Tax breaks a la Panama Papers not for everyday Kiwis video

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What's the New Zealand link to the Panama Papers?

The infamous Panama Papers have brought to light some of New Zealand's legal loopholes - so can you get a tax break like the super-rich?

Under New Zealand law, someone who is not a New Zealand resident can set up a foreign trust without saying who is depositing the money. 

These laws can help people avoid paying tax in their home country.

Demand for New Zealand trusts went into overdrive late last year with Mossack Fonseca staff in Panama urging New Zealand ...
SEAN GALLUP/GETTY IMAGES

Demand for New Zealand trusts went into overdrive late last year with Mossack Fonseca staff in Panama urging New Zealand staff to "chase the money", the leaked documents reveal.

We asked experts whether everyday Kiwis earning the average wage of just under $50,000 a year could also take advantage of these tax benefits to help them get ahead.

READ MORE:
* Panama Papers: What are they and why should we care?
* Panama Papers have little impact so far in New Zealand
* Panama papers: NZ trusts at the centre of Malta money scandal, Mossack Fonseca papers show
* John Key assures the public he is not linked to the Panama Papers scandal
* Panama Papers: Who is John Shewan and what's all the fuss about?

 

 

Anti-money laundering expert Ron Pol said the wealthy elites' Panama Papers-style tax dodging through offshore structures was unavailable to ordinary citizens and it "inevitably exacerbates wealth inequality".

While legal, tax avoidance schemes were generally only available to large corporates and wealthy individuals, which increased wealth inequality, Pol said.

Anti-money laundering expert Ron Pol says complicated tax planning helps the rich get richer, are out of reach of the ...
SABRINA HYDE/SUPPLIED

Anti-money laundering expert Ron Pol says complicated tax planning helps the rich get richer, are out of reach of the average citizen.

So the average Kiwi generally can't take advantage of most of the tax and asset sharing loopholes exposed in the Panama Papers.

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"For most Kiwis, the Prime Minister is right when he says that New Zealand is not a tax haven."

The only people who might regard our offshore trusts system as a tax haven were foreigners, he said.

PM John Key says he's not linked to the Panama Papers scandal.

PM John Key says he's not linked to the Panama Papers scandal.

"We don't charge them tax, so they don't breach our tax laws."

However, New Zealand also required few details about them, so may not know if they've structured their holdings to shelter from the tax authorities elsewhere.

Again, this type of tax evasion enables the rich to get richer, Pol said.

New Zealand has been named alongside the likes of Grand Cayman Island as a tax haven thanks to our trust laws.
LAURA MAGRUDER

New Zealand has been named alongside the likes of Grand Cayman Island as a tax haven thanks to our trust laws.

There are a series of common schemes that typically involved setting up corporate structures in multiple jurisdictions (countries) for both (legal) tax minimisation/avoidance and (illegal) tax evasion or money laundering purposes.

Using several jurisdictions may be necessary for things like taking advantage of different tax rates in different countries.

But the average Kiwi can't take advantage of these schemes because setting up the various entities costs money "well beyond the means of the average Kiwi", Pol said.

Average-income Kiwis looking for a bit of help in the tax department should check their eligibility for legitimate IRD ...
Maarten Holl/FAIRFAX NZ

Average-income Kiwis looking for a bit of help in the tax department should check their eligibility for legitimate IRD schemes like independent earners tax credits.

The person setting up the scheme would have to pay fees to firms in each jurisdiction, in both establishment fees and ongoing costs.

And to get it right, you'd usually need the services of specialist lawyers and accounting firms, so you can imagine the fees.

'RIGHT AMOUNT OF TAX'

Pol said those able to take advantage of such schemes, and their professional advisers, argued they were simply paying the 'right' amount of tax.

"In a strict legalistic sense they are mostly right, although such arguments don't sit well with a small group of the super-rich."

Warren Buffett famously invited governments to stop mollycoddling the rich and powerful, Pol said.

Buffett was uncomfortable with paying a lesser tax rate than his secretary and regularly remonstrated for a fairer tax system.

The key to reducing wealth inequality from tax avoidance lies more with the countries that allowed such schemes to exist, than the corporates and wealthy elites who used expensive lawyers and accountants to take advantage of them, he said.

COST-BENEFIT ANALYSIS 

Baucher Consulting tax expert Terry Baucher said the short answer was tax breaks were for the rich and powerful, not us normal folk.

From a cost-benefit perspective, setting up a complicated tax planning scheme in foreign jurisdictions was unlikely to be worth your while.

And if someone in New Zealand went to that much effort, it was likely to raise a few eyebrows, Baucher said.

There had been a lot of emphasis on the potentially criminal tax avoidance following the Panama Papers release.

However, the people who were using New Zealand's foreign trusts were, in a lot of cases, trying to keep their assets safe from "very bad people".

Trusts were not just used for "tax planning purposes", they were also a legitimate way to keep assets, like the family home, secure. 

And why does it matter if we don't tax rich foreigners for setting up a trust in New Zealand?

These people or corporations were not New Zealand residents and their money was not coming from New Zealand so they would not usually be taxed here.

Baucher said the days of tax havens were numbered, with global anti-money laundering laws making it difficult for people to hide their assets.

CREATIVE ACCOUNTING

Baucher said Panama Papers-style tax advantages were not on the cards for most average Kiwis.

But there are a few ways you might be able to legally minimise your tax payments.

Those who earn less than $48,000 might be eligible for independent earner tax credits.

This is for people not receiving other assistance like working for families tax credits.

Considering a special tax code, rather than paying secondary tax, may also be a way to overall pay less tax and consolidate your tax planning, he said.

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