Salary slaves should be less envious... An interesting ruling indeed.

[belgarion]

http://www.stuff.co.nz/business/3789070/Dunne-says-court-decision-is-clear

It seems the IRD is after everyone. This ruling does seem odd though as this sort of thing has been going on for as long as I can remember and is only now being seen as tax avoidance. Very odd indeed.

[peat]

whats really struck me this year reading NZ Taxation 2010 is how emphatically it states so many times how deductions are unavailable to employees. Its just completely arbitrary and seems to me that everyone should form a company and work for that company as an independent contractor servicing the company's clients (the old employer).

[minimoke]

This ruling does seem odd though as this sort of thing has been going on for as long as I can remember and is only now being seen as tax avoidance. Very odd indeed.
It may have been going on for years but its when you get people going from a $650,000 to $120,000 salary thats bound to raise a flag to IRD and that is just plain dumb!

Electricians as a hypothetical example have been getting away with it and will continue to do so because IRD has their market rates at $30,000 (just an example of salary - not the real figures!!). When electricains start claimng $120,000 salaries then the rest of then need to watch out - but they aren't going to do this are they?

[minimoke]

Its just completely arbitrary and seems to me that everyone should form a company and work for that company as an independent contractor servicing the company's clients (the old employer).
Can't be done easily. You have tax laws on one hand and labour laws on the other - one of Peter Jacksons lot found that out. IRD doesn't care about the labour laws - they just want their pound of flesh.

[CJ]

It may have been going on for years but its when you get people going from a $650,000 to $120,000 salary thats bound to raise a flag to IRD and that is just plain dumb!They actual based the salary on what they got from the DHB therefore making it justified in their opinion. Otherwise they would have choosen $38k or $60k. See below


whats really struck me this year reading NZ Taxation 2010 is how emphatically it states so many times how deductions are unavailable to employees. Its just completely arbitrary and seems to me that everyone should form a company and work for that company as an independent contractor servicing the company's clients (the old employer).This doesn't work as stated by minimoke as IR look behind legal agreements to determine if you are an employee. Considering the company is liable for PAYE if you get it wrong, it is unlikely they will agree.

Just to show the implications of this case, look at the distribution of income. Does anyone notice the spike around the change in tax rates. There is only one reason for this and according to the CofA, it is tax avoidance:
http://www.ird.govt.nz/resources/1/4/14626d8040281d5bb31cbbe8b687b1f9/chart-14-small.jpg

There is an even better version of the graph on page 15 which shows no notice blip at $60k in the 1999 data:
http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/taxes_transfers.pdf

It will be interesting to see the 2009 data to see the 'lucky ones' who gave themselves a pay rise from $60k to $70k (ie the new cut off).

[CJ]

This also poses another question which goes a bit closer to those on this forum:

"If you have a share portfolio in a company or trust, and it makes good returns due to your superior share trading knowledge, do you pay yourself a 'salary'. If not it could be tax avoidance".

The same would go for rental property owners:

"If you have rental properties in a company or trust, do you pay yourself for property management work undertaken by you. If not it could be tax avoidance".