Anti-Avoidance and Fringe Benefit Tax Changes To Be Considered Early Next Year

  • Michael Cullen

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

"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

"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.