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Many top earners should be able to partially protect themselves from Labor’s top 39% income tax rate, experts say.
Finance Minister Grant Robertson predicted that the new tax rate, which would impose on income in excess of $ 180,000 a year, would raise $ 550 million a year.
But that figure seems to assume that almost all of the income people made above $ 180,000 a year would be covered by the tax change.
Former Inland Revenue Deputy Commissioner Robin Oliver, who now runs his own tax advisory service, predicted there would be “a lot of leakage.”
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Only earned income of more than $ 180,000 in the form of wages and salaries will likely be taxed at the new rate, he said.
“That’s what you will get, you won’t get much more.”
ROBERT KITCHEN / Things
Labor’s proposed new maximum tax band will leave the wealthy largely intact, some tax experts believe.
Most of the income of high-earners was structured so that it was taxed at the maximum corporate tax rate of 28 percent and reinvested or invested in portfolio investment entities (PIEs) that also have a tax rate. maximum tax of 28 percent, he said.
Evidence presented to Sir Michael Cullen’s Tax Task Force in 2018 suggested that of the $ 658 million paid in taxes by “people of great wealth” in 2014, only $ 36 million, or 5 percent, was paid in taxes. about rent.
Another $ 485 million was paid in the form of corporation tax by companies controlled by wealthy people, and $ 124 million by trusts they controlled, whose tax rates would not change.
The labor tax change would incentivize more wealthy people who could currently pay 33 percent taxes to make use of those structures, he said.
Oliver pointed out that the $ 180,000 threshold at which Labor has proposed that the new rate be activated was also the maximum salary that MPs who did not have ministerial responsibilities could earn.
While executives earning salaries who were paid more than $ 180,000 would have a hard time avoiding the new tax rate, their salary was often set with an eye on international markets and would likely pay themselves more, he said.
Robert Kitchin / Things
Green Party co-leader James Shaw has dismissed the Labor tax plan as a “tweak.”
Chartered accountants ANZ’s tax leader John Cuthbertson believed that high-paid people, such as company CEOs, might not be able to do much to avoid tax increases.
“Wages and employees are often stuck in their luck.”
But he agreed that people who earned significant sums from self-employment and investments might have more options.
Large variations between the top income tax rate, the business tax rate and the top trust tax rate of 33 percent increased people’s focus on tax planning, he said.
“That creates a fertile market in areas that are not productive,” he said.
“It emphasizes the integrity of tax systems when you have such a wide differential.”
One simple way that high-income people could reduce some of their tax exposure would be to split their investment income with their partner if they were in a different tax bracket, he said.
Cuthbertson believed that Labor’s proposed 39 percent tax rate could encourage more people to set up trusts or company structures through which to channel their income.
That would be mainly “on the margins,” he said.
PWC’s tax partner, Geof Nightingale, also warned that a “widening gap” between the maximum rate of personal income tax and the corporate and fiduciary rate would put more pressure on the tax administration.
Labor’s fiscal policy has drawn criticism from both ends of the political spectrum, but with the consensus that the impact of the dollar would not be great.
ACT Party leader David Seymour described the Labor tax plan as “divisive populism” while predicting it would generate “little revenue.”
Green Party co-leader James Shaw said it was a “tweak.”
Covid-19 had increased the wealth of those who owned property and stocks, while the median income of “working New Zealanders” had fallen, he said.
“Currently, the lucky few are accumulating wealth and not having to pay taxes on those assets, while everyone else is finding it more difficult to pay rent and rising bills, or put food on the table.
“Having already ruled out the capital gains tax, blocking any taxes on assets, property or wealth blocks poverty and structural inequality,” he said.
Nightingale expressed the same concern.
“Earned income is taxed more and we still have the tax-free capital gains gap that will be fueled by quantitative easing,” he said.
“This exacerbates the current distortion in the system.”
