Demise for SAD funds looming
Wednesday, August 20th 2003, 11:36PM
by Rob Hosking
Investment earnings from such funds have been exempt from income tax since 1940. The funds include a range of legitimate schemes, including health insurer Unimed, the Police Welfare Fund, Benevolent Society.
However tax officials have identified the tax break as a loophole through which a large number of aggressive tax schemes have been promoted to high net worth individuals.
It is understood as many as 500 such schemes have been operating.
Provisions to close the loophole are included in the latest Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill.
It is not the first time the issue of SAD schemes has been raised. Concerns about the loophole were raised in the Tax Compliance Report put together by a panel of tax experts at the end of 1998.
Submissions from several groups representing legitimate SAD benefit funds raised major concerns about the repeal.
The four schemes mentioned above are in separate consultation with the Inland Revenue Department.
“There’s no doubt that there’s a number of parties who have been getting some advantage form the SAD exemptions when they shouldn’t be,” says Unimed chief executive Dermot Martin.
“The IRD aren’t after us, and if there’s people rorting the tax system we’d support sorting it out. But we are being caught in the by-catch of that process.”
In addition to the four schemes mentioned above, it is understood some union schemes – the Rail Transport and Maritime Union L E Trust being one – are caught in the proposed change.
Officials have suggested the genuine funds apply for friendly society status, but this would be a long costly process, says Martin.
The Institute of Chartered Accountants has also opposed the specific provisions.
“Such schemes should be able to be targeted under the tax avoidance rules in the current tax legislation,” the institute’s submission stated.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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