Treasury advocating strongly for CGT
A new Treasury report highlighting vast differences in tax rates between asset classes is a thinly-veiled call for a capital gains tax, according to one tax expert.
Friday, February 3rd 2012, 6:00AM 
3 Comments
by Niko Kloeten
The Treasury has released the briefing it gave to incoming Finance Minister Bill English after the election, featuring a comparison between the effective tax rates on various asset classes.
It shows that despite recent changes to the tax system, housing is still a much more attractive option tax-wise than shares or bonds.
At a 33% marginal tax rate Treasury calculated that debt instruments (mainly bonds) have a real effective tax rate of almost 50%, with domestic shares at just over 45% and foreign shares slightly lower at about 42%.
Meanwhile, rental property has an effective tax rate of only 25% and owner-occupied housing isn't taxed at all.
"The Treasury is continuing to examine a range of options for taxing capital more evenly, and at lower rates," the report said.
"Key questions that will need to be addressed before making decisions on tax reforms of this magnitude include the size of the economic benefits and fiscal costs, administrative feasibility, and implications for distributional equity."
PWC tax partner and Tax Working Group member Geof Nightingale said the report was "advocating quite strongly for a capital gains tax" even though it never used the exact words.
"The theme through the document is we are still not doing enough to address the savings imbalance."
He said the chart used by Treasury wasn't unfamiliar; the Tax Working Group came up with something similar, although changes to rules on building depreciation have changed the figures slightly.
Nightingale said the exact numbers were "sensitive to the assumptions used" and, to complicate the picture even more, the same investment by the same investor can be taxed in different ways depending on what investment vehicle is used.
"For an investor the same debt instrument can be taxed at different rates depending on who holds it," he said.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
Or is it because the people making the gains are also the same people who are meant to be enforcing the rules?
It is funny that a wealth group like GMI is thumbing its nose at the capital gains tax rules (of course their clients' objective in holding all those direct shares hasn't been to make a gain (yeah right.......)), while Gareth Morgan himself is saying that he should be paying capital gains tax.........
You wonder if Brent Gilchrist didn't just put a big nail in the coffin when it comes to capital gains - as if I was the IRD I would be starting to think that if the public are big enough to make claims against capital loses, then there will be also a few who will need to line up to admit that they should pay some tax on their capital gains. Doesn't it seem weird that the only time any NZ investors actually admit to be trying to make gains is when they have lost some capital? Maybe the only people trying to make capital gains were the people who invested in Hanover.
Brent Gilchrist's call for a "class-action type situation" could be right. Maybe the IRD will take a "class-action" against all the people who thumb their nose at the current capital gains tax rules.
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