The tax breaks United Kingdom based managed funds have over their New Zealand counterparts may be short lived.
Finance Minister Michael Cullen has indicated that he is prepared to close the loophole and put these funds on an equal footing with local ones.
"The minister considers it a big issue," a spokesman for his office says.
Currently if an investor buys either a UK unit trust, or an Open-Ended Investment Company (OEIC) they don't have to pay tax on the capital gains. However, an equivalent New Zealand based fund has to pay capital gains tax at 33%.
The issue has come to a head recently as a number of companies, including AMP Asset Management, Challenger, MoneyOnline, Public Trust and Royal & SunAlliance have either introduced, or are about to introduce UK unit trusts and OEICs to the New Zealand market on a broad scale.
They are doing this under an exemption notice implemented by the Securities Commission last year.
Cullen has now instructed his officials to consider the matter and report back to him as a matter of some urgency. He also expects to make an announcement at the end of August outlining the steps Government will take to address the uneven taxation playing field that exists.
Any legislation changes will take time to enact but the Minister expects to provide a clear signal that will alert the industry well in advance of his intended plans in this area.
Cullen has not indicated what specifically he will do, however one option is to consider changes to the FIF regime that would mean individuals holding these overseas funds will have to pay tax on the increase in capital values of these investments.
Changes would be made to give "some comfort to the New Zealand managed funds industry," the spokesman said.
It is also a warning to investors considering buying UK funds, he said.
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