Covisory Connect 2019 Issue 1

Page 1

Issue One | Twenty Nineteen


About Covisory Connect Brought to you by the Covisory Group, specialists in International and Domestic Tax Services, Trust Management, Succession Planning, Structuring, Strategic and Business Planning, Accounting Services and Business Valuations. Our specialists work either one-on-one or alongside our clients’ team of professional advisers to develop appropriate short and long-term solutions. Covisory Connect is our quarterly news magazine written for and about family owned businesses operating both in New Zealand and globally. Connect is published online as an eMagazine and is available to read from our website and is emailed to our mailing list of family business owners and industry professionals.


Featured Post — 06

What Brexit means downunder While it will likely have a secondary chilling effect ...

Trust’s — 12

Travel — 16

Are you ready for changes to NZ’s tax laws?

Holidays in Africa

Trans Tasman — 19

Tax Free Sunshine General Interest — 22

Wetrider - A start-up on a wave

Family Business — 28

What’s going on in our family businesses?

Covisor y Conn ec t Ma gazin e l 3


NIGEL SMITH Founder - Covisory Group

Introduction With 2019 now well under way what are you planning to achieve and change this year? Wanting to change is a great starting point, but to make that change effective, we need to make sure that we understand ‘Why’ change is important.

If we do not take time out of our week, month or year to make room for the deep questions and thinking we fail to grow. We opt for the distracting items that fill our time. It is not about working harder. We need to work smarter and this means having the time for reflection, to ask ‘Why’ so that we can make changes and improve on past performance. Breakthroughs to a product, a company, a market or industry do not come from being busy and jumping between multiple tasks. Change comes from an opportunity to have structured periods of reflection. We need time to ponder, to question, to model, and to research. Reflection and asking ourselves ‘Why’ drives experimentation and sparks innovation. By reviewing the processes and results we add to our understanding, gain insight and allow companies to respond to change. By taking the opportunity to reflect we can make our businesses radically better.

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In today’s culture, we as individuals and businesses

This issues focus is on Change. Leading our stories

are engineered to Do, we have not been encouraged

are the changes to the New Zealand Trust Legislation

to reflect. To add reflection to our lives allows us to

that are expected to pass into law later in 2019. If you

embed concepts and theories into our practices.

are a Trustee or a beneficiary of a New Zealand Trust,

It fosters constant thought and innovation that

it will be worth doing your homework. Changes

provides the means to allow us to grow as both

to the format of Covisory Connect allows us the

individuals and professionals.

opportunity to allow a more personal focus where we can showcase clients work. Read about Digital and

Within Covisory ‘Reflection’ is a core component of

Brand Strategist turned entrepreneur, Simon Welch,

how we operate both internally and when we work

who has launched a range of water sports products

with customers.

onto the worldwide market. We also look at the possible implications of Brexit, and we look at why its

You will have noticed that this issue of Covisory

important to put a Succession Plan into place in 2019.

Connect has changed. Why? We are evolving the magazine to better reflect the needs of you our

Out of volatility and change does come opportunity,

clients. As change is an ongoing process and not a

during this year we will be keeping you informed

one-time event, we will be refining the magazine

and working with you in relation to the changes

on an ongoing basis as we respond to your likes and

to the law as well as the imminent Capital Gains


Tax introduction and the implications to your personal circumstances. We are here to help you

It’s hard to believe that we are over 2 months into

both be defensive and to protect your investments,

2019 as you read this. While the weather may have

while identifying and taking advantage of the

been good, the share and investment markets are

opportunities that will now come available.

still volatile, and many investors are finding it hard to stay calm in uncertain times. It’s always necessary to take a longer-term view of returns, and we have been spoiled over the past few years with above average returns. Things are now evening out a little while some of the large macro international factors like Brexit work through. Similarly, the cooling in the domestic housing market is more of a return to normal than a major collapse. We all knew that prices could not keep going up at the rate they were forever.

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What Brexit means down under

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Much to the surprise of experts, governments, and businesses around the world, Britain and Northern Ireland voted to leave the EU in June of 2016. The referendum result shocked not only the UK and the EU, but also the global economy as a whole. Nevertheless,






determined to honour the results of the vote, and initiated the Brexit process officially on March 29, 2017, which is set to culminate in the UK’s departure from the EU on March 29, 2019, two years later.

Why did the UK join the EU at all? To understand the import of Brexit on a global scale, it’s important to understand the original purpose of the EU. Decades before the EU was formed, the EEC

After two years of tense negotiations and internal

was established by France, West Germany, Italy, and

political wrangling, the UK appears to have made no

the Benelux countries as a way to economically unite

appreciable progress in establishing the UK’s future

European countries. Close economic and political

economic relationship with the EU, or the rest of the

cooperation was meant to help these countries both

world. As of today, Brexit appears to be progressing

to economically recover from World War 2 and to

toward what was forecast as the worst-case scenario:

help build long term relationships that would serve

a no-deal Brexit, in which the UK’s trade relationships

to prevent future martial conflicts.

would revert to World Trade Organization rules. Such an outcome is predicted to not only devastate the UK’s economy in the short term but may also have significant secondary impacts on its major trading partners around the world.

