Parliament

Gordon Campbell | Parliament TV | Parliament Today | Video | Questions Of the Day | Search

 

Government to counter avoidance through super

27 March 2000

Government to counter avoidance through use of super schemes

The Government will introduce a special "fund withdrawal tax" to counter avoidance of the new 39 cent top tax rate by use of employer superannuation schemes, Revenue Minister Michael Cullen said today.

The superannuation fund withdrawal tax would be set at 5 percent of the amount withdrawn from an employer contribution scheme, unless the employee was leaving the job or withdrawing the money for reasons of hardship.

The tax would be limited to the percentage of the employer contribution withdrawn, and would not affect employer contributions made before 1 April this year.

"The measure is designed to prevent high-income earners avoiding the tax increase by arranging to have a portion of their salary substituted for employer contributions to superannuation funds which can be drawn on at any time," Dr Cullen said.

"Employer superannuation contributions, which are taxed at a flat rate of 33 percent, could be used by people earning more than $60,000 a year to plan around the new 39 cent rate. All they would have to do is negotiate an increase in their employer superannuation contributions, and then promptly withdraw those contributions.

"The Government has consulted widely with the superannuation fund industry and tax community to ensure the proposal is workable. I am confident it is, and that it will be an effective anti-avoidance measure, without adversely affecting employers, superannuation funds or people who are genuinely saving for retirement.

"We are also concerned about the long-standing problem of the 33 percent rate applying to the superannuation schemes of people who earn less than $38,000 a year and have a marginal tax rate of 15 or 21 percent. Their employer contributions are being over-taxed. For this reason we intend to investigate ways of lessening this effect," Dr Cullen said.

Legislation relating to the tax on superannuation fund withdrawals has been tabled today for first reading later this week. The bill also provides for the new three-tier system for the taxing of fringe benefits.

"All fringe benefits are now taxed at the top tax rate, whether or not the recipient is actually in the top tax bracket. This is unfair to low and middle income earners.

"The new FBT regime will remove that anomaly," Dr Cullen said.

Detailed information on the legislation can be found in the commentary on the Taxation (FBT, SSCWT & Remedial Matters) Bill. It is available on the web site of the Policy Advice Division of Inland Revenue at http://www.taxpolicy.ird.govt.nz.

ENDS

Questions and answers - fund withdrawal tax

Question: What does the fund withdrawal tax achieve?

Answer: It prevents avoidance of the new 39 percent top personal tax rate by high-income earners without adversely affecting employers, employees and superannuation schemes. Further, it applies only to withdrawals from savings not meant for retirement. The measure will not affect people who are genuinely saving for retirement.

Question: What will be the impact on employees and employers?

Answer: Very little. Employees who continue to make contributions at their current rates will not be affected. After 1 April 2000 new employees will be subject to the fund withdrawal tax on contributions but it will be administered by superannuation schemes rather than employers, although employers will need to communicate the changes to employees. If by 1 April an employer is already committed to an increase in employee superannuation contribution, the tax will not apply to withdrawals of that increase.

Question: What will be the impact on superannuation schemes?

Answer: The new rules will be more complex than the current rules relating to the tax treatment of employer superannuation contributions. However, the impact has been minimised as much as possible, and alternatives would have had more significant effect, such as limiting how much employers could contribute towards their employees' superannuation.

Question: How will the fund withdrawal tax be implemented?

Answer: To minimise the impact on superannuation schemes the fund withdrawal tax will be implemented through the income tax system by applying income tax at the rate of 15.15 percent to withdrawals covered by the tax.

ENDS

© Scoop Media

 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

KiwiBailed: KiwiBuild Head Officially Resigns

The head of Kiwibuild, Stephen Barclay has officially resigned from the role. In a statement issued on his behalf, it was announced that he would step down from today [Friday].

Housing Minister Phil Twyford's office said he would not be commenting on Mr Barclay's resignation as it was an employment matter. Last month, Mr Twyford confirmed that Mr Barclay had not been at work for a number of weeks. More>>

 

Welfare Stats: Rise In Hardship Numbers Shows Income Inadequacy

The latest Ministry of Social Development quarterly report show that a record number of people have received hardship assistance from work and income, with an additional 40,000 hardship payments made between September and December 2018, compared to the previous quarter of the same year... More>>

ALSO:

DHBs "Prepared": Junior Doctors Strike Again

The needs of acute patients will be met during tomorrow's junior doctor strike, a DHB spokesperson says... Almost 3000 junior doctors are expected to walk off the job, which will affect all DHBs apart from West Coast District Health Board. More>>

ALSO:

Gordon Campbell: On MBIE’s Social Media Scam

Given the ambit of MBIE’s work, almost any form of social activity could qualify as being part of MBIE’s brief, so the privacy threats posed by this training programme are extensive. The current oversight safeguards seem threadbare to non-existent. More>>

ALSO:

JusTrade: New Campaign For A 21th Century Trade Agenda

‘Critique is no longer enough. If anything is to really change, we need to step away from the existing framework and take a first-principles approach to rethinking what will work for the 21st century.’ More>>

Earlier:

Gordon Campbell: Thompson + Clark Are The Tip Of The Iceberg

How can we tell where and how any lines are being drawn? Oversight is not exactly robust. If it were, Thompson + Clark would have been out of contention for state security work ten years ago. More>>

Trainers: Taratahi Institute of Agriculture In Interim Liquidation

Taratahi employ 250 staff and this year has provided education to over 2500 students. Taratahi owns and manages 8 farms throughout the country. More>>

ALSO:

IPCA Report: Complaints About Deputy Commissioner Wallace Haumaha

The Authority has found that DC Haumaha acted improperly by approaching staff and others to provide information to support him to refute the allegations about his 2016 conduct, or solicited other staff to do so on his behalf... More>>

ALSO:

 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

InfoPages News Channels