With the release of the 2023 budget there isn’t much tax reform except a higher trustee tax rate. The rate previously being 33% has now been aligned with the highest income tax rate of 39%.
Following the release of the “High Worth Individuals” research, there has been talk of unfairness in the effective tax rate of the average person and wealthier individuals. Essentially it was found that wealthier individuals can avoid higher tax rates taxes through utilisation of capital gains and trusts by funnelling their income through trusts. Those on salary/wages carry the burden of the tax system. The driver behind the higher tax rate is IRD's High Wealth Individuals report.
What does this mean?
This new rate means that trustees will now be taxed at this rate. Only 5% of trustees are expected to be affected by the new rate and this will generate the government around $317 million annually. While this is step toward a more equitable system, those affected by this tax may look at ways to decrease their burden.
This may be possible through taking advantage of beneficiaries with incomes below $180,000. While the higher rate has been implemented in order to capture wealthier individuals, they will likely find other loopholes to decrease their tax burden. This is not surprising as it is in their best interests to pay as less as possible.
Overall, while this new rate will not affect the majority of New Zealanders, it may affect wealthier individuals who funnel their incomes through trusts. Whether this will raise significant revenue or not will be observed in the next few years. The government has taken the right step in increasing the trustee rate as all other OECD countries have their trustee tax rates aligned with income tax rates. This will be a step toward a more fair and equitable taxation system and hopefully will contribute to the redistribution of wealth in NZ.
If you believe this new rate affects you, for further advice and assistance contact us below.
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