While no clear plans seem to exist for the UK’s economic future, UK politicians appear adamant that a no-deal Brexit will be avoided Covisor y Conn ec t Ma gazin e l 7


It was this economic community that the UK joined in

Before it ever considered joining, the UK had planned

1973, after the 1969 resignation of France’s Charles de

to reestablish its status as an economic superpower

Gaulle, who had vetoed Britain’s prior attempt to join

by developing its own Commonwealth trading bloc.

in the 1960s. When the single market, the EU as we

For many British voters, joining the EEC, and later

know it today, was formed in 1992, Britain became a

being part of the EU was perceived as a humiliation

part of it by default.

for a country that had, at one point, governed nearly

Why Brexit?

one-fourth of the world’s landmass. Capitalising on

Over time, the EU’s influence over its constituent countries grew, even as more and more countries joined. Unlike the EEC, the EU functions as far more than just an economic community, but rather as a loose superstate comprised of 28 countries. The UK government, for its part, found itself torn between the economic advantages of membership, and the vocal opposition of its right-wing voters even since before it ever joined the EEC. 8 l Covisor y Conn ec t Ma gazin e

this, British politicians have, whenever possible, laid blame for the country’s economic failures on the EU as a whole, while doing their best to claim credit for British successes nationally. As a result, a large portion of UK voters had little or no concept of how the EU-UK relationship actually works, or how it helped the UK. Instead, it has been primarily viewed as a drain on the country’s resources, and an impediment to its success.

Expecting it to offer him a strong pro-European mandate, the Prime Minister went ahead with the referendum in 2016. However, Brexit campaigners, riding a wave of anti-immigrant sentiment following the 2015 refugee crisis, and capitalising on the public’s weak grasp of the EU’s relationship with the UK, won the simple in-out vote 52% to 48%.

The UK’s negotiation nightmare The UK economy is the second largest in the EU, and its departure represents a serious loss for the bloc. While this does give it some leverage in negotiating post-Brexit trade deals with the EU, the UK has made practically no progress in securing a deal. The reason for this is that Brexit supporters are determined to secure trade terms that are more advantageous for the UK than EU membership was. Effectively, they want to retain all of the benefits of membership, while simply doing away with the associated costs. After all, this was what they had promised their voters. EU member states, for their part, see little benefit to agreeing to any such relationship. The UK relies on the EU for over half its import goods, and 44 per cent of its export market. This means that future trade complications with the EU could severely damage the UK’s capacity to trade internationally while being merely painful for the EU. Furthermore, the UK is

The Global Financial Crisis and the Refugee Crisis

not able to negotiate new trade deals with non-EU

Following the financial crisis in 2008, many of Britain’s

the UK under WTO rules. This could severely impact

fears about the bloc seemed to become reality. The

countries until after Brexit takes effect, which would force other trading partners to also begin trading with the UK’s ability to trade competitively until such a time

economies of Greece, Spain, Italy, and Ireland were

as new trade deals can be made.

in shambles, apparently validating UK prejudices

This puts Prime Minister Theresa May, and British



negotiators in a position where any deal the country

its contributions to the bloc. At the same time,





can feasibly negotiate will fall far short of what

immigration to the UK increased as other EU citizens,

politicians need to satisfy their pro-Brexit constituents.

as well as immigrants from outside the EU, flocked to

As a result, the country has gone through two years

the country in search of work. Under pressure by his

of negotiations with the EU to produce nothing but a

own conservative party, which routinely capitalised

single lacklustre draft deal that the British parliament

on vague anti-EU sentiments, Prime Minister David

has vociferously rejected.

Cameron was forced to agree to hold a referendum on whether the UK should seek to leave the EU or to remain in it, before December of 2017.

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Most UK businesses have made no preparations

The growing threat of trade barriers

While no clear plans seem to exist for the UK’s

its international trade deals by 29 March 2019, it will

economic future, UK politicians appear adamant that

automatically revert to trading under WTO rules. With

a no-deal Brexit will be avoided. As a result, 5 weeks

the US and China already imposing major tariffs, this

before the final Brexit date, UK businesses are entirely

would make the UK the third of the world’s top 5

in the dark with regard to how they will be able to

largest economies to erect significant trade barriers.

continue to operate internationally after March 29. Not

This will strongly encourage other countries to

knowing what to do, more than half of the country’s

follow suit, hoping to protect businesses in their own

businesses have taken no steps of any kind to prepare.

economies. Ultimately, this would make international

If the UK fails to secure a deal that would preserve

trade more expensive for all countries, slowing growth

What a no-deal Brexit means in the southern hemisphere

and effectively stalling globalisation. While it will likely have a secondary chilling effect on the world economy, including the economies

In the southern hemisphere, Brexit manifests primarily

of Australia and New Zealand, even a no-deal Brexit

as a bureaucratic headache for exporters, as businesses

would be unlikely to cause real damage. In an analysis

try to work out what existing EU import quotas mean

of Australia’s position in the global economy, the

for trade with the UK and the EU after Brexit. Despite

International Monetary Fund (IMF) determined that

this, total trade with the UK is valued respectively at 1

global conditions might have some negative impact

and 2 per cent of GDP for New Zealand and Australia.

on the country, but would fail to halt its strong growth.

