My daughter wrote this about me

In Support of my Mother Standing for Parliament

I first met Deborah Russell in 1998, on the day I was born. I of course do not remember it, but I know that one of her first acts of motherhood was to read to me. This came to be representative of the rest of my life, of how she has raised myself and my sisters to be the people we are today. She has taught and cared for us in a manner that I feel reflects all the good she could do as the representative of a community and a member of parliament.

When I was eleven years old, I started reading the blog my mother wrote, which was largely focussed on feminism. I didn’t understand much, but I remember being fascinated with the words she wrote. Even at eleven, I was captivated by the way she communicated. She didn’t dress up her words (something that I have a tendency to do), but her messages were thoughtful and powerful. Reading back on the same blog as I grew older, I saw posts about feminism and her more personal life together, comments on current politics juxtaposed with writings about gardening with her daughters. This was how we grew up, with love and care alongside discussions of the world around us. Although I know that up to a point we all idolise our parents, I think I will always consider my mother to be the smartest woman I know. Not just in the sense that she knows things, but also that she understands how to use what she knows, and how to communicate her thoughts to others. Anyone who has seen or heard her speak in a public forum knows how warmly and intelligently she presents herself. What many do not realise is that this is an honest depiction of her personality, that she talks with the same depth of understanding in every aspect of her life.

My mother walks everywhere quickly. I have previously joked that she never just sits, she is always taking action of some kind – knitting, reading, working. She sits tensely, which probably doesn’t help with her insomnia. I say this because I think it is important to understand how intensely Mum works on every aspect of her life. The same woman who powered up and down the Rangitikei electorate in 2014 is the same woman who speaks on tax in the national media, who teaches students with the skill her public speaking background has given her, who dedicates hours to the Labour party, and who sits in front of the TV with knitting because she cannot be idle. I am certain that she would entirely throw herself into campaigning if given the opportunity. No one could doubt her commitment to politics, with so many years of being an advocate for equality and fairness.

Deborah Russell is a woman of great capability and understanding, who I am so privileged to call Mum. I can honestly say that it is one of my dearest wishes to see her in Parliament, and I hope that she receives similar support from all those around her. I write almost in desperation, because I have seen better than almost anyone how hard she has worked and how much she could offer to the Labour caucus. So much love Mum, and best of luck for the New Lynn selection.

Ruth Wright

A background note: I found this sitting in my e-mail this morning, and I have tears running down my face.  I am so moved to find that my lovely daughter thinks so well of me and my work.  Deborah

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A fabulous conservation project

Like so many New Zealanders, I’m attached to our native birds and forests, and I love spending time in the bush if at all possible.  I have the real privilege of being able to stay on my parents’ conservation block from time to time, where we can get much closer to conservation efforts.

Mum and Dad’s place is called Punanga, and it’s at Tarata, out the back of Inglewood in Taranaki.  It’s a mix of farmland and bush and wetlands, and a huge proportion of the property has been put into a Queen Elizabeth II trust, so that it will be held as a conservation estate in perpetuity.



Punanga has been identified as  Key Native Ecosystem by the Taranaki Regional Council, because it has high biodiversity values.  The bush is typical Taranak podocarp and hardwood, and the major trees there are tawa, rimu and kahikatea.  I love kahikatea trees, for the way that they look like a cumulus cloud.  They also have totara there, and this one is my favourite.  It stands on a little uplift of  land, with runnels of water on either side, so it has never been able to grow very big.


Totara, with me beside it for comparison.

The wetlands along the valley floor are extensive, and even though the ponds were human made, they have become one of the more significant wetlands in Taranaki.  They are home to putangitangi (paradise duck) as well as the more common parera (grey duck) and pukeko.  The very rare putoto (spotless crake) is also found there, as well as matata (fern birds), and incredible numbers of tui.  Kahu (harrier hawks) patrol the valley, and up the top end, right up in the bush, there are karearea (falcon) nesting.  And kiwi have been heard there too.


The top pond, with raupo and flax, looking up towards the top bush ridge.

