By VERNON SMALL
The Minister of Finance, Michael Cullen, is warning of a crackdown on the inappropriate use of companies, trusts and partnerships to dodge the new 39c top personal tax rate.
In a speech to a group of Auckland chartered accountants, he said promoting schemes for high earners to incorporate themselves was "unethical and foolish."
"In the simplest form of the scheme, employees incorporate themselves in an attempt to have that part of their income which should be taxed at 39c instead taxed at the 33c company rate."
The new top rate on income over $60,000 will apply from April 1.
The Government has promised new anti-avoidance laws, although Dr Cullen said it did "not intend to go overboard legislatively."
Where possible, it would use the general anti-avoidance rules already in the Income Tax Act and introduce specific rules to deal with specific problems.
It would take a pragmatic approach, accepting there would always be some slippage but seeking to limit it.
"We do not seek perfection. Inland Revenue estimates that at least $55 million in tax went unpaid in the 1998-99 year because of tax minimisation schemes featuring such provisions as limited recourse funding, the depreciation of so-called 'fixed life' intangible property and stakes in loss-attributing qualifying companies."
He said this avoidance took place when the top rate was still 33c.
Measures would go to the cabinet next week to stop taxpayers substituting a portion of their salaries for employer contributions to so-called "ATM" superannuation funds, taxed at 33c, which could be drawn on at any time.
Tax dodgers warned to stay in line
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