to be sustainable it ought to stack up on its own merit without the government and employers having to incentivise savers with cash?

 

2:19pm

Working for Families (WFF). The definition of income will be further widened to include more fringe benefits provided to employees when calculating WFF tax credits. Also the threshold for reduction in entitlement will drop from $36,827 to $35,000 so families with incomes above this threshold will receive fewer tax credits. However families below that income threshold will apparently be better off by around $7 a week. Changes will be staggered in over four steps from 1 April 2012 affecting around 387,000 families.

 

The idea is that WFF should be better targeted to lower-income families who have a greater need for assistance.  But it will be less generous to families higher up the scale. This seems reasonable in tough times. But I wonder if a steeper abatement of WFF entitlement might create a disincentive for families to increase their income?

 

2:23pm

Student Loans. There will be restrictions on student loans for those over 55 and some additional measures to manage those with overdue payments. 

 

I can see the need to cut back on making student loans that aren’t ultimately recovered – but I wonder about the wisdom of targeting students over 55. After all, as a country we’re asking people to work longer – and as the population ages we’ll desperately need older people to be part of the workforce. But with many older workers unable to continue in physical jobs into old age, shouldn’t we be actively encouraging those people to retrain so they can continue to contribute positively for another decade or more?

 

2:25pm

Unlike last year’s budget, there are no major changes to the tax system that will affect small to medium Kiwi businesses. But there are some less radical changes being announced:

 

Foreign Banks.  Bill English is announcing changes to thin capitalisation rules for foreign-owned banks increasing the equity they must have in their businesses.

 

This reduces the scope for these banks to channel their profits offshore and out of the NZ tax net which has got to be a good thing for the rest of us.  I doubt any votes will be lost over this change!

 

High value mixed use assets.  The tax treatment of mixed-use assets used for both private and business purposes will be reviewed. The ability of taxpayers to claim tax deductions on high-value assets such as yachts and holiday homes that are both rented out and used privately will be reviewed – although the exact details are yet to come.

 

Livestock rules for Farmers

Under current rules, farmers usually value their livestock for tax purposes under one of two valuation methods which can result in quite different values. At the moment, it is possible for a farmer to switch back and forth between the two methods resulting in increases in market valuations going untaxed while tax deductions are possible for decreases in value. Some yet to be announced changes are in the wind.

 

2:35pm

Our wrap up

All in all, this budget shows good leadership. When was the last time an election year budget faced down sacred cows like KiwiSaver, Working for Families and Student Loan entitlements?  Regardless of political persuasion, I think many people will at least respect the fact that these changes have been announced before the election rather than shortly afterwards.  

The idea that as a country we need to live within our means is one whose time has come.  Like last year’s budget, this one has been preceded by some skilled PR making the case for potentially unpopular but prudent changes. 

None of the changes we have just heard will affect people pre-election.  Kiwis will make their own choices to accept or reject this budget in the polling booths on 26 November.

 

 

 

Many people have asked how Hayley is getting on – and whether her baby has arrived safely.  Well now we can answer that question.  Maia Lucy Lenihan was born on 7 April weighing in at a whopping 7 pounds 15 ounces.  Mother and baby are happy and well.

Most accountants have the date 7 April etched into their memory as terminal tax day – but from now on this will be a big day for Hayley for more important reasons!

Hayley will be returning to Elevate CA from the beginning of July – and we’re looking forward to having her back amongst the crew.

Check out Hayley’s full profile here >>>.