How to pay 10% tax on $100,000

Bill English has pointed out how the current system allows well off people to in pay less tax than low workers. This is one reason why we should have a flatter system, with less loopholes.

Mr English highlighted in Parliament how the current system can allow a household earning $100,000 a year, with two dependent , to reduce the tax they pay from $27,500 a year to less than $10,000 a year.

Three easy steps:

  1. Forming a company owned by another entity (on the current 30 per cent company tax rate), paying themselves a $48,000 salary and reducing their tax bill by $3000.
  2. Qualifying for on this reduced salary with two dependent children, they would receive an extra entitlement of almost $8500 a year.
  3. Using an interest in a leveraged property investment producing, say, tax losses of $20,000 a year, their personal taxable income is further reduced to $28,000.

So what you then have as tax is:

  1. $52,000 @ 30c = $15,600
  2. $14,000 @ 12.5c = $1,750
  3. $14,000 @ 21c = $2,940
  4. WFF credit of -$10,726  (on $28k income)

That means a net tax bill of $9,564 on $100,000 or a 9.5% effective tax rate.

If disallows offsets for property tax losses then the high income earner paying 9.5% effective tax will end up paying $15,990 tax, or 16%.

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