We were there for New Year’s Eve, and we managed a walk along part of the ridge line.  The ridge line is fine when you get up to it, but it’s 15 minutes hike up a very, very steep hill to get there, so you need to be determined to do it.  Mum suggested that I should keep an eye out for some of our native orchids, and I found two: microtis unifolia in the open grass at the top of the ridge, and chiloglottis cornuta nestled in pine needles.


Microtis unifolia (left) and chiloglottis cornuta (right)


Of course, conservation in New Zealand is all about killing small furry animals, and Dad has an extensive trapping programme in place.  The Taranaki Regional Council is very supportive: some of their staff maintain parts of the trap line, and they’ve helped considerably with planting native trees and plants.


Rat, trapped, by the spotless crake pond.

It’s private property, but Mum and Dad are very open to people visiting and staying, and it takes only a phone call to get permission.  The usual rules apply: no shooting, take your rubbish with you, leave gates as you find them, and above all, look after the bush and the wildlife.

I love going there.  It’s very peaceful.  No internet, no phones, no electricity.  You can get mobile coverage, if you hike 15 minutes up the very steep hill to the ridge line.  There’s hot running water, provided you’ve fired up the wood stove first so that the wetback heats the water.  It’s a great place to go to just turn off for a few days.  I love sitting on the verandah in the evening, listening to the last soft song from the tui, and then hearing the ruru start to call.  It was the perfect place to go for the last day of 2016.


Doing the dishes by candlelight

As for why Mum and Dad do it?  They love our bush and our birds, and they want them to be there for their children, and grandchildren, and for all New Zealanders.  They see Punanga as a way of giving back to the community, and of helping to maintain and enhance a treasure for the future.



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What do New Zealanders actually earn? And why we need to understand these figures.

Before you read the rest of this post, get out a pen, and write down what income you think someone in New Zealand needs to earn to count as rich.  You could also write down what income you think the top 5% of income earners in this country earn, and what income you think the top 1% earn.  I’ve got some data on that at the end of the post, but you’ll find it more interesting if you test it against your own assumptions.

In Question Time on Tuesday 9 and Wednesday 10 of August, the Prime Minister responded to questions about Auckland house prices by listing the numbers of houses in Auckland that had sold at various prices in the last few months, and saying just how many were sold under the average price. For context, the average house price in the Auckland region is now getting close to a million dollars, and in Auckland city itself, it’s over a million.

Here’s how the PM responded to concerns about Auckland house prices on Wednesday 10 August.

I stand by my full statement in the House yesterday, which was: “If you look at the year to 31 March 2016 in Auckland there were 31,963 sales. Sales in the under $600,000 category of … homes were over 30 percent of that—9,638 sales. For … houses under $650,000 there were 11,842—37 percent of sales.” My point was that there is a significant number of Auckland houses selling for well under the reported average price. Source – Hansard

So 37% of homes sold at 2/3 of the average price. Those are the cheaper homes in Auckland, and they’re the homes that we would expect lower paid people to be able to buy.

Later on in Question Time, Metiria Turei, co-leader of the Green Party, made the point that principals and firefighters were finding it hard to afford houses in Auckland. This is one of the critical concerns with respect to outrageous house prices: soon the people we rely on to run our communities – teachers, police officers, fire fighters, and so on – simply won’t be able to afford to live in those communities.

Here’s what Ms Turei said, and what the PM said in reply.

Metiria Turei: Is that the excuse for unaffordable housing that he would give to the principal of an average-size primary school, who would have to spend about eight times their income to buy a median-priced house in Auckland; I mean, is the housing market working for that family?

Rt Hon JOHN KEY: Well, the member talks about an average principal of a New Zealand primary school, I think she quoted. If they live in Hamilton, 71 percent of all sales that took place were under $500,000. But if they lived in Auckland, 30 percent of sales that took place were under $600,000, and 37 percent under $650,000. My colleague before was just looking on TradeMe and the number of properties in Auckland that are under $500,000. There are many properties listed there. Source – Hansard

Putting a somewhat uncharitable gloss on this, the Prime Minister’s advice is for principals of Auckland schools to live in Hamilton, or for them to buy a house in the lower third of the market.

