If the bill is pased tax certain distributions of trust beneficiary income to children under 16 will be taxed at the trustee rate of 33%, rather than the minor's marginal tax rate, which can be as low as 19.5%.

Revenue minister Michael Cullen says the measure is intended to introduce greater equity into paying tax.

"Most ordinary New Zealanders cannot get around paying lower taxes by.... putting income-earning assets into a trust that distributes the income to their young children. Instead they pay their full tax bill."

"The minor beneficiary legislation will reduce the tax advantage gained by using a trust. It will apply only if the beneficiary income is derived from property settled on a trust by a minor's relative or guardian, or someone associated with the relative or guardian."

"It is estimated that in 1998 about 3,500 children under six shared $27 million in beneficiary income from various business activities. Again, it is unfair that this income should be taxed at a lower rate than their parents' rate."

"The legislation spells out a number of exceptions to ensure that taxing beneficiary income of minors at 33% is not unjust. For example, it will not apply to income from property for which the settlor was ordered by a court to pay damages or compensation to the child," Dr Cullen says.