Tax Avoidance

The Supreme Court today said that two orthopaedic surgeons owe the Inland Revenue more money. They each sold their medical practice to a company but they were the boss of the company. The company then employed them to do exactly the same job and paid them a lower salary about $120,000, instead of $650,000 they earned before. The rest of the money went to their family trusts. In this way, they could borrow money from the family trust or buy a holiday house for the trust. The top tax rate for individual people was 39% but the tax rate for the trust was 33%. The Supreme Court now says they owe the Inland Revenue a lot more tax money. They avoided paying a high rate of tax. This is called tax avoidance.

The surgeons say that their financial advisors thought this arrangement was legal but the court now says it is illegal. They paid themselves about the same as medical specialists working in hospitals but the court says private specialists earn more so should pay more tax.

Many other people who have high earnings have done the same thing – pay themselves less and put money into a family trust. Now the Inland Revenue department will look at how much tax these people have paid.

Avoid – if you avoid something unpleasant, you find a way not to do it. Avoidance is the noun.
Orthopaedic surgeon – does operations on the backbone, and joints like hip and knee joints
Medical practice is a medical business.
A trust is a financial arrangement where you can keep and invest money for someone. In a family trust, the money is for the family.
An individual is one person
Inland Revenue is the department which collects tax
Earn, earnings – the amount of money someone earns is what they are paid
The Supreme Court is the highest court

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