But we expect people to buy houses that are roughly commensurate with their incomes. That is, we expect, more-or-less, that people who are better paid to buy higher priced houses, and we would ordinarily expect people who are less well paid to buy lower priced houses. Of course, some of the least well paid people will rent houses instead. But in a property owning liberal democracy, where most people aspire to owning their own home, we might expect that higher paid people are buying houses above the average price.

So are principals among New Zealand’s higher paid income earners?

Yes. In fact, principals are in the top 10% of income earners in the country. The very lowest paid principals earn about $85,000 a year (Source: NZEI Principals Collective Agreement – pdf). And based on IRD data, the top 10% of income earners in this country earn $81,000 or more.

Here’s the breakdown of incomes in this country. These are incomes based on taxable income, that is, the amount that Inland Revenue thinks that each person earns.


This analysis excludes untaxed income such as capital gains, and it doesn’t adjust for the way business income can be calculated. There are no assumptions in this data: it’s just the cold, hard numbers collected by Inland Revenue. But let’s be very clear about this: most people in this country are wage and salary earners. This is as good a basis as any for assessing how much money people have available to spend, based on what they earn.

So what does this table tell us?

It tells us that school principals are in the top 10% of income earners in this country.  Yet our PM expects them to look for the less expensive houses in Auckland.  Is he really saying that people in the top 10% should only aspire to cheaper housing?

It tells us that based on the hard numbers that IRD collects, about half of all income earners in New Zealand earn less than $28,000 a year.

It also tells us that if we think that say, the top 10% of income earners in New Zealand are “the rich”, then we think that earning around $80,000 is enough to make someone “rich”.  Not just well off, but rich.  I strongly suspect that many of the people earning around $80,000 or so don’t feel rich, especially if they are living in Auckland.  Yes, I know that an income of $80,000 is massive compared to what many people earn, but I am talking about people’s perceptions here.

Some other information from the same source but not shown in the table: the top 5% of taxable income earners in New Zealand earn $107,000 or more, and the top 1% of income earners have taxable incomes of about $200,000 or more.

The PM’s glib answers in Question Time yesterday do him no credit.  They were fob-off answers that disguised the real problems with Auckland house prices: they are simply far too far out of reach for even people who are earning in the top 10% of incomes in this county.  It’s time for him to grapple with this problem, instead of treating it as just one more playing piece in the game of politics.


Some caveats with the data: it’s for the year ending 31 March 2014, and it’s based on information collected by IRD up to September 2015. So there’s still some data coming in. But, if you look at the previous years, you will see that the same broad pattern holds: the top 10% band of income earners kicks in around $80,000 or so. The data does account for Working for Families tax credits, and income earned from benefits, but not for people with no income whatsoever, or people who earn only interest and dividends that are fully taxed at source.  You can see the bands I’ve used in the table are not exact 10% bands: I decided it was better to work as closely as possible with the raw data, rather than making assumptions about where to draw the exact line on some income bands.

You can download the data yourself from the Research and Tax Statistics page on the IRD website.  There’s a wealth of information available there.

Posted in Economics, Employment, NZ Politics, Taxation | 6 Comments

Talking about negative gearing

I have an article in the New Zealand Herald, about negative gearing.  I think it’s something our government should be working on, urgently.

It’s time to start talking about negative gearing

Negative gearing is the practice of investing in property, expecting that the income earned by the property won’t be enough to cover the costs of owning and managing it.

In other words, the “investor” expects to make a loss. In concrete terms, it’s like buying a rental property and renting it out for $30,000 a year, but expecting to pay $35,000 a year for interest and rates and other expenses.

The problem with negative gearing is that at present, investors expect to make their money in the long term out of untaxed capital gains. They wear the short-term, tax-subsidised losses on their rental properties, in the expectation that eventually they will sell the property and the money they make will far outweigh any losses they’ve accumulated along the way.

Click through to read the whole thing.

