In 2021, Inland Revenue increased the top tax rate to 39%. That rate is higher than both the 28% tax rate for companies and the 33% tax rate for trusts.
The new tax rate concerns Inland Revenue, because it doesn’t want people to use companies and trusts to avoid paying tax at the highest rate. It warned early on that it would be keeping a close eye on the situation.
After some evidence that high earners are taking advantage of this “arbitrage incentive”, Inland Revenue is now proposing changes that will make it more difficult to do so.
What is being proposed?
It is proposing three rounds of changes:
- First, in the way it treats company and trust dividends to prevent “dividend stripping”.
- Then, looking at how income is retained in companies to prevent high-earning professionals from reducing their taxable income by keeping money in their businesses.
- And finally, considering issues around tax on investment fund income such as PIE funds.
Will this affect you?
If you are one of the estimated 119,000 Kiwis who earn over $180,000 in taxable income, these changes may well have an impact on how you should structure your entities or allocate your income. For the non-accountant, these proposals can be tricky to understand, but we are keeping a close eye on the changing tax environment to make sure we’re always up to date.
Our priority is ensuring that you are always compliant: paying the correct amount of tax – not too little and not too much. You don’t want to be the subject of compliance action for avoiding tax, so please talk to us so we can make a plan for correctly calculating your tax, structuring your entities and allocating your income in a fully compliant way.
Get in touch to talk about tax.