More than half of MPs have registered as beneficiaries of trusts
Just over half of current parliamentarians are beneficiaries of trusts, according to the Register of Pecuniary Interests 2022.
A total of 62 of the current 121 MPs said they have beneficial interests in at least one trust.
University of Auckland law professor Mark Henaghan criticized the number of MPs involved in trusts because they were often used to reduce the tax bill of those involved.
The Department of Inland Revenue (IRD) recently warned that the favorable tax rate for trusts could contribute to tax evasion because the income of the trust at the top rate was less than the top personal tax rate.
* Mega Landlords: 48% increase in trustee-owned homes ‘suggests tax evasion’
* A beginner’s guide to paying less tax (if you’re super rich)
* Family trusts past their consummation date are difficult and costly to liquidate
“I don’t think it’s setting an example, in a country where we really need every tax we can get to make sure we have all the public amenities we need, and we have issues with the child poverty,” Henaghan said.
Henaghan said there was nothing illegal about using or benefiting from a trust, and in the business world, using trusts to reduce tax bills was considered good practice, but d From a ‘societal good’ perspective, he said people should pay their fair share.
High earners are likely to report $3 billion less in income
At the end of February, the IRD announced that high earners would likely declare almost $3 billion less in income due to the introduction of a new top tax bracket for those earning $180,000. Covid-19 has been identified as a possible contributor to this.
In a regulatory impact statement, the tax department said the introduction of the top personal income tax rate of 39% by the Labor government prompted high earners to restructure their affairs to that they earn income through lower tax rate entities – ultimately reducing the amount of tax they pay.
Lower tax rate entities include corporations, currently taxed at a maximum of 28%, and trusts, which are currently taxed at a maximum of 33%.
The IRD noted that since the government’s vote (which signaled the new highest pre-election tax rate), the high-income group studied had formed 10,633 new businesses, 2,630 new trusts and 362 new partnerships – this which was a 28% increase. .
Henaghan said the government should reduce the incentive to use trusts by raising the trust rate to match normal personal tax rates.
“The fundamental problem is this: why tax income through trusts at a lower rate, rather than at the normal rate? This is the crux of the matter, and MPs have the power to make law to say we will tax this source of income at the standard rate,” Henaghan said.
The IRD’s impact statement contained a number of suggestions on how to tackle corporate tax avoidance, but options for dealing with the taxation of trusts were deferred until more information may be collected from the trustees.
Most Can’t Afford a Trust
Henaghan said the proportion of the general population who would be connected with or benefit from a trust would be far lower than that of MPs, and many would not be able to afford to set up or maintain one.
He said the original rationale for trusts was to protect disadvantaged people – such as women who had property issues or disabled children who needed to be cared for.
He said trusts have now come full circle and are only available to those in a privileged position.
In addition to those listed as beneficiaries, 54 MPs were listed as trustees, that is, they contributed to the management of a trust. Many of those who were registered as trustees were also registered as beneficiaries.
It is the second time that the composition of parliament has been criticized for not being representative of the country, after the pecuniary interest register revealed that only five MPs did not own a house – while 36% of Kiwis rented.
Neither Prime Minister Jacinda Ardern nor national leader Christopher Luxon have registered as beneficiaries or trustees of any trust. Luxon registered as owner of seven properties.
Law leader David Seymour is a beneficiary of three trusts, none of which is registered as a charity.
The three properties recorded by Seymour as having an interest were linked to a trust, as was a section in which he had an interest, located in Whangārei.
Neither of the Green Party co-leaders, Marama Davidson or James Shaw, was a beneficiary or trustee of a trust.
National Deputy Chief Nicola Willis is also a beneficiary of a trust, which owned three properties in Wellington, Wairarapa and Wānaka. She is also co-owner of her family home in Wellington.
Deputy Prime Minister and Finance Minister Grant Robertson is a trustee of KMKT Trust and has not registered any associated property.
Stuff’s Mega Landlord survey found that the number of homes owned by trustees has increased by 48% since 2015, which Henaghan attributed to one thing: a growing awareness of how trusts could be used to reduce tax bills.
More than 31,000 homes were held in trust at the end of September, up from just over 21,000 in 2015.
A handful of trusts MPs were associated with were charitable, but the vast majority were family or private trusts.
How Trusts Work
Once an asset is in a trust, legally speaking, the asset no longer belongs to the person who placed it there, who is known as the settlor.
Trusts are chaired by trustees, who manage the assets of the trust, with the income from the trust going to the beneficiaries, who are often family members.
The main disadvantage of a trust is that the settlor technically relinquishes control of the property, but Henaghan says this is a “legal fiction” and trustees rarely act in ways the settlor does not want. not.
Settlors can also exist simultaneously as settlor, trustee and beneficiary of their trust, but this could leave the trust open to challenge by creditors and potentially compromise certain protections.