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What I think about a Universal Basic Income

A friend asked me what I thought about a Universal Basic Income. Here are some notes I put together a couple of months ago, when UBIs were the topic of the day here in New Zealand. TL:DR – I’m a supporter in principle, ‘though at this stage, a UBI may not be viable on fiscal grounds.


A universal basic income may be New Zealand’s next big progressive move. As a country, we’ve often been at the forefront of social change, from votes for women to old age pensions and universal public health. Now we’re considering whether we should have a “UBI”, a Universal Basic Income.

The idea of a UBI is that every citizen would get a small income from the state, just enough to cover the minimum necessities of life. It’s a very, very basic income.

The usual suspects have leapt into print to shout the idea down. Apparently it’s communism, no one would ever work, it would cost too much and it’s completely impractical.

A universal basic income is hardly communism. A number of countries have started working on UBIs. Switzerland is holding a referendum this year, Utrecht in the Netherlands has a pilot programme, and Finland is investigating a comprehensive UBI. New Zealand itself already has a partial UBI: we call it New Zealand superannuation and we pay it to everyone aged 65 or over. None of these countries are communist countries, and some of them don’t even regard themselves as socialist countries. Describing UBIs as “communist” is simply wrong.

Likewise, the suggestion that people won’t work if they get a UBI is wrong too. Our own senior citizens show us this. Many people aged 65 and over are still in paid employment, and others are actively engaged in their communities. They run charities and volunteer schemes, they help with reading and gardening at schools, they do conservation work and look after grandchildren.

People who receive the unemployment benefit usually look for work too. Unemployment in New Zealand soared from 3.7% in 2007, to 6.9% in 2012. That wasn’t because people suddenly realized that they could get the dole. It was simply because work was unavailable. When good jobs were available, people took them. The great majority of people want to work, and they want to have far more to spend than would be provided by a UBI.

Sometimes people point to the difficulty of employing seasonal workers as a reason for not having a UBI. If unemployed people won’t even do six weeks of fruit picking, the argument goes, why would we expect them to work when they can get a basic income, no matter what?

But this ignores one of the big problems with our current rules around the dole. At present, if you become unemployed, you have to go through a stand down period which is usually up to two weeks long, but could be up to thirteen weeks. That’s two weeks with no income which can be very hard for low wage workers to survive. They can be better off not taking on the work in the first place. However, under a UBI, the money earned from seasonal work would be extra, and there would be no stand down time. This would make it much easier for unemployed people to take on seasonal and part time work.

The cost of a UBI is certainly an issue. It could cost anything up to $50 billion, and that money has to come from somewhere. However, at least some of it would come from current welfare spending. Taking a serious look at what it would cost, and how it would be funded, is part of the investigation. Simply dismissing a UBI out of hand without actually investigating it is wrong.

The practical advantages of a UBI are not in doubt. At present, we have a confusing array of benefits and entitlements and abatement rules, all of which is very impractical and costly to administer. A UBI would be much more straightforward to administer.

There are many arguments in favour of a UBI, such as valuing the work done by at-home parents, ensuring that basic needs are met, encouraging unemployed people to take on extra work, enabling people to escape abusive relationships, and so on. Perhaps in the course of the investigation, we will find that even though we would like to have a UBI, we can’t afford it right now. But surely, we can afford to at least take a look.

Posted in Economics, NZ Politics | Tagged , , | 3 Comments

Submission to the Government Inquiry into Foreign Trust Disclosure

I’ve put a submission into the inquiry into foreign trust disclosure rules. You have until 5pm today if you want to put your own submission in. If you like, you’re very welcome to put a submission in supporting my submission. All you would need to do is send an e-mail to John Shewan, using this link: Please email your submission to me care of the Inquiry’s Secretariat to, and say something like, I support the submission made by Deborah Russell.

Mr John Shewan
C/- Suzy Morrissey
The Treasury
PO Box 3724
Wellington 6140

Dear Mr Shewan

Thank you for your invitation to make a written submission to the Government Inquiry into Foreign Trust Disclosure.

