Taxpayers are apparantly manipulating their income to be slightly less than $38,000 and $60,000.
Treasury figures on taxable income for the 2004-2005 tax year show sharp spikes just below the $38,000 threshold, at which the tax rate jumps from 19 per cent to 33 per cent, and the $60,000 threshold, above which taxpayers pay the top 39 per cent tax rate.
In 1999, when Labour raised the top tax rate to 39 per cent, only 5 per cent of taxpayers were liable for the top rate. But inflation has pushed that figure to 11 per cent, or more than 300,000 taxpayers.
Simply a case of bracket creep. Where the thresholds for different tax brackets have not risen in the last six years, more taxpayers will be caught in higher income tax brackets, and pay more income tax. It amounts to an effective tax increase.
The IRD will be looking into how to reduce this tax avoidance.
Whenever there are tax brackets taxpayers will take advantage of ways to reduce their taxable income to fall into a lower bracket. Quoting from a previous post on this site the late Kerry Packer described anyone who did not minimise their tax as an idiot.
Quite correct Kerry.