IRD eyes tax minimisation schemes

Tax minimisation using trusts and salary sacrifice superannuation packages comes in for special mention in the Inland Revenue Department’s briefing papers to Revenue Minister Peter Dunne.

Thursday, November 17th 2005, 6:04AM

by Rob Hosking

Officials say there is growing evidence of people in higher income brackets diverting some or all of their income above $60,000 into superannuation schemes which come under the specified superannuation contribution withholding tax (SSCWT) rate of 33%.

“Although there is no hard evidence yet of significant increases in salary sacrifice, there is strong anecdotal evidence that schemes using SSCWT to lower tax payments aggressively are on the rise.”

On trusts, the IRD argues that since 2000-01 the income from trusts to trustees has rocketed. Income from trusts is also taxed at 33%, and, over the past five years trustee income more than trebled, and beneficiaries’ income grew by 28%.

Officials suggest several ways of dealing with these changes in behaviour, arguing that “the cumulative evidence is that, in practice, our tax system may be much less progressive than the statutory rates would suggest…it is critical for taxpayers to accept that the tax rules are broadly fair and even handed.

There is a danger that the emerging pressures we have identified may undermine the willingness of individuals to comply voluntarily.

“This needs to be taken into account when considering future changes.”

The changes suggested include lowering the top personal rate; lifting the company and trustee tax rate to 39% (although officials say there are “obvious problems” with that idea).

A more likely option appears to be reducing the top personal rate from 39% to 36%; lifting the trustee to 36%; and lowering the company tax rate to 30% to maintain the 6% margin between the company rate and the top personal rate.

Dunne has already indicated a keenness to move the company rate to 30% to match that of Australia.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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