While slowed growth in the UK might adversely affect

While businesses should certainly pay attention to the

some businesses who trade with it, it’s simply not

larger global developments in the coming months,

enough to cause larger economic problems.

most will remain well protected from any direct Brexit

This doesn’t mean, however, that there is nothing to


be wary of going forward. After all, Brexit is just one of a whole list of events that are rattling global financial

Nigel Smith

markets and raising trade barriers around the world.

Global financial markets are vulnerable The US’ escalating trade war with China has already slowed trade between the two countries noticeably and is making investors increasingly nervous with talks of a recession in the world’s two largest economies. China’s exports in December of 2018 dropped by 4.4 per cent, while imports fell by 7.6 per cent. This, as well as the US’ internal political difficulties, are putting pressure on 5 of the world’s 10 most important financial centres: New York City, London, Hong Kong, Shanghai, and Beijing. These are ranked as the first, second, third, fifth, and eighth largest financial centres in the world respectively.

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Tech Corner CAPITAL GAINS TAX 21st February 19 saw the release of The Working Tax Groups final report. It was no surprise that the media had a field day with predictions of dire consequences to all areas of the economy. We need to take a step back and look at this logically. Although yesterday’s report is a comprehensive look at taxes in New Zealand, it is at its core, a recommendation only. We note that the Finance Minister, Grant Robinson and Revenue Minister, Stuart Nash, signalled that the government were not looking to do a major overhaul of the tax system but that there was room for improvement. The government is not bound to accept all the recommendations and they acknowledged that it is highly unlikely that all the recommendations will be implemented. This is a classic let’s look at an ideological perfect tax system and then wind it back to something that will be more palatable to the majority of the voters. Therefore, in April 19 when the government releases its response to the report, we will then be able to comment on the implications the new proposed legislation will have. Until the Governments response is released, it is all speculation. One factor will be NZ First’s support base and their response if Winston Peters and NZ First choose to support the governments response. How aggressive Labour goes will be highly dependent on how the polls are looking leading into April. As the government signalled, they will not pass any legislation arising from the report before the end of the current Parliamentary term and that no policy measure would come into force before 1 April 2021. Therefore, it will come down to the voter, those who turn up on the 2020 Election day as to what form the CGT, if any, will take. This leaves us plenty of time to work through the implications of the potential CGT for you and your businesses.

Covisor y Conn ec t Ma gazin e l 11

Are you ready for changes to NZ’s Trust Laws?

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If you are a trustee or a beneficiary of a NZ trust it is worth doing your homework In late 2017 the new Trusts Bill was introduced to the New Zealand Parliament. It is expected to become law later in 2019 and it will have some major implications for trustees.

2. Beneficiaries: under the new rules all trustees must inform every beneficiary they are a beneficiary of the Trust. They must be informed of the names and contact details of the trustees, whether there are any changes to the trustees, and of their rights to request trust information. This is a significant change and it must be emphasised that the trustees have a positive

The law changes will have a major impact on how

duty to do this.

trusts are administered in the future and new trust deeds will need to be carefully considered by any

3. Disclosure of Trust Information: this is defined as

settlor, rather than rely on a template deed that has

information regarding the terms of the Trust (i.e. the

been in use for twenty years.

deed of trust and all amendments), the administration of the trust and the trust property but does not include trustee decisions.

So, what are the major changes:

There is a presumption towards

disclosure to beneficiaries unless there is exceptional circumstances and this is following modern common

1. Trustee






law principles.

between mandatory duties and default duties. Mandatory duties cannot be modified (such as duty to know the terms of the trust, duty to act in accordance with the trust terms etc) but the default duties can be excluded by the deed of trust. This includes duties such as duty to have a general duty of care, duty to

4. Increase to the Trust Period: currently New Zealand Trusts have a trust period of 80 years. The law changes revoke the Perpetuities Act and increase the trust period to 125 years.

invest prudently etc. It will be very important for any new trust being put in place that before the document is signed a good conversation occurs between the professional drafting the document and the settlor about what should and should not be excluded.

We recommend the first step is to thoroughly review Covisor y Conn t Ma gazin e l 13 the deed ofectrust.


on demand.

