Waikato Business News August/September 2023

Waikato Business News has for a quarter of a century been the voice of the region’s business community, a business community with a very real commitment to innovation and an ethos of cooperation.

Waikato Business News has for a quarter of a century been the voice of the region’s business community, a business community with a very real commitment to innovation and an ethos of cooperation.

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26 WAIKATO BUSINESS NEWS, AUGUST/SEPTEMBER <strong>2023</strong><br />

Trusts and the 39% tax rate<br />

- is there another solution?<br />

On 18 May <strong>2023</strong>, the Taxation (Annual Rates for <strong>2023</strong>-23,<br />

Multinational Tax, and Remedial Matters) Bill was introduced<br />

into Parliament. If passed, the Bill will see the income tax<br />

rate for trusts increase from 33% to 39% from the 2024-2025<br />

income tax year, i.e. from 1 April 2024 for trusts that have a<br />

31 March balance date.<br />

The Commentary to the<br />

Bill states:<br />

“Aligning the<br />

trustee and top personal<br />

tax rates at 39% would help<br />

ensure that trusts cannot be<br />

used to circumvent the top<br />

personal tax rate. This would<br />

improve the fairness and progressivity<br />

of the tax system,<br />

protect the revenue base from<br />

erosion, and improve the<br />

Government’s ability to raise<br />

revenue.”<br />

So, it appears the change<br />

in the trust rate is being made<br />

to stop people using trusts to<br />

avoid the top personal tax rate<br />

of 39%. Therefore, the question<br />

becomes, are trusts being<br />

used for this purpose?<br />

My answer to this question<br />

is “no”. Trusts are not being<br />

used for this purpose, but the<br />

way trusts are taxed means<br />

that this can be the outcome.<br />

This distinction is important,<br />

and in my view, why the proposed<br />

39% trust tax rate is<br />

an imperfect solution. While<br />

there may be a policy argument<br />

to support rate alignment,<br />

what’s being proposed<br />

is too blunt and will likely<br />

result in over-taxation.<br />

I’ve been recommending<br />

the use of trusts for almost 20<br />

years for numerous reasons<br />

including:<br />

- asset protection –<br />

both commercial and<br />

matrimonial,<br />

- flexibility,<br />

- succession and survivability,<br />

and<br />

- governance and managing<br />

family relationships.<br />

A company is an interim<br />

taxing vehicle because its profits<br />

are taxed at 28%, and then<br />

taxed again when the profits<br />

are distributed (with a credit<br />

typically available for the tax<br />

paid by the company) to its<br />

shareholders. A company is<br />

a very normal commercial<br />

entity through which to own<br />

and operate a business for<br />

profit. Income is reinvested<br />

and the value of the company<br />

grows over time.<br />

In the same way that<br />

income of a company may<br />

be reinvested to grow a business,<br />

a trust is similar in that<br />

it is often used to grow family<br />

wealth and capital over<br />

time – akin to the family nest<br />

egg. Distributions are made,<br />

but often, the focus is on<br />

strengthening the trust’s balance<br />

sheet for the betterment<br />

of the family e.g. children and<br />

grandchildren.<br />

However, unlike a company,<br />

once income of a trust<br />

is taxed, it is not taxed again.<br />

This is arguably where the<br />

anomaly arises. The solution<br />

of increasing the trustee tax<br />

rate to the top personal tax<br />

rate is too simplistic. There is<br />

an assumption that trustees<br />

will distribute all income to<br />

beneficiaries to make sure the<br />

’right’ amount of tax is paid<br />

but this disregards and undermines<br />

the numerous other<br />

reasons why someone would<br />

want to put their assets and<br />

wealth into a trust.<br />

An alternative change<br />

would be to introduce a trust<br />

imputation credit regime,<br />

where, like a company, trusts<br />

become an interim taxing<br />

vehicle. Tax would be paid<br />

by the trust when income is<br />

derived and at the 33% trust<br />

rate. The trust would record<br />

tax credits based on the tax it<br />

pays, which could be attached<br />

to distributions of income to<br />

individuals and then taxed at<br />

the recipient’s tax rate.<br />

One reason in favour of<br />

this idea is that unlike a ‘natural<br />

person’ (to use the legal<br />

term), a trust cannot eat a<br />

meal, take a holiday or wear<br />

clothes. It cannot consume<br />

the assets it holds, so doesn’t<br />

it make sense that as the value<br />

of those assets are transferred<br />

to its beneficiaries, those distributions<br />

are then taxed<br />

based on their own personal<br />




Tax Partner, PwC<br />

circumstances? Rather than<br />

apply the highest rate of tax<br />

to every dollar a family trust<br />

earns when it is trying to save<br />

and invest assets for the family<br />

to consume at some point<br />

in the future. This option<br />