I am a senior lecturer in taxation at Massey University. I hold a BCom with Honours in Accounting and Finance, and a PhD in Philosophy. I have lectured in taxation, business management, political theory, ethics, applied ethics and business ethics, as well as working in accounting and taxation in both the private and public sectors.

I am making this submission in my own name, not as a representative of Massey University. The opinions expressed in this submission are entirely my own.

1. The taxation rules for foreign trusts in New Zealand came about by chance.

New Zealand foreign trusts are not taxed in New Zealand. This situation arises as a consequence of our rules for which income we tax, and rules for taxing trusts. As a matter of principle, we tax only income earned by New Zealand tax residents, and income earned in New Zealand. We do not attempt to tax income earned offshore by people who are not New Zealand tax residents.

At the same time, we base our taxation of trusts on where the settlor lives. The consequence of this is that a foreign settlor can settle off-shore assets into a trust administered by a New Zealand trustee, and because both the settlor and the income earning assets are offshore, New Zealand does not attempt to tax the trust itself. The tax jurisdiction where the assets are located may attempt to tax any income earned, if they have enough information to trace the assets.

Other tax jurisdictions tax trusts based on where the trustee lives. If the trustee does not live in their jurisdiction, then no tax arises on the trust in that jurisdiction.

This creates a situation where a foreign jurisdiction imposes no taxation on a trust because the trustee is offshore to them, and New Zealand imposes no taxation on a trust because the settlor and assets are offshore to New Zealand.

No one set out to create this situation. It simply arises as a consequence of the interaction of our tax laws. Thus it is not correct for people in New Zealand offering foreign trustee services to claim that their industry has been encouraged by government as a deliberate policy. They are taking advantage of a loophole, not responding to government policy.

2. We may be enabling foreigners to hide assets and income from the proper authorities in other tax jurisdictions.

Because New Zealand gains no tax revenue from New Zealand foreign trusts, Inland Revenue Department (IRD) does not attempt to collect much information about them, other than the bare fact of their existence. An exception to this operates with respect to Australia, where IRD collects the names of settlors and proactively discloses them to the Australian Taxation Office (ATO).

In theory, settlors in other countries ought to be disclosing the existence of assets and income earned in that country to the relevant taxation authorities. However it is not clear that this is actually happening. The taxation authorities in other countries may have no information with which to pursue people who ought to be paying tax, and because in practice IRD does not collect information or disclose information itself, there is little or no way for overseas authorities to gather enough information to be able to assess any tax owing correctly.

This lack of information is a problem for overseas taxation authorities. It means that their tax bases may be eroded because assets and income are being hidden in New Zealand foreign trusts.

Aside from the recent revelations in the Panama Papers, the best evidence that this is genuinely a problem for overseas authorities is the rules for Australian settlors. If there was no problem with some Australians being able to put assets into New Zealand foreign trusts, because they always honestly disclosed the existence of the trusts and the existence of the assets to the ATO, then there would be no need for New Zealand’s Inland Revenue Department to collect the names of Australian settlors and disclose them to the ATO. The fact that the Australian government negotiated a special deal with New Zealand suggests that Australians were using New Zealand foreign trusts inappropriately.

3. Enabling tax avoidance or tax evasion is harmful to New Zealand, and it is harmful to other countries.

Although we don’t know the scale of the problem, New Zealand’s reputation is tarnished by the way that our foreign trusts operate. Our tax system is generally very highly regarded, as is our ethical approach to taxation. In general, New Zealand is not a tax haven in general, but in respect of these foreign trusts, it operates as a tax haven. New Zealand does not appear in the Panama Papers by misfortune: the operation of our foreign trusts places us there.

We are rightly proud of our reputation for not being corrupt, and for being highly transparent. However, we should be working to maintain this high reputation, and to ensure that our reputation is based in reality. Our reputation is what enables us to participate in world forums, and to be trusted there as an honest and ethical participant.

We also have an on-going commitment to working with OECD nations and other nations to maintain our tax bases. Enabling people offshore to hide assets and income in New Zealand foreign trusts erodes other countries’ tax bases. As a good faith commitment, we should not enable this to happen.

