From the 1st of April 2021 the top marginal tax rate for individuals is being raised to 39% on income earned over $180,000. With this change there are several things to consider from a tax perspective as company and trust tax rates remain at 28% and 33% respectively. It may seem prudent to setup a trust or leave more profit in your company as a means to lower your overall tax bill. However, the IRD has signaled they will be closely monitoring the establishment of new trusts, movement of funds, and other related activity through the use of increased disclosure requirements on taxpayers and the increased capability of their IT system to carry out analytics to identify behaviour changes. Minister of Revenue, Hon David Parker has stated “If that behaviour becomes apparent, then we’ll move to increase the trust rate to avoid that being used as an avoidance loophole”.
A “tax avoidance arrangement” is an arrangement that has tax avoidance as one of its purposes or effects, the tax effect must be more than merely incidental. If a taxpayer is found to have entered into a tax avoidance arrangement, they are subject to penalties of up to 100% of the shortfall. It is imperative that there are commercial reasons outside of tax minimisation for restructuring involving trusts or companies, and transactions related to them as IRD scrutiny will be particularly high in these areas.
A “tax avoidance arrangement” is an arrangement that has tax avoidance as one of its purposes or effects, the tax effect must be more than merely incidental. If a taxpayer is found to have entered into a tax avoidance arrangement, they are subject to penalties of up to 100% of the shortfall. It is imperative that there are commercial reasons outside of tax minimisation for restructuring involving trusts or companies, and transactions related to them as IRD scrutiny will be particularly high in these areas.
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