would solve any concerns of<br />

’circumvention’ of the 39%<br />

personal tax rate.<br />

It’s worth noting that the<br />

Regulatory Impact Assessment<br />

issued with the draft legislation<br />

included the following<br />

comment:<br />

“We also considered other<br />

options to address misalignment<br />

between the trustee tax<br />

rate and the top personal<br />

tax rate, including taxing<br />

trustee income at the principal<br />

settlor’s personal tax<br />

rate, or introducing an imputation-style<br />

system for trusts<br />

(which would ultimately<br />

tax beneficiaries on distributions<br />

of trustee income at<br />

their personal tax rates). An<br />

imputation style system, in<br />

particular, could improve the<br />

long-term robustness and sustainability<br />

of the tax system.<br />

However, both options would<br />

involve fundamental reform<br />

to the taxation of trustee<br />

income. These approaches<br />

would be significantly more<br />

complex to design, implement,<br />

and administer.”<br />

For those of us who have<br />

had to deal with the two, five<br />

and ten year Brightline rules,<br />

interest deductibility for new<br />

builds, residential rental loss<br />

ring-fencing, GST’s change of<br />

use rules and the list goes on -<br />

we know that complexity is not<br />

a valid reason to refrain from<br />

producing new legislation.<br />

I can’t help but wonder if<br />

IRD’s own policy team may<br />

prefer an imputation system<br />

for trusts, ‘robust and sustainable’<br />

are strong words. Consideration<br />

needs to be given to<br />

pausing the change and providing<br />

the resources to consider<br />

other options.<br />

Chantel Booysen joins<br />

management team at JetPark Hotels<br />

At a pivotal time when<br />

there is a growing<br />

demand for in-person<br />

gatherings, JetPark Hotels has<br />

appointed Chantel Booysen as<br />

group business development<br />

manager (Corporate & MICE).<br />

Booysen will play a crucial<br />

role in showcasing JetPark's<br />

refurbished accommodation<br />

and outstanding conference<br />

facilities.<br />

Based in Auckland and<br />

working across JetPark’s<br />

hotels in Mangere, Hamilton<br />

and Rotorua, JetPark Hotels<br />

director of sales and marketing<br />

Angelique van der Merwe<br />

says the team is confident that<br />

Booysen will help take their<br />

business to new heights.<br />

She brings considerable<br />

experience to the JetPark<br />

team, particularly her understanding<br />

of the corporate market,<br />

conferences and events,<br />

which JetPark has identified as<br />

a key area for strategic growth.<br />

"Her track record speaks<br />

volumes about her ability to<br />

forge meaningful relationships<br />

and drive revenue growth,<br />

and we are confident that she<br />

will play a pivotal role in our<br />

continued success,” van der<br />

Merwe says.<br />

“With a career spanning<br />

diverse roles in New Zealand<br />

and overseas, Chantel has had<br />

numerous successful stints<br />

with renowned establishments.<br />

She has not only secured and<br />

nurtured new clients, but also<br />

significantly elevated sales for<br />

these establishments, which<br />

is a testament to her skills in<br />

client acquisition and account<br />

management.”<br />

Her experience in sales,<br />

account management and<br />

marketing equips her with<br />

a solid understanding of the<br />

hospitality sector, and van<br />

der Merwe says she will be an<br />

enormous asset for JetPark<br />

Hotels.<br />

Booysen says one of the<br />

main attractions to the role<br />

was the opportunity to build<br />

relationships with JetPark’s<br />

clients.<br />

“I’ll be looking after multiple<br />

properties, and I have the<br />

privilege of being able to connect<br />

with both new clients,<br />

plus old clients I have met<br />

before,” she says.<br />

"I'm thrilled to be part of<br />

the JetPark family where I<br />

can contribute to the owners’<br />

vision of creating exceptional<br />

experiences for their clients.<br />

What excites me most is the<br />

emphasis JetPark places on<br />

building relationships and<br />

their genuine passion for their<br />

guests. I really care about<br />

understanding clients’ needs<br />

first, before providing a suitable<br />

solution. This is where the<br />

JetPark family and I are a great<br />

fit!”<br />

She says JetPark has beautiful<br />

purpose-built conference<br />

facilities that are wellequipped<br />

to cater to both<br />

accommodation and events<br />

and conference needs.<br />

“The location of the hotels<br />

makes so much sense if you’re<br />

running an event and you’ve<br />

got people coming in and<br />

out from the airport. Parking<br />

and travelling time is<br />

reduced – you don’t pay<br />

for parking. Plus we have<br />

a shuttle service from<br />

Auckland airport. And<br />

guests can stay here<br />

while they attend the<br />

conference. It’s a<br />


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