Parliament’s Finance and Expenditure Committee considered this feedback and recommended the Government enable trusts that earn less than $10,000 to continue being taxed at 33 per cent.
Finance Minister Nicola Willis said this was also what the Government advised the committee, so she was pleased to see it make the recommendation.
Revenue Minister Simon Watts noted most trusts are not taxed. The trusts might own a family home or distribute income straight to their beneficiaries (who are taxed), for example.
Watts estimated that of the 76,000-odd trusts that are taxed, about 49,000 would be taxed at 39 per cent and 27,000 at 33 per cent.
Labour’s finance spokeswoman Barbara Edmonds supported the proposal, as it aligned with what many submitters to the select committee suggested.
Industry group Chartered Accountants Australia New Zealand recommended trusts that earn less than $100,000 be exempt from the tax hike.
However, the Finance and Expenditure Committee feared a threshold higher than $10,000 would prompt people to set up multiple trusts and spread their assets across these to avoid paying the higher tax rate. Complicated anti-avoidance provisions would consequently need to be included in the law.
The accountants’ group still favoured a higher threshold but accepted a $10,000 threshold would at least prevent over-taxation of 45 per cent of trusts.
It noted that in the 2021-22 tax year, only 11 per cent of trusts had taxable income worth more than $180,000 (the level above which individuals’ income is taxed at 39 per cent).
However, this small group accounted for 81 per cent of the $19 billion of income earned by trusts.
Separately, the Finance and Expenditure Committee recommended simplifying and expanding proposals relating to estates and trusts settled for disabled people, to reduce compliance costs.
The feedback is likely to be fed into the Taxation (Annual Rates for 2023–24, Multinational Tax and Remedial Matters) Bill, which will have its second reading on March 19.
The bill will need to be passed before the end of the tax year on March 31.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.