The tax rate for Maori authorities

According to Otago University student paper Critic, John Ansell wants to start a campaign aiming to make New Zealand “colourblind” (sic), because our laws are completely unfair to white people and Maori people get far too much special treatment under the law.

Ansell claims that he’s got plenty of factual evidence to show that Maori get special treatment, and he’s going to cite it in the campaign.

Speaking to Critic, John Ansell, the advertising guru behind the campaign, described the planned advertisements for Treatygate as “short sharp little messages with one piece of evidence in each one”, such as that “Maori companies pay 17.5% tax, [while] others pay 28%.”

So, do Maori companies really pay 17.5% tax, while every other company in the country pays 28% tax?

Let’s start with the definition of a company, for the purposes of taxation. You can look it up on-line, and you will find it in section YA of the Income Tax Act. If you scroll down to “company” you will find that there is no special type of company called a “Maori company”. Scroll even further through the list of definitions, and you still won’t find anything that’s called a “Maori company”. However, you will find a “Maori authority”. The list of definitions tells us to go to part HF of the Act for all the rules to do with Maori authorities. It turns out that there are various entities owned by Maori organisations that can elect to be “Maori authorities”. But those entities are all involved in holding and managing assets for the benefit of Maori. The ultimate owners of the assets are Maori people.

So what is the tax rate for Maori authorities? To find that, you need to go to Schedule 1 of the Income Tax Act. There you will find that the rate for ordinary companies is 28%, and the rate for Maori authorities is indeed 17.5%.

The question is, why?

To understand why, you need to understand a little bit about the way we tax companies.

We tax company profits at 28%. Then companies pay out dividends to shareholders, out of the tax paid profit, and the shareholders have to pay tax on those dividends, at their own individual tax rates. So if you are someone who earns say, $100,000 a year salary, then you will be on the top tax rate of 33%. When you get dividends in addition to your salary, you will pay tax on them at 33% too. And that starts to look unfair, because you’ve already paid 28% tax on the company profits, via the company itself.

However, the New Zealand tax law is very clever. Through what we call the dividend imputation system, you get a credit for the tax that has already been paid by the company. The mathematics is a little complicated for a blog post, but take my word for it, please. The overall effect of the dividend imputation system is to make sure that you pay tax on your dividends at exactly the right marginal rate for you, even after the credit for tax paid by the company is taken into account.

Most investors in companies have reasonable incomes, so they pay one of the higher rates of tax. At present, for every dollar you earn over $70,000, you pay 33% tax, and for every dollar you earn between $48,000 and $70,000, you pay 30% tax. So given that companies only pay tax at 28%, most people who earn dividend income end up having to pay a little more tax on their dividends, to bring the overall rate up to 30%, or 33% (depending on how much other income they earn). Some shareholders get a refund. If you earn less than $48,000 a year, then the top rate of tax you pay is 17.5%. So given that the company has already paid 28% income tax, you will get some tax back (or in some circumstances, you will get a credit to carry forward to your next tax return).

It’s all a bit complicated, but in the end, it works out. We describe this as an integrated system of company taxation, because the taxation of the company is integrated with the taxation of shareholders.

As it turns out, when it comes to Maori authorities, we have an integrated system too. People who receive income from Maori authorities also get a credit for tax paid by the Maori authority. However, they only get a credit for 17.5% tax paid, because that’s the rate of taxation set for Maori authorities.

And the rate of taxation for Maori authorities is set at that much lower level for very good reason. There is an increasing number of highly paid Maori people. We can all name Maori lawyers and doctors and university lecturers and business owners and senior public servants, all people earning good incomes, and paying a higher rate of tax. However, sadly, because this is one of the many ways in which Maori as a group are simply not equal in New Zealand, we know that a greater proportion of Maori people do not earn high incomes. Accordingly, the applicable tax rates are lower, just as they are for other New Zealanders who earn low incomes. Someone who earns less than $14,000 per year pays only 10.5% tax on that income, and someone who earns between $14,000 and $48,000 pays 17.5% on that income (that is, the income between $14,000 and $48,000).

The Maori authority rate is set at 17.5% because it more accurately reflects the underlying tax rates paid by the people who are entitled to the income from Maori authorities. And ultimately, when those people who have received distributions or dividends or income from Maori authorities pay income tax themselves, it all gets evened out. It’s as simple as that.

But evidently, that’s far too complicated for John Ansell. It seems he would far rather distort the truth of the situation in favour of a quick and nasty headline grab. This is a poisonous approach.

I can’t stop Ansell from spreading his distortions. But what I can do is tell the truth. Consider this post a start.

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11 comments on “The tax rate for Maori authorities

  1. Just as a minor correction, shareholders will never receive a refund if their imputation credits are greater than their tax bill, the IRD doesn’t allow it. They can, however, apply those as a credit to some future tax bill.

    Details here: https://www.ird.govt.nz/business-income-tax/imputation/imputation-basics/

    • Deborah says:

      Thanks, Michael. I *am* aware of that wrinkle, but I had thought it was getting too complicated for a blog post, but your comment prompted me to think of a way of explaining it in a quick phrase, so I’ve updated the post.

  2. M-H says:

    Dear Deb, thanks so much for this clear explanation. What would we do without clear-think and knowledgeable individuals. I hope you get a chance to explain this more widely in NZ. Sgd, a Big Fan

  3. M-H says:

    ‘clear-thinking’, not ‘clear-think’. Proofreading skillz clearly gone with onset of thesis brain.

  4. It is such a delight to see a clever mind demolish a fool
    Thank you

  5. Denny says:

    Thanks for your very clear explanation. If only you could come up with a sound byte that rebuts this bigotry. People remember short sharp comments … And journalists, alas, do not seem to have your sharp mind, and editors go for the greatest reach with little interest in truth. Do we have any laws to prevent this nasty propaganda? Spreading misinformation? Hate crime? I’m glad you wrote that this post is just the beginning of telling the truth. Keep going. Please.

  6. Katherine says:

    I sent you a friend request on facebook, you don’t have to accept but I thought I’d let you know that it was because of this post, and because I always enjoy reading your blog.

  7. Kiwi Dave says:

    That was interesting, enlightening and a reminder that refuting a part-truth is always more time-consuming and complex than uttering the part-truth in the first place.

  8. Pete Benson says:

    Further to recent conversations, it would be interesting to learn if Maoris, overall, take out of the system, more than they put into it …. even though the average Maori income is less than $15,000 per annum . Difficult stats to find .

    • Rob says:

      Although it’s pointless exercise because it misunderstands the whole point of taxation and citizenship, I’m sure what you mean is you’d like to comparisons of everyone’s tax contributions and the benefits they receive from the public purse.

  9. Arigo says:

    Why do Maori accept this truthfully apartheid system – it is unfair to the majority of citizens. Accepting specific treatment based on race or skin colour is apartheid . Lets keep it honest folks – the PC brigade will eventually destroy democracy if we just sit back and let such untruths go unchallenged.

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