What are the practical implications you need to think about? 1.

trustees will need to provide to ALL beneficiaries a copy of the deed of trust and the annual

New Trusts:

1. As a settlor wanting to put a new trust in place, you need to carefully think about: whether any of the default trustee duties can be excluded.

financial statements for the trust.

This point

alone will result in some significant changes to beneficial classes of trusts in New Zealand. 3. Can the deed of trust be amended to take

- who will be the beneficiaries of the Trust, especially when more information will be supplied to beneficiaries in the future where are the trust documents to be kept?


We believe that due to the

presumption of disclosure in the new rules,

advantage of the increased time period for a Trust? It is likely this will not be possible in







deed may have some flexibility to allow this. 4. Do you really need a trust? We suspect there

Existing Trusts:

1. For existing trusts, the deed of trust and trust structure should be comprehensively reviewed, and varied if necessary, for the following:

are a lot of trusts in New Zealand that are not required and the changes to New Zealand’s trust law is likely to be the catalyst for trusts to be unwound.

- Trustee duties - Class of beneficiaries and whether this should be

We recommend the first step is to thoroughly review

limited going forward as the trustees will need

the deed of trust. Covisory can help you with this so

to inform all beneficiaries, they are a beneficiary

please contact us to arrange a time.

of the Trust. A lot of older style deeds have a ‘kitchen sink’ class of beneficiaries to include nieces, nephews, spouses etc. Clearly this has

Marcus Diprose

some major issues going forward. In some older

trust deeds there may be no power to remove or

appoint new beneficiaries. - What






beneficiaries once any changes to the beneficial class are complete and the implications of providing that information.

For example, a

beneficiary may have a beneficiary current account in their favour which is repayable

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The beauty and excitement of holidays in Africa

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Sleep under the stars in a beautiful and intriguing national park! Luxuriate on secluded, pristine beaches! Relax in a private lodge in an unspoilt wilderness! “Where?” You ask. AFRICA. Does the name summon visions of wildlife safaris and exotic peoples?

African Safari Holiday

Gorilla Trekking Africa Holiday

Masai Mara National Park is home to the colourful

Would you like to witness mountain gorillas in their

Masai tribesmen. The Masai Mara National Reserve

natural habitat? Or go Gorilla Trekking? The treks

(known by locals as The Mara) is a large game reserve

start at around 2000 metres above sea-level and soar

in Narok County, Kenya, and is globally famous for

to over 3000 metres. Sound exciting?

its exceptional population of lions, leopards, and cheetahs. The annual migration of zebra, Thomson’s

Of course… but Africa is so much more. Take a

gazelle, and wildebeest to and from the Serengeti

culinary safari across South Africa and visit the

every year from July to October is called the Great

South African wine country, the oldest wine industry

Migration for good reason indeed. Be serenaded by

outside Europe. Enjoy a sophisticated fine dining

the roar of lions, the bark of saw-throated leopards,

experience on board the luxurious Blue Train from

and the insane laughter of hyena. Listen to the

Cape Town to Pretoria. For a different kind of wildlife

symphony of papyrus reeds rustling in the evening

safari partake in the nightclubs on Cape Town’s Long


Street or taste-test African home-brew in a township Shebeen.

Covisor y Conn ec t Ma gazin e l 17


Africa Holiday Marocco Agadir Coast

rafting, abseiling, river-boating, jet-boating as well as

This intriguing, exciting and visually stunning

swim at the edge of the Falls from Livingstone

continent is surrounded by the Mediterranean Sea to the north, the Suez Canal and the Red Sea along the

bungee jumping. In some seasons, you can actually Island.

the southeast, and the Atlantic Ocean to the west.

Ugandan Safari Animals in Africa Holiday

Africa’s sandy shores are varied and dramatic.

The source of the Nile is at Jinja in Uganda. In the

Experience the wind-caressed seashore of the

words of the Greek historian Herodotus, “Egypt was

Seychelles. Marvel at the unforgettable, seal-dappled

the gift of the Nile”. The Nile played a crucial role in

coast of Namibia. Come and discover one of the most

the development of the Egyptian civilisation. It has

beautiful wilderness beaches in Africa. The clear

two major tributaries, the White Nile and the Blue

turquoise waters offer unequalled snorkeling and

Nile. The Nile flows through Ethiopia, Sudan, Egypt,

scuba diving. You can swim with the dolphins, take

Uganda, Congo-Kinshasa, Kenya, Tanzania, Rwanda,

guided walks, and kayak. In addition to all this, Mabibi

Burundi, South Sudan, and Eritrea. You can stand

is an enchanting visit to coastal forests, grasslands,

at the beginning of this river of history, imagining

bush and shimmering lakes.

Anthony and Cleopatra sailing its waters.

