Current Newsletter: March 2005  (pdf)

Archived Newsletters:
August 2004, March 2003  (pdf)
May 2002, March 2002, December 2001, June 2001
May 2000, February / March 2000 , June 1999, March 1999

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- Introduction
- Tax Rates - Up, Up and Away
- Paying Dividends
- Future Company Profits
- Family Trusts
- Clayton's Trusts (or Shams)
- Fringe Benefit Tax Rates
- More on FBT and Cars
- Tax Returns for Dormant Trusts
 

This newsletter is loaded with tax issues, as in one fell swoop and in considerable haste, Virtually on Christmas Eve 1999 new tax and FBT rates were introduced to take effect from I April. While it behoves us all to pay our share, few of us relish paying more. We review some of the changes and means of mitigating their effects.
 

The new Government wasted no time in fulfilling one of its less popular promises. On 22 December 1999, February / March 2000 legislation was introduced to increase tax rates on higher individual incomes.

As from the 2000/2001 income tax year, incomes above $60,000 will attract tax at the rate of 39%. The new tax scale will be as follows:

Because of the low-income eamer rebate applicable to most incomes up to $9,500, marginal tax rates will effectively climb in four steps.

As from 1 April, changes apply also to the deductions required from lump sums such as bonuses, back pay, redundancy and retirement payments. Secondary employment rates are affected, as is resident withholding tax deducted from interest.

Special rules will apply for calculating provisional tax to take into account the increased tax rates.

The changes imply a difference in tax rates of 24%. However, the low-income eamer rebate does not usually apply to passive income such as dividends, interest, and rents. Therefore, the maximum tax rate differential will generally be 19.5%. That still means that the lower tax rate is one half of that at the top.

Clearly, the manner in which you organise your affairs could have a greater impact on your net liability than ever before. Mr Cullen has warned against efforts to avoid the higher tax rates. In his words:

"The Government Is looking closely at limiting the opportunities to avoid the higher top personal tax rate through the use of such vehicles as superannuation schemes, trusts, and personal service companies. So my advice to anyone considering aggressive measures to avoid the higher tax rate is to think again."

This caution should be noted. However, there are some choices available which provide a clear tax advantage and in relation to which it is difficult to see how the Government could mount a defence. Other measures are more susceptible.

It is noteworthy that, over many years, some taxpayers have done nothing that might even incidentally mitigate their tax liabilities in fear of possible changes. They have foregone the benefits of perfectly valid and acceptable family planning that has some potential tax, as well as other, advantages. Others have proceeded on the basis of existing law and enjoyed benefits through many years of relatively unchanged legal frameworks.

While we make some general comments in this newsletter, these are necessarily brief and selective and are not a substitute for personal attention.