The wealthy trying to avoid new tax

[Lilith7]

Surprising - no,  not even slightly.



https://www.stuff.co.nz/business/1288147...e-about-it

"Since the introduction of a new top personal tax rate, Inland Revenue has recorded a boom in the number of lower-tax entities created by high earners, which could be used to reduce tax bills.

The department (IR) warns efforts to dodge the new 39% tax by diverting income through companies (where they can be taxed at a maximum of 28%) and trusts (which can be taxed at a maximum of 33%) is likely to contribute to a $2.89 billion fall in revenues from high earners in the 2022 tax year.

The department is likely to re-open consultation on law changes to cut off methods of using companies to dodge tax later this year, after submissions raised issues during an initial consultation that closed in late-April, and moves are intended to be taken to crack down on trusts next year.

IR spokesperson Tony Morris says staff are not waiting on these changes, and if behaviour indicates someone has tried to avoid the top personal tax rate by diverting income to lower-tax entities they would be contacted and face substantial financial penalties."

[Outsider]

I can't believe they don't already have law changes to catch these people already. What have they been doing?
It's so obvious that's what people will do that you have to have things in place before you announce higher taxes.

[Lilith7]

I can't believe they don't already have law changes to catch these people already. What have they been doing?
It's so obvious that's what people will do that you have to have things in place before you announce higher taxes.

That would have worked better - but then they'd be accused of being underhanded, with some justification.

[nbrob]

Good on them. The top tax rate should have stayed at 33%. Robertson will only waste it.

[Oh_hunnihunni]

What rubbish. Waste it on what? The health service? Education?

[king1]

What rubbish. Waste it on what? The health service? Education?

social services?  the elderly?  All wasted money...

[Praktica]

What rubbish. Waste it on what? The health service? Education?

social services?  the elderly?  All wasted money...

Yeah, they should spend it on tax cuts for the rich, and moar roads!

[Zurdo]

They could waste it to try and repair some old roads rather than keep making new ones.

[Lilith7]

The more I see of the poverty we now have here, the more I think we should emulate the Nordic countries as far as possible & have high taxes which cover health, education, welfare etc. etc. & whose people feature at the top of those happiest people surveys.

But then the older I get the more radical i seem to be getting - Gloria Steinem was right!

[king1]

39% tax rate applies to dollars earned over $180,000 - such a travesty, they'll probably need therapy...

[Praktica]

Back in the days of tax cuts and other things for taxpayers, I was always either earning just too much, or not enough, to see anything worthwhile.

[dken31]

This financial year, I'll pay about $127K income tax, but will avoid paying a further $25K by spreading income between me, my wife and kids and our trust (with very little taxed at 39%). The income I earn comes from owning and operating a business in Auckland that comes with significant risk and responsibility, and employs four well paid full-time staff.

No doubt some of you will have a low opinion of my "avoiding tax" and think that I'm dodging my full obligation to my fellow tax payers. However, if I chose to shut down my business, move to the provinces for a slower pace of life, and take a job being paid only $80K, I'd only have to pay $17K tax and could start getting $23K in Working for Families payments. So, instead of paying $127K, I'd be receiving net $6K. And yet, presumably, none of you would consider me to have any obligation to go back to my current occupation.

I think society needs to be careful not to bite the hands that feed it. For the "a bit above average" like me, the option to chose lifestyle over income definitely becomes more appealing if the tax burden becomes too onerous. For the mega wealthy, moving to another country is more likely to appeal. The point is, rich people already pay most of the income tax being paid; if society keeps trying to squeeze more and more out of them, if it chases enough rich away, the tax take will actually decrease and then the average/poor will be really stuffed

[king1]

This financial year, I'll pay about $127K income tax, but will avoid paying a further $25K by spreading income between me, my wife and kids and our trust (with very little taxed at 39%).  The income I earn comes from owning and operating a business in Auckland that comes with significant risk and responsibility, and employs four well paid full-time staff.

No doubt some of you will have a low opinion of my "avoiding tax" and think that I'm dodging my full obligation to my fellow tax payers. However, if I chose to shut down my business, move to the provinces for a slower pace of life, and take a job being paid only $80K, I'd only have to pay $17K tax and could start getting $23K in Working for Families payments. So, instead of paying $127K, I'd be receiving net $6K. And yet, presumably, none of you would consider me to have any obligation to go back to my current occupation.

I think society needs to be careful not to bite the hands that feed it.  For the "a bit above average" like me, the option to chose lifestyle over income definitely becomes more appealing if the tax burden becomes too onerous. For the mega wealthy, moving to another country is more likely to appeal.  The point is, rich people already pay most of the income tax being paid; if society keeps trying to squeeze more and more out of them, if it chases enough rich away, the tax take will actually decrease and then the average/poor will be really stuffed

The "rich" folks I know of are addicted to making money so I doubt very much that the prospect of a bit of extra tax alone is going to make them pack it all in and move to the 'burbs.  That decision will be made by other factors, such as health, lifestyle, retirement plans etc...

