Discussion documents from the Government on its plans tax trust distributions to minors at 33 per cent show that the move hit thousands of people.
"Trust beneficiary income that is claimed to be income of children is, in substance, often not theirs," Finance Minister Michael Cullen says. "For example, in the 1998 income year about 3,500 children under the age of six received a total of more than $27 million in beneficiary income from things like business activities. This figure excludes interest and dividend income distributed by trusts.
"It is absurd to argue that an average of $7,700 in income attributed to these very young children should qualify for tax rates meant to apply to people on low incomes."
The discussion paper also shows that the moves are designed to mirror Australian tax laws.
"Australia does not allow trust income of child beneficiaries to be taxed as if it were income derived by a low-income earner. Australia taxes beneficiary income of minors at the trustee rate and top personal income tax rate – 47 per cent," the paper says.
The proposed changes mirror this, however the trustee tax rate in New Zealand will remain at 33 per cent, not 39 per cent, the paper says.
The Government is seeking submissions on three areas of the proposal, namely:
In terms of exemptions it is proposing adopting a list similar to what is used in Australia. That exempts a whole raft of children including those who receive income out of a will, codicil, intestacy or a court order, those that received money coming from property transferred to a trust as part of a family breakdown and money collected from a lottery as long as the beneficiary was the beneficial owner of the prize.
The Government says that distributions of beneficiary income to minors from the Maori Trustee and Maori authorities will not b subject to the rule.
It suggests the term minor should be18.
Submissions close on July 24. The Government hopes to put a bill into Parliament in October and put the changes into effect from 1 April next year.
WHAT DO YOU THINK OF THE PROPOSED CHANGES?
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