Zanzibar is composed of the Zanzibar Archipelago in

African Elephants and Holiday Safaris

Sinai Peninsula to the northeast, the Indian Ocean to

the Indian Ocean, 25–50 kilometres off the coast of the mainland. Nungwi on Zanzibar is one of the best

Africa is natural beauty, heart-pounding excitement,

beaches on that relaxed and easy-going island.

and an unforgettable experience. Do you hear waves lapping at a sandy shore? The roar of a lion? The

Love waterfalls? Victoria Falls is among the world’s

thunder of a waterfall? Africa is calling.

most breathtaking waterfalls. Two kilometres wide, the Zambezi River plummets more than one

If your travel plans include an amazing journey

hundred metres into a gorge with steep walls. Get

to this magical place, consider allowing the team

the adrenaline pumping and your hair wet...In the

at Fine Travel to arrange everything to make the

swirling mist of the falls, walk across the footbridge

holiday the very best of the best.

to the sheer buttress of Knife Edge. If the water is low and the wind favourable, you’ll have a grand view of

Fine Travel is a client of Covisory Partners

the Falls and the abyss below the Zambezi Bridge.

Original Post on

For the excitement seeker, there is white-water

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Tax Free Sunshine The advantages for Kiwis being a Temporary Resident in Australia

Covisor y Conn ec t Ma gaz in e l 19


NOTE: A proposed law change, if enacted will amend the current position and that non-residents disposing of a main residence will no longer be eligible for the main residence exemption if the sale occurs on or after 1 July 2019.

If you’ve ever had a passing thought about heading

Australian resident, as defined by the Social Security

off to a warmer, sunnier climate, then you are not the

Act 1991. An Australian resident is defined as ‘a person

only one. Successful New Zealanders much like you

who resides in Australia and is an Australian citizen or

have not only thought about it but have made it a

permanent resident, the holder of a permanent visa

reality. Paying tax in New Zealand on your personal

or a protected special category visa (SCV)’. The SCV

and trust income is just one of those things you

is tied to the eligibility for social security payments

must do – or is it? For some people, after a lifetime

in Australia. Back in 2001, Australia tightened up

of paying tax, the thought of paying any more is

the rules regarding the eligibility of New Zealand

unattractive. For others, their tax burden may be

residents and citizens for social security payments in

the difference between living a comfortable life – or

Australia. Since 26 February 2001, New Zealanders can

having to weigh up their finan-cial priorities carefully.

only get access to social security in Australia if they

Either way, your tax bill constrains your choices.

become permanent residents or Australian citizens.

But it needn’t be that way. There is a great tax

The Advantages of being a Temporary Resident

haven right on your doorstep. It’s not some remote backwater thousands of miles away, where your family will never visit you. In fact, it’s pretty civilised

Once a person is classified as a Temporary Resident

– and only three hours’ away. It’s called Australia

for Australian Income Tax Purposes, they are subject

and it’s worth thinking about. It’s close enough to

to concessional tax provisions under the various

get back quickly if you need to, the opportunities

Australian tax statutes, as follows:

are much more attractive, and if you do it right you can avoid having to pay tax in New Zealand. Sounds tempting?

So how does it work?

• Temporary Residents are not subject to Australian tax on foreign-sourced income other than employment income. Some events relating to employee share acquisitions schemes may be taxable in Australia where some or all the

Australia’s tax rules are a bit different to our own.

employment was in Australia. Apart from this,

Australia taxes people who are ‘income tax resident’

even if funds derived from foreign sourced income

on both their worldwide income and their capital

are remitted to Australia, these amounts are not

gains. But there is a special concession for people


who are regarded as temporary residents. • Temporary Residents are relieved of recordA temporary resident for Australian tax purposes is

keeping obligations in relation to foreign

an individual who holds a temporary visa granted

companies and investment funds for Australian

under the Migration Act 1958. Specifically excluded is

tax purposes.

any individual (or their spouse or de facto) who is an 20 l Covisor y Conn ec t Ma gazin e

• Temporary Residents can ignore capital gains except in relation to taxable Australian property, which is a generally direct or indirect holding of real estate (see below for more detail). • Temporary Residents are relieved of the capital gains tax provisions deeming the sale of their assets in Australia on ceasing to be a Temporary Resident of Australia. Thinking of buying a home in Australia? No problem. Whilst the sale of land that gives rise to a capital gain is taxable, there is an exemption from capital gains tax for a person’s main residence. Note that the separate main residence exemption is not available

What does this mean for you? Providing they can terminate their New Zealand income tax residency (see box below), a New Zealand couple could move to Australia, leaving their money in a bank in New Zealand - even denominated in Australian dollars - and only be subject to 2% tax. Their income would not be subject to tax in Australia even if it were remitted into Australia. The key to taking advantage of your Australian tax haven is to ensure that you end your New Zealand income tax residency. Nigel Smith

to each spouse, and only applies to individuals, so the residence cannot be owned by a trust. The exemption from capital gains tax in Australia applies at a practical level to everything other than direct ownership of land, or indirect land holdings through shares in certain companies that by their very nature are land rich (with 50% of their assets being land). This means that a temporary resident

Breaking your NZ tax residency

can acquire shares in a private company or an

To cease being a resident in New Zealand for

Australian publicly listed company and not be subject

tax purposes, a person must both:

to capital gains tax in Australia when the shares are disposed of. Clearly this is an advantage. Such income is not considered to be Australian sourced, although naturally any dividends would be subject to income tax in Australia. This position continues indefinitely,

1. Be out of New Zealand for 325 days in any 365-day period, and 2. Cease to have a permanent place of abode in New Zealand.

provided Australian permanent residence or citizenship is not taken out.

