Tax dodges through family trusts are being targeted in a crackdown by Inland Revenue which involves thousands of average New Zealanders.
The new scheme aims to foil efforts by people to pay themselves low salaries through their own companies while using family trusts to bolster wealth.
Some people have deliberately lowered the level of their salaries to qualify for Working for Families payments.
The trusts crackdown was last night estimated to be worth $200 million in avoided tax.
It is in addition to new Inland Revenue steps announced a few weeks ago to target the "hidden economy", which are expected to bring in an extra $350 million in four years.
The case began with two surgeons but tax heads say "thousands" of Kiwis are involved in the middle New Zealand tax avoidance scheme.
The Law Commission, which is reviewing trusts law, has found the number of family trusts rose from 146,000 in 2001 to at least 237,000 in 2010.
Inland Revenue's group tax counsel Graham Tubb said its staff had travelled around the country to meet accountants to warn "blatant" and "aggressive" tax avoidance structures would be targeted.
He said the family trust structures were a "widespread problem" used by "thousands" of people who faced higher tax bills if they did not come forward.
Mr Tubbs said about 100 taxpayers had responded to a call to come forward and have their tax reassessed. He said about $815,000 had been received from taxpayers who had volunteered to be reassessed, going back two years.
He said assessments on those who had not volunteered for assessment would go back four years and penalty interest of up to 100% would be charged.
Mr Tubbs said Inland Revenue was carrying out audits and was planning on increasing investigations into trusts.
Letters were being sent to taxpayers affected by the issue.
"This type of entitlement has been used a lot by people who want to increase their entitlement to Working For Families or [lower] child support [payments]." He said the higher 39% tax rate had led to an upsurge in the tax avoidance vehicles.
The surgeons whose tax affairs led to the crackdown were orthopaedic specialists Gary Hooper and Ian Penny, of Christchurch.
Neither responded to calls for comment.
They took Inland Revenue to court in 2008 after it ordered them to increase the level of tax they were paying. The case ended up in the Supreme Court, with the judges there coming down behind Inland Revenue.
The court heard Inland Revenue claims they had arranged to pay themselves "artificially low salaries" through the companies they used to run their business.
Company accounts showed Mr Penny earned about $100,000 a year while Mr Hooper's company recorded paying the surgeon $120,000.
Inland Revenue claimed the men should have been paid much more - an extra $400,000 for Mr Hooper and $560,000 for Mr Penny.
The court heard the surgeons should have been paying an extra $25,000 and $34,000 a year in tax, based on company tax rates and personal tax rates at the time.
The moves by Inland Revenue have been welcomed by the Labour Party, which introduced the higher tax rate but has also voiced concerns about family trust abuse.
Finance spokesman David Parker said there were proper reasons for family trusts.
"They should not be used for tax minimisation." And associate finance spokesman David Cunliffe - who has previously campaigned on the issue - said he believed the level of tax avoided was up to $200 million.
He said data had shown half of the wealthiest Kiwis were not on the top tax rate.
"There's a lot of abuse at the top end."
