The Tax Working Group in its final report released today is recommending a broad extension of taxing capital gains, and consideration of environmental taxes, changes to personal income tax thresholds, retirement savings, and charities.
A capital gains tax is a tax on the profit from the sale of an asset.
“Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed.”
Among its main recommendations are:
- Tax the capital gain on sale of land, shares, business assets, intangible assets such as intellectual property. Tax to be imposed when the asset is sold, and levied at the seller’s marginal tax rate. Assets to be valued from when the tax is imposed.
- The tax would NOT apply to the family home, and personal assets such as cars, paintings, jewellery, and household appliances. However, a holiday home WOULD be taxed on sale.
- The capital gain on shares in companies would be taxed but in some circumstances capital losses would also be able to be offset against other income.
- The capital gain on the sale of a business would be taxed, including the goodwill.
- Exemptions from capital gains to be granted for some “life events” such as relationship breakup, death. A family farm passed on to a family member would be covered by a rollover and there would be no tax on the capital gain. But if the family member then sells to a third party the capital gain would be taxed.
- No changes to income tax rates, but a recommendation to raise the income threshold for low and middle income groups, i.e they would earn more at a low or lower tax rate.
- No change to GST and no exemptions for certain types of products, such as food and drink.
- Environmental taxes: changes to the emissions trading scheme to be more like a carbon tax. Dirty taxes on solid waste to reduce volumes to landfills. Taxes on water pollution and water extraction. Tax deductions to encourage conservation.
- Taxation of fertiliser use. Consider congestion charges to tackle traffic issues.
- Recommends government take steps to encourage retirement saving for low and middle income groups through possible refunds of employer’s super tax, reduce tax rate on some KiwiSaver investments.
- Review taxation of charities to ensure the income from commercial activities are being used for the charitable causes they are being raised for.
- Give Inland Revenue extra resources for administration and enforcement.
The government is currently considering the Tax Working Group’s final report and will make a decision in April. So whilst there has been no confirmation that a comprehensive capital gains tax ( “CGT” ) will be brought right now, the government has signaled very strongly that a form of capital gains tax will likely to implemented.
What is clear is that similar to other CGT regimes around the world, it is very likely that the family home will be exempted from being taxed on capital gains.
Furthermore, the tax working group has recommended a valuation requirement for all capital assets on the date a CGT is introduced into law. This recommendation would mean that any gains made since purchase, up until the date of CGT introduction, shouldn’t be affected by the new CGT rules.
It is also useful to keep in mind that this new tax will only ever be on capital profits. A profit, even reduced by a tax, is never a bad thing so don’t pass up on a good investment opportunity just to avoid paying tax!
We think that it’s highly likely a CGT will be introduced in NZ, and once brought in, will not likely be repealed. However, we would be very surprised if it was introduced in full in its current format, as suggested by the Tax Working Group. We will be keeping a close eye on any further developments and will be informing clients of any matters that they should be aware of.
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