Photo: RNZ
The country's accounting body is calling on the government to change its plans for an increase in the trustee tax.
The government is planning to raise the trust tax to match the top personal tax rate of 39 percent, with the change coming into effect from April 2024.
But Chartered Accountants Australia and New Zealand (CA ANZ), said two-thirds of trusts had a median income of just $5000 to $6000.
"To have them paying at not just the old 33 percent rate, but the new 39 percent rate, is simply taxation overreach," CA ANZ tax leader John Cuthbertson said.
"The policy makers have applied the assumption that trusts are formed or used to circumvent the top personal tax rate of 39 percent by retaining income in a trust as trustee income."
Cuthbertson said that assumption should be challenged, and he felt a two-tier system would work better.
"Our proposal is to take some of the heat out of the issue and look to have a de minimis rule - some sort of income threshold and have a two-tier trust rate," Cuthbertson said.
"If a trust earns below a certain amount of income, then continue to tax it at the current rate of 33 percent. If it earns more than a threshold amount, say a $100,000 or whatever the amount seems appropriate, then tax that at the new rate of 39 percent."
He said Inland Revenue would be best placed to establish the appropriate thresholds.
"An aggregation rule could take care of those trying to set up multiple trusts. Given the time, resources, and on-going administration costs, we don't think it would be that common for multiple trusts to be formed to try and circumvent the 39 percent rate."
CA ANZ also wanted the government to defer the plans to introduce the new rate from April 2024, to allow a full analysis of the data collected under the new trust disclosure regime.
It said information to date suggested only a small number of trusts had income over $180,000.