Judith Collins rejects Green Party concerns over tax behaviour of high-earners

Inland Revenue data shows a big lump of tax paid by people earning about $70,000, reflecting a large group of taxpayers ...
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Inland Revenue data shows a big lump of tax paid by people earning about $70,000, reflecting a large group of taxpayers declaring their taxable income at that level.

The Green Party believes it has found fresh evidence of tax avoidance and evasion by high-earners, after Inland Revenue data showed a lump in the number of Kiwis reporting their personal income at about $70,000 – the level at which the top rate of tax kicks in.

Revenue Minister Judith Collins rejected the concerns. 

Inland Revenue has released a breakdown showing the amount of income tax paid by taxpayers at different incomes in 2015.

Green Party co-leader James Shaw says income tax cuts in 2010 were supposed to end gaming of the tax system.
GRANT MATTHEW/STUFF

Green Party co-leader James Shaw says income tax cuts in 2010 were supposed to end gaming of the tax system.

The chart showed a spike at and slightly above the point at which the top 33 per cent tax threshold kicks in at $70,000. The spike was previously visible around the previous top-tax threshold of $60,000, before it was raised in 2008.

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Green Party co-leader James Shaw believed the bulk of the spike was caused by people using legal means to cap their taxable income, but believed it also reflected an element of outright tax evasion.

Both concerned him.

"National's 2010 tax cuts for high income earners were sold to us on the basis of eliminating ... tax avoidance behaviour, by bringing the top income-tax rate down closer to the company and trust tax rate — two of the key vehicles used to avoid paying tax," he said.

"Cutting the top tax rate for wealthy tax payers has not stopped tax avoidance, it's just shifted the problem."

Collins said the clustering of taxpayers with incomes at $70,000 was not evidence of tax evasion or avoidance.

A lot of the clustering would be due to trusts distributing income to their beneficiaries, she said.

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"Retaining income in trusts was previously an effective tax minimisation technique, as the tax rate that applied to amounts retained in trusts was lower than the top personal tax rate. The Government addressed this issue as part of its Budget 2010 tax package.

"There is still some benefit distributing income from a trust to those who have income below $70,000 but this just ensures the beneficiaries are taxed appropriately," she said.

Another reason for the clustering would be distributions from closely-held companies to their shareholders, she said.

"There is a small tax advantage in a company not distributing all of its income, as the company tax rate is lower than the top personal tax rate – 28 per cent. However, this advantage is small, and will largely be clawed back when the company ultimately pays its profits out to shareholders as dividends, which will be taxed at the individuals' tax rate." 

Shaw agreed there might be totally innocent explanations for part of the spike. Some people might choose not to do overtime that took them over the threshold, or not to fight hard for pay rises that took them just over it.

But he did not believe they could account for the data, given most people earning about $70,000 were likely to be on a fixed salary.

"How many people stop working the moment they get to that tax threshold? I suspect it is pretty few."

Inland Revenue said two larger spikes under an income of $25,000 occurred as a result of big groups of superannuitants and beneficiaries being on the exact same income.

 - Stuff

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