Date posted: 21/09/2018 3 min read

Tax Working Group makes “sensible and pragmatic” proposal on taxing capital gains

CA ANZ says the status quo is a good launch pad for targeting the capital gains the Government is seeking to tax.

In brief

  • No need to start from scratch to extend the taxation of income on capital
  • Retirement savings taxes “kicked for touch,” but warning about picking winners
  • CA ANZ applauds focus on reducing tax compliance costs for small businesses

New Zealand's Tax Working Group today indicated there's no need to start from scratch to extend the taxation of income on capital. "The status quo is a perfectly fine launch pad for what the Government wants to achieve," said John Cuthbertson, New Zealand Tax Lead for Chartered Accountants Australia and New Zealand (CA ANZ).

Commenting on the release of the working group's interim report today, he said "the capital gains the Government is seeking to tax could be best targeted by expanding the existing income tax regime rather than introducing a separate Capital Gains Tax."

The group is considering two main options:

  • Extending the existing tax net by taxing gains on assets not already taxed
  • Taxing certain assets, such as shares, on a deemed rather than actual basis

Cuthbertson said an example of how the existing tax system could handle capital gains was land speculation. "Inland Revenue has plenty of tools under the existing land tax provisions to address speculative behaviour. Gains from sales of residential rental property can be adequately dealt with by an extension of these provisions."

The status quo is a perfectly fine launch pad for what the Government wants to achieve.
John Cuthbertson New Zealand Tax Lead for Chartered Accountants Australia and New Zealand.

As the working group acknowledges, a standalone Capital Gains Tax introduces complexity and extra compliance costs, he said.

The 10-member group is holding the first independent review of New Zealand's tax system in eight years. It has been established to look at the system's structure, fairness and balance

Finance Minister Grant Robertson said "The wide range of expertise and experience among the membership means the working group is well placed to consider changes to make our tax system fairer."

The group, chaired by former Finance Minister Sir Michael Cullen, gathered for the first time in late January and is due to make its final report in February 2019.

Retirement savings

The working group says it is giving further consideration to the choices and trade-offs around retirement savings.

Cuthbertson said this was a "kick for touch, or at least till February when the final report is out. The design of a capital gains mechanism could ultimately decide winners and losers based on the form of 'retirement saving'.

"Kiwis save for their retirement in many ways. Any taxes or concessions for retirement savings need to be fair to all forms of retirement savings. Picking winners by deciding which forms of savings are in, or out, of scope may create a dilemma for the Tax Working Group."

If the group decides to specifically exempt savings held in KiwiSaver, the incentive created needs to be acknowledged.

Small business

"Chartered Accountants Australia and New Zealand congratulates the working group on its recognition of the disproportionate burden tax compliance costs impose on small businesses," Cuthbertson said. Reducing this burden will be more meaningful for small business than a progressive or reduced company tax rate.

"Our small businesses are often treated as if they have a big business finance team to meet the demands of our tax system."

"Compliance and complexity creep are more than annoying - they are now seriously hurting the 97 percent of Kiwi enterprises with fewer than 20 employees."

CA ANZ supports further work being undertaken to investigate a reduction in compliance costs as an alternative to introducing a progressive company tax rate. CA ANZ offered a number of alternatives during consultation to reduce compliance costs.

Acknowledgement by the group that the current disputes process is not fit for small businesses, and the recommendation of a taxpayer advocate service to assist taxpayers with Inland Revenue disputes is welcomed by CA ANZ. This recommendation is in line with our earlier consultation with the group.

Read the CA ANZ submission

The submission addresses seven tax topics.

Read Here

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