Over half of MPs registered as beneficiaries of trusts

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Just more than half of current 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 may be contributing to tax avoidance because the top rate trust income was taxed at is below the maximum personal tax rate.

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More than half of current MPs registered themselves as beneficiaries of at least one trust.

ROBERT KITCHIN/Stuff

More than half of current MPs registered themselves as beneficiaries of at least one trust.

“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.

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.

High earners likely to declare $3 billion less in income

In late-February, the 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. Covid-19 was identified as a possible contributor to this.

In a Regulatory Impact Statement, the tax department 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 – ultimately reducing the amount of tax they paid.

Lower tax rate entities include companies, 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 (which had signalled the new top tax rate pre-election) was voted in, the high-earner group studied had formed 10,633 new companies, 2630 new trusts and 362 new partnerships – which constituted 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, rather than through the normal rate? That’s the nub of it, and MPs have it within their control to make the law to say we will tax this income source at the normal rate,” Henaghan said.

The IRD’s impact statement held a number of suggestions for how to combat tax avoidance via companies, but options for dealing with trust taxation was deferred until more information could be gathered from trustees.

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.

Most cannot afford a trust

Henaghan said the proportion of the general population that would have a connection with, or be benefiting from, a trust would be far lower than among MPs, and many would not be able to afford to set up or maintain one.

He said the original justification for trusts was to safeguard those who were disadvantaged – such as women who faced issues owning property, or disabled children who needed to be cared for.

He said trusts had now gone full circle and were available only to those in an advantaged position.

As well as those registered as beneficiaries, 54 MPs were registered as trustees, meaning they contributed to the management of a trust. Many of those registered as trustees were also registered as beneficiaries.

This is the second time the make-up of parliament has been criticised for being non-representative of the country, after the register of pecuniary interests revealed only five MPs didn’t own a home – while 36% of Kiwis rent.

Neither Prime Minister Jacinda Ardern nor National leader Christopher Luxon registered as beneficiaries or trustees of any trusts. Luxon registered as owning seven properties.​

Act leader David Seymour is a beneficiary of three trusts, none of which are registered as charitable.​

All three of the properties Seymour records as having an interest in were connected to a trust, as was a section he had an interest in, located in Whangārei.

Auckland University law professor Mark Henaghan says trusts are largely a negative for society.

Chris McKeen/Stuff

Auckland University law professor Mark Henaghan says trusts are largely a negative for society.

Neither of the Green Party co-leaders, Marama Davidson or James Shaw, were beneficiaries or trustees of a trust.​

National deputy leader Nicola Willis is also a beneficiary of a trust, which owned three properties in Wellington, Wairarapa and Wānaka. She also jointly owns her family home in Wellington. ​

Deputy Prime Minister and Finance Minister Grant Robertson is a trustee for KMKT Trust,​ and registered no properties associated with it.

Stuff’s Mega Landlord’s investigation revealed the number of homes owned by trustees has increased by 48% since 2015, which Henaghan put down to one thing – a growing awareness of how trusts could be used to reduce tax bills.

More than 31,000 homes were held in trusts at the end of September, up from just over 21,000 in 2015.

Act leader David Seymour previously had to correct the register of pecuniary interests to show he was a beneficiary of trusts that own three properties, when he previously claimed to be unable to afford a home.

ROBERT KITCHIN/Stuff

Act leader David Seymour previously had to correct the register of pecuniary interests to show he was a beneficiary of trusts that own three properties, when he previously claimed to be unable to afford a home.

A handful of the trusts that 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 is no longer owned by the person who put it there, who is known as the settlor.

Trusts are presided over by trustees, who manage the trust’s assets, with income from the trust going to 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 a way the settlor doesn’t want.

Settlors can also exist simultaneously as the settlor, a trustee and a beneficiary of their trust, however this could leave the trust open to challenge by creditors and possibly compromise some protections.

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