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WetRider A start-up on a wave A start-up born during the Christmas break.

The need to build a brand in order to build a business

We were at a family beach holiday at Whangamata

A key realisation that occurred inside the first few

when several things came together in short space of

months was that to be successful a single product

time. I was watching others enjoying the water in

wasn’t going to cut it. I needed to create a family of

the peak summer heat, my own experiences in the

products and have an associated name that could

surf, and watching

then be used to generate a following in social media

my son as he prepared to go surfing, all made me

and in specialist stores.

think there must be a better option for some kind of detachable retaining strap for a cap or surf-proof sun

To enable this realisation it meant that even for the


very first product - I needed to create a new brand that would cover multiple future products, and yet

I spent some time looking for the detachable product

these products were yet to be defined. In order

I wanted on-line but as it seemed unavailable I set

to move forward we needed a real focus, and we

about making a prototype to prove my concept in

needed a reason for others to talk to us. We had to

my own mind. I needed to prove a strap could hold

consider what we were going to be about - ie were

on in surf yet still be easily detached when on land.

we in apparel, were we sports equipment, were we

Eventually I succeeded with a hand made prototype

just surf accessories? Were we technical or mainly

using parts sourced off AliExpress - all made on the

fashion? We eventually defined ourselves as being

home sewing machine.

a specialist watersport accessories brand offering specialist items that were not being provided by the

After sharing my thoughts and dreams with others.

big brands in surf or sailing.

The blunt and probably true response was - you’re not going to get rich with it, but there was also some signs of intrigue and positivity amongst those involved, so I pressed on.

PHOTO: Brianna Orams

Current national & under 18 SUP technical & downwind champion is sponsored by Wetrider.

Covisor y Conn ec t Ma gazin e l 23


WetRider To progress we needed a name and a logo. Fortunately my day job is design, brand development,

Taking on the world

and marketing, so this aspect of the project

Once I had the idea to commercialise that initial

happened with relatively little pain. I wanted a name

product it seemed that I thrived on the many hurdles

that encapsulated the four target sports we had

that were thrown in my way. This included offshore

chosen, and what stood out on review was that all

manufacturers refusing to make one product unless

four are adventure related or even extreme sports,

I bought a range of items, to others eagerly peddling

and most importantly you expect to get wet in all of

illegally copied product or its core components.

them when participating. So thinking about being

Language difficulties meant that concepts like FDA

constantly immersed in salt-spray, waves and water

compliance became vague assurances that simply

generally led to us selecting the name “WetRider”.

didnt fly in the real world, and lastly freight and

Adding more products to the mix

logistics to NZ is nightmarishly expensive so work arounds were the norm.In all this there is no denying that my personal background and professional

The great thing about sports in general is that

skills did make my particular journey far easier than

the people involved readily share thoughts, and

most, and without these skills the project could have

experiences with others. This trait led to several

been dead in January 2018. Instead just 12 months

conversations where ideas flowed, and in one a

later I now have 6 products being retailed in three

colleague was sharing his thoughts on getting thirsty


when surfing and having to go in just to grab a drink. This idea gained more traction with the realisation

I can now look forward to Covisory’s input on

that specialist hydration products for sea sports were

international sales, and the many taxation

somehow missing from the market. We figured if

pitfalls I need to avoid. But these surely are good

you could drink or sip just enough to remove a dry

things, as just 12 months ago they were not even a

mouth it was enough, we didnt need to quench a


massive thirst. If we conquered it, we would be first to market with a niche product.. The last product made idea came out of personal experience. After a two hour car ride we were joking about the SUP paddles still being on the roof when we arrived, these carbon paddles were worth about $700 each and were very easily damaged. The WetRider Paddle Softrack was born.

