One of the first victims of the newly cobbled together Parliament appears to be the tax credit regime proposed by the TOLIS group. Good Returns understands the legislation enabling the tax credit regime to proceed has been dropped from the bill currently before Parliament because the ACT party won't support it.
"We've never supported it," ACT finance spokesman Rodney Hide says. "It's ad hocory at it its worst in terms of tax legislation."
The Taxation (Tax Credit, Trading Stock and Other Remedial Matters) Bill is in its second reading and is expected to be passed into legislation soon.
The scheme is designed to close the 12 cent differential between the lowest marginal tax rate and the rate paid by many investment funds.
Under current legislation people on tax rates of less than 33 per cent who invest in managed funds and other savings products are being overtaxed.
The demise of the legislation is a bombshell for the industry, but also quite welcome.
The Investment Savings and Insurance Association (ISI) has argued the TOLIS proposals were a second best option, and its preferred answer to the problem was the introduction of a proxy tax rate between the lowest marginal rate and the trust rate.
In its submissions on the bill the ISI argued the TOLIS proposals lacked universality, added unnecessary complexity and cost to managed funds.
Figures bandied around the industry suggest it may cost $180 million to set up the scheme and it will cost the industry (and investors ultimately) $60 million a year to run. On top of that Treasury will lose $30 million of revenue a year.
There are also huge technical issues to be overcome, and in some cases the credits may not materialise for some investors who elect to use the option, if their fund manager provides it.
Hide says ACT does not support the proxy rate option either. Its solution to the problem is the introduction of a flat tax rate.
The scheme's demise provides the industry with an opportunity to win support for a better option to be implemented.
Hide says there needs to be a full review of taxation of savings products.
One of the first victims of the newly cobbled together Parliament appears to be the tax credit regime proposed by the TOLIS group.