Tax Scenario

Warren Beatty and Bill Claystone have been best friends since their university days. In 2015, they co-founded a New Zealand resident company called Woollen Goods Ltd. The company specialises in selling New Zealand woollen products, and both Warren and Bill hold an equal share of 50% each in the company. Only Bill is a shareholder employee and he is paid an annual salary of $110,000.

On 1 April 2022, Bill, being health-conscious, decided to sign up for a 12-month membership contract with a local gym under his own name. However, Woollen Goods Ltd paid Bills gym membership on his behalf. The membership costs $600 per quarter.

Additionally, in June 2022, Woollen Goods Ltd paid for Warrens parents accommodation at Happy Hotel in Fiji as a celebration of their 40^th wedding anniversary. The total cost for the 4-night stay was $1,000.

Woollen Goods Ltd files quarterly FBT returns.

Warrens wife Anne is employed by Kingdom Ltd. Kingdom Ltd, is a trading (ordinary) company fully owned by Royal Trust. Anne is the trustee of Royal Trust and the beneficiaries are Anne and her two children, Lemon (aged 18) and Lime (aged 15). Annes brother, Steve, is the settlor of the Majesty Trust. On 1 July 2022, Kingdom Ltd extended a loan to Majesty Trust, charging an interest rate of 4% p.a. Both trusts are complying trusts and they were set up several years ago.

ISSUE 1: Is Woollen Goods Ltd liable for FBT on Bills gym membership? ( under the new Zealand income tax act 2007)