23 December 1999

ANTI-AVOIDANCE AND FRINGE BENEFIT TAX CHANGES TO BE CONSIDERED EARLY NEXT YEAR

Legislation increasing the tax rate on income over $60,000 to 39 percent and the fringe benefit tax rate from 49 percent to 64 percent will be followed up with further legislative changes early next year Minister of Finance and Revenue Michael Cullen said today.

The Government will be considering a bill to lower the tax on fringe benefits provided to low income earners. It will also consider measures to prevent high income earners avoiding the effect of tax increases.

Fringe Benefits

"The increase in the fringe benefit tax rate is necessary to prevent high-income earners avoiding the higher tax rate by substituting fringe benefits such as expensive cars and low interest loans for taxable salaries.

"About 70 percent of fringe benefits are in the form of an employer-provided car. It is absolutely appropriate that a large company pays fringe benefit tax at the high rate on the Mercedes Benz provided to its chief executive." Dr Cullen said.

"However, I am conscious that some fringe benefits are provided to lower-income earners. Because there is only one rate of tax on fringe benefits, the result can be unfair. This is a long-standing problem with the fringe benefit tax rules.

"The Government has instructed officials to look at this issue with a view to introducing legislation early next year to lower the tax rate on fringe benefits provided to lower-income employees.

"If viable solutions can be developed in time we hope to introduce the changes with effect from 1 April next year, when the change in the top personal tax rate comes into force."

Anti-avoidance Measures

There has been some comment in the media that high income earners will be able to avoid the increase in tax on their incomes by such means as diverting income through companies, trusts or superannuation schemes.

"Many of these dodgy schemes would not work under existing legislation," Dr Cullen said.

"They would fall foul of existing anti-avoidance law. I nevertheless recognise that some law changes may be necessary to ensure that the 33 percent rate on employer superannuation contributions applies only to genuine superannuation schemes.

"Also we need to look at possible legislation to prevent high income earners diverting income through companies or trusts. The Government will be looking at this early in the new year. This will allow time for appropriate consultation on any measures proposed."

In the meantime Dr Cullen cautioned people to think again before entering into dodgy schemes that inevitably will not work.

ENDS

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