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Simon Welch Simon is a consultant working with Covisory

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Businesses need to adapt to take advantage of the gig economy

successfully in the gig economy. Due to a lack of

After the massive layoffs that the UK, Ireland, and

to interrupt projects, and often redo work entirely,

other EU countries, as well as the U.S experienced

resulting in significant costs.

planning and inadequate processes, businesses often mistakenly rely on freelance workers like they would their employees and pay them as they would a business supplier. The typical result is that the business finds itself being fired by its freelancers. Often lacking a proper contract and having no plan in place to deal with overnight personnel losses, businesses are forced

during and after the financial crisis, many young professionals turned to freelance work to support themselves. This was ideal for cash-strapped businesses who struggled to fill every role with fulltime staff. Now, a decade later, businesses all over the world rely on this new, often digital gig economy workforce as a part-time or irregular skilled labour pool. Freelance labour comes with many advantages for businesses. Unlike employees, they only need to be paid for the specific work they do, they can be laid off quickly and easily, and they aren’t entitled to any benefits. However, like all new things, this new labour model also comes with a few surprises. Many businesses find themselves unprepared to operate

Independence goes both ways The biggest incentive for businesses to use gig economy labour is the lack of long-term obligation involved. It’s important, however, to remember that this goes both ways. Freelancers often cultivate working relationships with many businesses, including direct competitors. They aren’t obligated to remain with a client who they aren’t happy with and need to act aggressively in their professional selfinterest in order to maintain a steady income. To effectively make use of the gig economy, businesses need to put procedures in place to improve labour retention, and to manage the departure of gig workers.

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Pay freelancers on time

any recourse in situations like this. Not only is this

The most common mistake that businesses make is

ability to work with other freelancers in the future, it

to treat freelancers as business suppliers. Businesses

also leaves it vulnerable in turn.

kind of behaviour unprofessional and damaging to its

typically operate at least partly on credit, and excruciatingly slow payment is, unfortunately, the

Contracts always exist to protect both signatories.

norm. Supplier payments are made when revenues

Through a contract, a business can clearly define

come in and are often delayed by days or weeks.

their project, as well as the associated responsibilities

Freelancers, however, are not businesses.

of both parties, and precisely what happens if one party fails to honour its end of the transaction. A

As private individuals, they rely on regular payment

contracted freelancer can be bound to give notice

just as heavily as traditional employees do, and a few

before ending a relationship and can be required

days’ delays can result in serious personal financial

to return documents, or to destroy sensitive data

difficulties. A gig worker who isn’t paid on time

at that time. This latter point is critical, because an

might finance an invoice once or twice to manage

uncontracted freelancer in another country has

the shortfall, but they won’t turn to financing to deal

no such obligations and could instead attempt to

with the issue in the long term. Instead, they’ll simply

capitalise on it. In return, the freelancer can ensure

find new clients, and fire the delinquent business at

that they are similarly protected from potential

the first opportunity. To avoid this, it’s essential that

pitfalls by defining payment terms and the precise

businesses implement specific processes to pay gig

scope of their responsibilities.

workers in a timely manner. That means briefing managers on the importance of approving freelancer

The gig economy offers a powerful and flexible

invoices and ensuring that they’re properly processed

tool for businesses who learn to use it effectively.

in the current payment cycle. Freelancers, for their

By taking the necessary steps to manage the

part, should be informed by what time invoices need

particularities involved, freelance labour allows

to be submitted to be duly processed, and when

businesses to cut costs while improving their

payments will be issued.

financial flexibility and gaining access to a broader pool of talent than would be available through

Always operate under contract Businesses often attempt to avoid signing any official contracts with gig workers, preferring a more informal relationship, especially with regard to international

traditional means. Fifo Capital Business FInance

or digital workers. Lacking a contract, no clear legal relationship exists. This removes any potential barriers to laying off a worker instantly or delaying payment as needed –sometimes indefinitely. Particularly digital workers often operate internationally, and usually lack

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What’s going on in our Family Businesses?

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Why do a large percentage of family businesses fail when transferring to the next generation?

BMW, Samsung, Fisher and Paykel, Michael Hill International, Smith & Caughey and Walmart are examples of highly successful multigenerational family businesses. Although around 75% of businesses in New Zealand are family-run, the statistics paint a sombre picture for the success of these family businesses surviving into the next generation. What makes these businesses so susceptible to failure? Although the reasons are varied, you will find several common themes.

1) Lack of involvement and business

education of the younger generations

How can you expect your successor to take over and run your business successfully if you haven’t spent time training him or her? a. The failure to actively educate the younger generations around finances and business concepts have resulted in many children being ill-prepared to manage money or to step into a business management role in their parents or grandparent’s business. b. By not nurturing a sense of responsibility, history and core family values the next generation lack the understanding of why. c. With no education in the Family Business, it is more likely they will have poor decision-making skills. The result is that the family’s capital can be put at significant risk and ultimately the business could fail. Covisor y Conn ec t Ma gazin e l 29


d. Planning to move the family business between generations will have a greater chance of success

ii. The moral of the lesson is to involve your family in business planning and succession discussions.

if you work for a year or two with your successor(s) before you hand over the reins. e. There are excellent benefits for a family business if your children are encouraged to experience working in other unrelated companies, where their abilities can be grown away from the family.

