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Finance Minister David Parker says the government will keep a close eye on trusts to see if people are using them to circumvent the new 39 percent income tax rate.
Currently, income from trusts is subject to a tax rate of 33 percent, the same rate that applies to income earned in the upper tax bracket.
But the government will pass legislation this week that will raise the top income tax rate to 39 percent. Opening a gap between the income tax rate and the fiduciary rate creates an incentive to funnel income through a trust to reduce the amount of taxes paid.
Parker said that if there was evidence of this, the government could also increase the confidence rate to 39 percent.
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“We are going to monitor it. If that behavior becomes apparent, then we will act to increase the confidence rate to prevent it from being used as an evasion loophole, ”said Parker.
Parker said this should not be construed as a threat. Nor is it the government’s first or preferred choice.
The government will give the finance commissioner an information gathering power to make sure people don’t use trusts to pay the tax.
“We are not going to do anything about the introduction of [tax] bill, but we are giving the commissioner an information gathering power to see if they are being used to prevent it. And if so, we will move forward, ”Parker said.
ROBERT KITCHEN / Things
David Parker says that a change in the fiat rate is possible if people adopt the new income tax rate.
Under the previous Labor government, there were concerns that trusts would be used to circumvent income tax.
When the party announced its fiscal policy for the 2020 general election, Labor said the new Finance powers meant this was less of a problem.
“We are not going to increase the trust rate because there are legitimate reasons for people to use trusts. But if we see exploitation of the trust system, then we will act to crack down on the people who are exploiting it, ”Labor said.
“The Government has invested more than $ 30 million in the IRD’s ability to prosecute people who evade their tax obligations, and we will continue this work.”