[Praktica]

My heart bleeds for the well off - poor things, living well, and then they are asked to do a little more for society, and they get shitty. Selfishness personified.

[king1]

For the sake of clarity - tax avoidance is perfectly legal and legit, tax evasion is a crime...

tax avoidance: An action taken to lessen tax liability and maximize after-tax income.
tax evasionÔÇöThe failure┬áto pay or a deliberate underpayment of taxes.
https://apps.irs.gov/app/understandingTa..._les03.pdf

interesting article on the topic
https://www.interest.co.nz/personal-fina...-and-harsh

[Zurdo]

Having been in business myself - yes, avoiding tax is part of the game, claiming on everything possible. We can justify that all we like, but unfortunately the wage earner on PAYE is no longer able to do that, they just pay tax. They could level the playing field and let the wage earner claim ''entertainment, depreciation on everything they buy, vehicle expenses etc. Just give us the option to avoid tax like the rich.

[dken31]

The "evasion is illegal but avoidance is legit" is a common misconception, but a misconception nonetheless. It is half true, in that evasion is a criminal offence and can result in jail time, whereas avoidance isn't a criminal act. But avoidance can still result in penalties of up to 100% of the tax avoided (i.e. you end up having to pay the avoided tax twice) so isn't something you want to be caught doing.
The tax act contains general anti- avoidance provisions which prohibit doing anything for purpose of avoiding tax. So, instead, successful tax avoidance has to be carefully dressed up as having solid commercial justification, with the tax benefit being merely an incidental byproduct...and that's how good accountants earn their fees.
To be clear though, the tales of rich people using good accountants to reduce their tax bill to zero are just not true (that would certainly involve evasion, not just well disguised avoidance). Rich people using good accountants still pay heaps of tax, but just not quite as much as they might otherwise have paid.

[king1]

a bit of wordplay going on there me thinks... It can't really be a misconception and half true...
you either got caught out or you didn't, hypothetically speaking. The fact one didn't get prosecuted doesn't preclude it from being tax evasion, it simply suggests the expense of prosecuting outweighed the crime... But it probably makes it more palatable for individuals concerned to consider it "avoidance" though.

[Lilith7]

Well then, time perhaps to make avoidance illegal too.

[SueDonim]

This financial year, I'll pay about $127K income tax, but will avoid paying a further $25K by spreading income between me, my wife and kids and our trust (with very little taxed at 39%).  The income I earn comes from owning and operating a business in Auckland that comes with significant risk and responsibility, and employs four well paid full-time staff.

No doubt some of you will have a low opinion of my "avoiding tax" and think that I'm dodging my full obligation to my fellow tax payers. However, if I chose to shut down my business, move to the provinces for a slower pace of life, and take a job being paid only $80K, I'd only have to pay $17K tax and could start getting $23K in Working for Families payments. So, instead of paying $127K, I'd be receiving net $6K. And yet, presumably, none of you would consider me to have any obligation to go back to my current occupation.

I think society needs to be careful not to bite the hands that feed it.  For the "a bit above average" like me, the option to chose lifestyle over income definitely becomes more appealing if the tax burden becomes too onerous. For the mega wealthy, moving to another country is more likely to appeal.  The point is, rich people already pay most of the income tax being paid; if society keeps trying to squeeze more and more out of them, if it chases enough rich away, the tax take will actually decrease and then the average/poor will be really stuffed

The "rich" folks I know of are addicted to making money so I doubt very much that the prospect of a bit of extra tax alone is going to make them pack it all in and move to the 'burbs.  That decision will be made by other factors, such as health, lifestyle, retirement plans etc...

How do you define "rich"? It's a very fluid term no matter how you look at it. I know people who live a lavish lifestyle but hover on the edge of bankruptcy most of the time. And I know people who live very frugally and have a lot of background resource but you wouldn't know unless they tell you. A while ago when they were threatening a wealth tax and some commentators were speculating what level that should kick in at we were in that category. Yet our combined income is less than the threshold for the cost of living payment being handed out this winter.

I agree with dken31. People should stop biting the hand that feeds them and the rest of that paragraph is so right. People should stop trying to drag down those who have worked and achieved in their lifetime and should look hard at those who are deliberately under-productive and wasteful yet cry "poor". A few years ago DH was working in a house with three generations of beneficiaries. The matriarch was on the computer every Tuesday and Thursday and from the ensuing conversations he overheard he gleaned that there was far more money going into that house than ours. Yet they considered themselves "poor" (but could still drink lots of beer and eat takeaways every day).

As has been said, tax evasion is a crime and I abhor people who cheat. I spent over 40 years on PAYE which gives no ability to claim the cost of actually going to work. On the other hand, structuring affairs to legally avoid paying more tax that is due is fair and reasonable.

The two biggest issues are the "charities" that are just businesses that hide behind this status while also competing against others that do pay tax, and the fact that IR doesn't do the most basic things to pull in tax that is due. How much have we had the "bright-line" rules and threats of capital gains tax rammed at us when in fact the rules were always very clear - if you buy anything (including property) with the intent of on-selling it, then any profit is income and should be taxed.