7. Question No. 7—RevenueDAMIEN SMITH (ACT) to the Minister of RevenueQuestion No. 7—Revenue7. DAMIEN SMITH (ACT) to the Minister of Revenue: How many people earning less than $180000 a year with a family trust will pay the 39 percent rate of tax on any income they earn from that trust and does he think it is fair for someone earning $80000 such as a hairdresser mechanic or butcher to be subject to the top tax rate if their business is held in a trust?Hon Dr DEBORAH RUSSELL (Associate Minister of Revenue) on behalf of the Minister of Revenue: I am advised that Inland Revenue does not hold the information requested by the member because it is dependent on how the trust operating the business treats the income—in particular whether the income of the trust is taxed as trustee income and therefore taxed at the trustee rate or beneficiary income taxed at the beneficiary's personal tax rate. Regarding the second part of the question under both the current law and the proposed changes trustees have the ability to distribute the income of the trust to the beneficiary to be taxed at their personal tax rate. In the example in the member's question the effective income tax rate for someone earning $80000 is approximately 22 percent which is lower than the current trust rate of 33 percent. Accordingly currently the trust would normally distribute the business income to such a beneficiary of the trust to be taxed at their lower personal tax rate. This can continue in which case the tax change will have no impact on their tax position. Alternative methods to the same effect include payment out by way of salary if the butcher works in her or his business. The substantial effect of the change is to reduce tax avoidance by the wealthy high-income New Zealanders who do earn more than $180000 and who otherwise could avoid tax via trusts. [Interruption]SPEAKER: Order! We'll hear the supplementary in silence please.Damien Smith: Is the Minister aware that in the 2021 financial year 92 percent of trusts in New Zealand earned less than $180000 and is he concerned about how middle-income families small-business owners and retirees with trusts will be impacted by these proposed tax changes?Hon Dr DEBORAH RUSSELL: On behalf of the Minister yes I am aware of the number of small-earning trusts. In fact it's really interesting to know exactly how trustee income is distributed in this country. The top 5 percent of trusts with some taxable income in the 2021 tax year accounted for 78 percent of all trustee income. In fact most trusts have relatively small amounts of trustee income. The lower 75 percent of trusts with taxable income accounted for only 2.5 percent of trustee income. In fact of course with that lower amount of trustee income if it is distributed to the beneficiaries then it is taxed at the beneficiaries' marginal tax rates. It is a fairly straightforward matter to do this.Damien Smith: Does the Minister recognise that many families put their assets into trusts to protect them from relationship breakdowns or the event of a remarriage and does he think it's fair for these families to pay an extra 6 percent or even 9 percent tax for protecting their assets?Hon Dr DEBORAH RUSSELL: On behalf of the Minister of course in order for trustee tax to be paid on income earned by a trust that trust would have to earn income in the first place. If assets are being placed into a family trust it is for the protection of the asset not in order to earn income. Such family trusts we think earn very little income. However it is impossible to tell how much income family trusts earn because tax law does not make a distinction between family trusts trusts that are used for business or trusts that are used for investments and so on. They are all just trusts for the purposes of tax law.Damien Smith: Supplementary?SPEAKER: Sorry the member has run out of supplementaries.