2) Neopotism Families who continue to promote unqualified or under qualified relatives into positions of power just

3) A lack of family governance structure Governance issues are avoided by many families because it forces them to confront the possible need for significant changes in how they manage their business. Without a robust framework, family business are easy victims to internal discord and ownership issues down the track. a. Governance structures formalise precisely who does what and how.

because they are members of the founding family are also on a fast-track to failure.

b. Having a structure provides a distinct line between family and business, separating family

i. Rather than making your own decisions on who will run the business and then announcing it to

control from the daily management of the business.

the family, a technique we have found to be one of the surest ways to sow family discord, it would be

c. Independent, experienced directors and advisers

wiser to look at your family realistically and plan

need to be part of this to provide an independent,


removed and unbiased perspective.

• Examine the strengths of all possible successors as objectively as possible and think about what’s best for the business. • Do your children or nieces or nephews have the business skills or even the interest to do it? • Consider what happens if there are no family members capable of continuing the business. If this is the case, then your plan needs to focus on the sale of the business at a future point or at least an independent CEO reporting to a board which also contains independent, experienced directors.

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4) Failure to start business succession planning early By delaying retirement and avoiding putting in a succession plan in place can be further exacerbated by an unexpected illness or sudden death which provides real risk to the business and the family’s financial health. a. Planning long term is good. The longer you get to spend on succession planning, the smoother the transition process is likely to be. Consider five or ten years in advance at a minimum.

Case Study 1 One family business we were working alongside was in the process of transferring the management between generations. There was an open dialogue between the generations to ensure that the “child” wanted to acquire the business and understood the financial ramifications. It was vital that it was the child’s wish to purchase the business and not that of their parents which were forced upon them or imputed to them. In this case, the child’s principal concern was financial, i.e. what happens if they could not maintain the business and as a result not be able to service the repayment of the debt to the parents? This can be handled so that perhaps the debt is limited recourse, but the negative is that then removes a valuable asset for the other children. Typically, the family business represents a very high percentage of the wealth of Mum and Dad when we come to look at succession issues. If they want to transfer it to some but not all of their children, then it is important that equality between the children is considered.

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b. Proper succession planning can take years

be better to transfer both management and

whether you bring in outside managers or train

ownership to your chosen successor and make

up an internal successor.

other financial arrangements to benefit your other children.

c. Succession must look at both planned and unplanned scenarios, the later including situations

c. Another option would be to bring in professional

where a parent or senior family member meets an

managers to run the business while retaining

unexpected and untimely death or disability long

ownership in the family as a whole. Many

before their planned retirement.

successful multigenerational family firms do this as it allows them to focus on diversifying and

5) Trying to be fair to all Get over the idea that everyone must have an equal share or even an equal say. Just because you are a family member doesn’t mean you will get a top job in the company unless you are qualified and competent

managing their wealth as well as making it easier to navigate generational transitions. Succession will continue to be one of the principal issues for families owning businesses. With many baby boomers reaching retirement age, what they

to do it.

do with their business is increasingly weighing

a. In any business, management and ownership

parties? Do they transfer it to the next generation?

are not necessarily the same thing. For example, you may decide to transfer management of your business to just one of your children but transfer equal shares in the business to all of your children, whether they’re actively involved in operating the business or not. b. But trying to be “fair” is a nice idea in theory, but it may not be in the best interests of your business. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Alternatively, it may

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upon their minds. Do they sell the business to third What should they do with it? For most, there is never one single right answer to this but what is important is to work through a process so the family can see the options and understand the implications of each. As always, we are here to assist.

Epilogue…. In a similar situation, we came across recently a “child” had been sold the family farm at a significant concessionary value. Two years later that child then turned around and sold the farm at an exorbitant profit. The sale and the significant profit made on

Case Study 2 In this example, the family business was a farm where the “child” that worked the land had got into the ear of Mum and Dad’s independent trustee who also happened to be his chartered accountant. The parents, owners of the land and farm operation, were convinced to sell it to the child at a low price with extremely concessional repayment provisions including that no repayment of the principal was to be made for ten years. While there was interest to be charged, again it was concessional.

the sale fractured the family as the first sale had no clawback provisions for subsequent sale profits built into the agreement as the expectation of the parents and the stated intention of the child was to farm for life When you are dealing with children and potentially transferring an asset to one of them and not the others, the critical concern is to ensure that there is a perception of equality and fairness. Even if there is to be some benefit for the child, in recognition of past service, endeavour or the like, it is essential that this is discussed openly and in a proper forum within the family or it has the potential to divide the family and poison relationships for the future.

A large part of the value of the farm was being transferred to a child without equal consideration for the other children. At the last minute, Mum and Dad did realise

Nigel Smith

there could be an issue and arranged a family conference where the whole exercise was sprung upon the other three unsuspecting children who, to say the least, were somewhat gobsmacked.

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