Anna Leask

Anna Leask is a police reporter for the New Zealand Herald.

How super-rich Kiwis dodge tax

Many Kiwis with assets of more than $50m declared income of less than $70,000 in their tax returns

The multi-millionaires used a variety of 6800 tax-planning devices - such as companies, trusts and overseas bank accounts - to avoid paying tax.
The multi-millionaires used a variety of 6800 tax-planning devices - such as companies, trusts and overseas bank accounts - to avoid paying tax.

Two-thirds of New Zealand's richest people are not paying the top personal tax rate, with increasingly complex overseas schemes and bank accounts being used to evade the taxman.

Inland Revenue has found that 107 out of 161 "high-wealth individuals" who own or control more than $50 million worth of assets declared their personal income in the last financial year was less than $70,000 - the starting point for the top tax bracket of 33 cents in the dollar.

The multimillionaires used a variety of 6,800 tax-planning devices - such as companies, trusts and overseas bank accounts - to avoid paying tax. One had a network of 197 entities.

The IRD is unable to say whether some of those it is investigating may have paid the top tax rate on income received through trusts.

One expert said once that was included, it would show some were paying a fair share.

But University of Auckland tax specialist Michael Littlewood said he was "not even slightly surprised" at the level of tax evasion among the super rich.

"They do it because if there's a way you can pay less tax, why wouldn't you? I think they are a small minority though. The average person has got relatively little opportunity to avoid tax other than by reducing their liability, for example buying duty free."

Dr Littlewood estimated that up to $36 trillion was hidden in tax havens around the world. "It is an enormous amount of wealth. Pretty much every government in the world is attempting to do something about it."

In 2010, the IRD Tax Working Group raised concerns about the rich avoiding the top tax rate through sheltering devices such as family trusts.

The number had increased from 146,000 in 2001 to 237,000 in 2010.

Months later, the Government cut the top personal tax rate from 38 per cent to 33 to bring it into line with the tax rate for trusts.

But even after that change, the IRD continues to claw back hundreds of millions of dollars in extra tax from the super rich - $89 million in the 2012/13 financial year so far.

A report on tax compliance said the IRD had noted an "increasing complexity" in the financing arrangements of some companies, large corporations and high-wealth or -income individuals in the past year.

Aggressive tax arrangements can include the use of tax havens, transferring profits to associated overseas entities, using trusts to divert taxable income, and showing lifestyle and luxury assets as business ones.

"Some customers, particularly high-wealth and high-income individuals, are continuing to use offshore schemes and bank accounts to evade tax by misrepresenting how much they earn or own. There are also customers who under report their worldwide income," according to the 2012/13 report.

Labour's revenue spokesman, David Cunliffe, said it appeared the problem here was worsening.

"I am astounded and appalled. The legitimate tax system requires that everyone pays their fair share.

"If people want to [avoid tax] then it will require the Government to be much stricter and crack down on avoidance opportunities. Why should people who are the most privileged sector of society use their position to avoid paying a fair share of tax?

"That is morally wrong and should be illegal."

However, tax lawyer Andrew Ryan from Minter Ellison Rudd Watts in Auckland said it was not accurate to suggest high-wealth individuals were "getting away without paying tax".

"These high-net-wealth individuals will most probably be paying more GST than most individuals. In order to get a true reflection of the tax paid by the wealthiest individuals, it is necessary to include the tax paid by their companies and trusts.

"Not paying personal tax on income at the top tax rate does not mean that an individual is not paying a fair share of tax, once tax paid by their associates is factored in."

Figures supplied to the Weekend Herald show that the IRD has collected more than $600 million in extra tax since a unit was set up in 2003 to investigate high-wealth individuals.

Other cases still under investigation total $212 million, and a further $112 million is disputed.

Inland Revenue has also identified 500 people it believes may have given themselves artificially low salaries to avoid paying the top personal rate.

Taxpayers were given a 16-month grace period in which to make a voluntary disclosure - granted after the outcome of the landmark Penny and Hooper case in November 2011.

Ian Penny and Gary Hooper were Christchurch surgeons who used company structures and family trusts to artificially lower their salaries to avoid a higher personal income tax rate introduced in 2001. The Supreme Court sided with the IRD when it ruled that "income derived from personal exertion should belong in its appropriate taxation band and should not be inappropriately diverted away".

About 800 people made voluntary disclosures since the IRD announced the concession and an extra $20 million in unpaid tax is likely to be collected.


Figures

193 New Zealanders own or control assets worth more than $50 million

161 have filed tax returns for the 2012 financial year

107 have declared their personal income is less than $70,000

- NZ Herald

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