4. Collecting and disclosing more information would reduce the risk that we are enabling tax avoidance or tax evasion

New Zealand foreign trusts are legal, and properly taxed from New Zealand’s point of view. The problems associated with them are caused by lack of information.

I think that the best solution is to collect and disclose more information. At a minimum, we should apply the rules we currently apply to foreign trusts with Australian settlors to all foreign trusts. That is, we should collect the names of settlors and disclose them to the relevant overseas tax authorities under our existing information sharing protocols.

However, I think that in addition to collecting the names of the settlors, we should also collect the names of the beneficiaries, and standard financial data, such as income earned, assets held and distributions made. This information should be shared with overseas jurisdictions using our existing information sharing protocols.

There would be no need to make any special rules with respect to penalties and filing dates and so on. These would all be covered by existing legislation.

If there are people who are using New Zealand foreign trusts for the purpose of avoiding or evading tax, then the prospect of having information disclosed to the relevant authorities in their own countries should be sufficient to encourage them to take their business elsewhere. Anyone who has a legitimate reason for using a foreign trust should still be able to do so, because they will already have been disclosing all the relevant information to authorities in their own countries.

5. Possible objections to collecting and disclosing more information

I see four possible objections to this proposal: (1) it will impose more costs on IRD without any additional tax revenue being collected; (2) some people who hold assets in New Zealand foreign trusts due to safety concerns could be endangered; (3) in some cases, it may be the authorities in other countries themselves who are using New Zealand foreign trusts for illegal or immoral purposes; and (4) people who offer foreign trust services may lose some of their fee base.

(1) My proposal will impose more costs on IRD. This will be necessary in order to protect New Zealand’s reputation. It is simply an expense that we will need to bear.

(2) There could be some people who use New Zealand foreign trusts because they are endangered in their own countries. However this is one of the matters we already take into account when we sign double tax agreements and data sharing agreements with other tax jurisdictions. Consideration could be given to enabling trustees to approach IRD to put a block on sharing information for particular trusts if necessary. IRD would still collect the information, but it would hold it without disclosing it. In these cases, the onus would be on the trustee to prove that the exemption is merited.

(3) In some cases, it may be the authorities in other countries are themselves using New Zealand foreign trusts to defraud their own countries. In that case, collecting more information and disclosing it will not have any effect, and New Zealand would still be complicit in enabling immoral activity. However, consideration could be given to requiring trustees to vouch for the settlors and beneficiaries of trusts, with appropriate penalties for the New Zealand trustee if the people associated with a trust are found to have used that trust for illegal purposes.

(4) There may well be a negative impact on income for people who offer New Zealand foreign trust services. This will depend on the extent to which their clients are engaged in illegitimate activities or tax avoidance or evasion. However, I do not think that we should be enabling New Zealanders to earn income by assisting illegal or immoral behaviour by foreigners, and it is to be hoped that as people of integrity, there will be very little such behaviour going on anyway. In addition, people who are offering these services are usually tertiary educated and highly able, so it is reasonable to assume that they will be able to find other sources of income.

6. Alternative suggestions

A suggestion has been made by the foreign trusts industry that a register of trusts would alleviate the problem. However it is not clear that another layer of bureaucracy is needed. There are currently no rules about how this register would be operated, nor to whom information would be disclosed. Asking IRD to collect and disclose more information will add to IRD’s workload, but the actual collection and disclosure could be accomplished using existing mechanisms and existing rules for sharing information, rather than creating a whole new system.

Another suggestion is that the trusts should be taxed themselves. However this is inconsistent with our other laws for taxing income, and taxing trusts. Introducing inconsistency into the Income Tax Act 2007 will complicate the Act, and undermine its coherence and integrity. In any case, it is not clear that it would be possible for IRD to actually collect any tax from the trustees, because the assets and income are not held in New Zealand. Further, as discussed above, there can be legitimate reasons for having a New Zealand foreign trust, so introducing a new tax on trustees would simply penalise people who are doing nothing wrong.

Thank you for the opportunity to make a submission to the review.

Yours sincerely

Dr Deborah Russell

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What’s going on with foreign trusts?


