Gov't to introduce retrospective tax laws
The Government has announced it will introduce retrospective tax avoidance legislation, which will target employees who circumvent the top tax rate by using a company, trust or partnership as a "front" for employment.
Thursday, March 30th 2000, 12:00AM
One key target of the legislation will be employees who have directors fees paid to companies instead of to them personally to avoid the higher tax rate.
A spokesperson for Finance Minister, Michael Cullen, said a key aspect of the legislation would be trying to work out what is an employment relationship, and then dismantle it.
The legislation, with conditions attached, would for example ignore trusts or companies in the middle of an employment relationship and count directors fees paid to companies as personal income
Directors fees under $5000 will not trigger the rule, and a key test will be that the company, trust, or partnership will have to earn 80 percent of income from one source and cant have significant capital assest.
The spokesperson said the legislation aims to steer away from targeting genuine companies, and get at ones set up specifically trying to get around the new higher tax rate, which triggers after a person earns more than $60,000.
If a company has significant capital assets for example, the rule will not apply.
There were expected to be cases on the margins, and IRD will put out literature which explains what it means by the rule.
If a taxpayer is uncertain of their position, they can apply for a binding ruling, but at end of the day the Courts will determine what the rule means.
The new provisions will come into effect with the new 39 cent top personal tax rate from the income year beginning 1April. The legislation will be introduced in May, and is expected to be passed in September. Once enacted, it will take effect from 1 April this year.
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