More than half of MPs involved with trusts

More than half of members of Parliament are beneficiaries of trusts, according to the 2022 register of pecuniary interests.

A total of 62 of the current 121 MPs stated they had beneficial interests in at least one trust.

Auckland University law professor Mark Henaghan criticised the number of MPs involved with trusts, because they were often used to reduce the tax bill of those involved.

The Inland Revenue Department (IRD) recently warned the favourable tax rate for trusts might be contributing to tax avoidance because the top trust income tax rate is below the maximum personal tax rate.

‘‘I don’t think it sets an example, in a country where we really do need every bit of tax we can get to make sure we have all the public amenities we need and we have issues around child poverty,’’ Henaghan said.

There was nothing unlawful about using or benefiting from a trust, and in the business world using trusts to reduce tax bills was seen as good practice but from a ‘‘societal good’’ point of view, he said people should be paying their fair share.

In late February, IRD announced high earners were likely to declare nearly $3 billion less in income as a result of a new top tax bracket for those earning $180,000 being brought in.

In a regulatory impact statement, IRD said introduction of the 39% top personal income tax rate by the Labour Government had incentivised high income individuals to restructure their affairs so they earned income through lower tax rate entities – reducing the amount of tax they paid. Lower tax rate entities include companies, currently taxed at a maximum of 28%, and trusts, currently taxed at a maximum of 33%. IRD noted that since the Government (which had signalled the new top tax rate preelection) was voted in, the highearner group studied had formed 10,633 new companies, 2630 new trusts and 362 new partnerships – 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: why do we tax at a lower rate for income through trusts?’’

In March, the Government asked for feedback on measures that would limit the ability of individuals to avoid the 39% or the 33% personal income tax rates by using a company structure.