Henry VIII tried to restrict the use of trusts.

Trusts are weird beasts. They seem to have originated during the crusades: a death-and-mayhem-seeking-pilgrim would head off to the Holy Land, but in order to protect himself and his wife and his children and his property, he would hand over the “use” of his property to a reliable friend or neighbour. That friend would hold the property, in effect own it, for the benefit of the wife and children and so on. These “uses” turned out to be very effective vehicles for all sorts of chicanery, so eventually, Henry VIII tried to ban them. But they crept back, as trusts.

The basic idea of a trust is that someone who owns property hands that property over to another person, who holds it for the benefit of a third person. The person who gives the property is the settlor, the person who holds the property is the trustee, and the person who gets the benefit of the property is the beneficiary.

From the New Zealand government’s point of view, it doesn’t want New Zealand residents squirrelling property away into overseas trusts where the government can’t tax it. To prevent this, the New Zealand government bases taxation of trusts on where the settlor (the person who gives property to the trust) lives. If you are living in New Zealand (technically, if you are a New Zealand tax resident) and you give property to a trust, then the government here will tax that trust.

So what’s the beef with foreign trusts?

New Zealand tax law allows a foreign person who is not living in New Zealand to settle property on a trust, for the benefit of foreign persons who are not living in New Zealand at all, and at the same time, have a trustee here in New Zealand. But the settlor is overseas, and the beneficiaries are overseas, so the trust doesn’t get taxed here, at all.

That all seems fairly innocuous, provided that the trust gets taxed somewhere. But other countries don’t have the same rules as us. Many other countries tax trusts on the basis of where the trustee lives. If the trustee lives in your country, then you tax the trust, but if the trustee lives overseas, then they don’t tax it.

This means there is a mismatch between New Zealand’s rules for taxing trusts, and other countries’ rules for taxing trusts, and that mismatch creates a loophole that can be exploited. There’s quite a lucrative industry here in New Zealand, providing trustee services to foreign trusts, that was estimated in 2009 to earn about $20million in fees every year.

Overseas tax regimes can get at the property held by the New Zealand trustee, but only if they actually know about it. It’s very hard to tax something that you don’t actually know exists.

Unfortunately, the New Zealand tax administration doesn’t collect much information about foreign trusts with New Zealand resident trustees. If you look at the IRD’s Foreign Trust Disclosure Form, you will see that all a trustee has to disclose is the name of the trust, the name of the trustee, and whether or not the settlor (the person who gives property to the trust) is resident in Australia.

This all makes it very easy indeed for foreigners to channel money through trusts with a New Zealand trustee. It pushes us dangerously close to being a tax haven, and in fact, there are plenty of tax consultants and trustee firms advertising their services to enable people to take advantage of the laws. This very much suggests that we are in fact, operating as a tax haven.

The solution is quite straightforward. Up the disclosure requirements. Trustees should have to disclose the name of the trust, the names of the settlors, the value of the property held on trust, a description of the property held on trust, and the names of the beneficiaries. And this information should be made available to other tax regimes. If the authorities in the United Kingdom want to know which of their tax residents are settlors or beneficiaries of New Zealand foreign trusts, then our Inland Revenue Department should be enabled to pass on the information.

There’s just one slight caveat. There can be good reason for some people to want to hold money in a trust where it can’t be found. Perhaps people fighting for democracy in an oppressive regime might want to take steps to protect their property, so that if all else fails, they can flee. But surely we can design some measures to provide for this contingency. And in the meantime, we should be committed to letting some sunlight in.

Of course, the people setting up and selling foreign trustee services will miss out on their fees, and perhaps they will be lobbying hard to keep this handy loophole. But I’m not feeling all that sympathetic. They’re exploiting the loophole just as much as the foreign settlors and beneficiaries are, and they’re dragging down New Zealand’s good reputation in international tax.

Further reading:
Terry Baucher on “The curious world of foreign tax trusts…
Richard Murphy on how we can tell that NZ is a tax haven

Posted in Economics, NZ Politics, Taxation | Tagged , | 2 Comments