Budget 2023: Tax dodge clampdown, FMA wings clipped

Clampdown on trust tax dodge

The government expects to collect an extra $350 million a year in personal income tax from high income New Zealanders by raising the tax rate charged on trusts to 39%, the same as the top personal tax rate.

The trust rate stayed at 33% when the top personal tax rate was raised to 39% in 2021, leading to a 50% increase in income reported as flowing through trusts in the first year of the new higher personal rate.

“Ministers made clear then that if analysis indicated high income earners were circumventing the rate through greater use of trusts, the government would move to address the issue,” said the revenue minister, David Parker.

Income subject to the trustee rate leapt from $11.4 billion in the 2020 tax year to $17.1b in the 2021 tax year, indicating tax minimisation through the use of trusts was an immediate response from taxpayers.

“Only a small proportion of trusts will pay most of the additional tax,” said Parker. “The top 5% of trusts with some taxable income in the 2021 year accounted for 78% of all trustee income ($13.3b out of $17.1b).”

Also proposed are targeted measures to prevent over-taxation of trusts in certain situations, including deceased estates and trusts for disabled people and will allow trustee income of an eligible trust to be taxed as though it is the income of the deceased person or the disabled beneficiary.

ComCom, FMA litigation funds get pruned

The Commerce Commission and Financial Markets Authority have had their respective litigation funds pruned as part of the government’s plan to rejig $4 billion of spending.

The commission has had its baseline funding trimmed by $2 million a year for the next four years, which the budget put down to “historic underspends” while the FMA’s $3m return from the current financial year is a “one-off return of unspent funding”.

The Commerce Commission has $12.6m budgeted for its litigation fund in the June 2024 year, of which $6.5m is earmarked for external costs of litigation and $6.1m for internal costs. That’s down from the estimated $14.1m in the current fiscal year, with $8.5m for external costs and $5.6m from internal.

“The decrease in this appropriation for 2023-24 is due to the return of historic underspends from 2023-24 onwards,” according to the vote business, science and innovation estimates.

The FMA’s litigation fund will receive a $5m appropriation for the June 2024 fiscal year to meet the cost of major litigation activity from the enforcement of financial markets and securities law, down from the $7m estimated actual funding in the current June year, which was increased from $2m due to uncertain timing of litigation costs.

“The decrease in this appropriation for 2023/24 is mainly due to higher funding in 2022/23 rolled forward from the prior year with a cabinet decision that any remaining expenditure be retained at the end of each financial year to recognise the uncertain timing of litigation costs,” the budget documents said.