Promoters of United Kingdom-based unit trusts in New Zealand can breathe a collective sigh of relief now as the Government has said it has no plans for removing their tax advantaged position.
Under a recent Securities Commission exemption people can promote UK based trusts in New Zealand. Any capital gains made by these funds are effectively tax-free, while capital gains on New Zealand domiciled funds are taxed at 33%.
The issue has come to a head as a number of companies, including AMP Henderson, Royal & SunAlliance, The Public Trust, Challenger and MoneyOnline, are either promoting or are about to start promoting UK funds in New Zealand.
When the issue was first brought to Finance Minister Michael Cullen's attention he indicated a willingness to look at the issue and, if necessary, close the loophole.
However, the funds management industry has been furiously lobbying the Government with two different views. In one camp are the firms that want the status quo maintained so they can bring in tax-advantaged products, in the other camp are those firms which aren't planning to bring in UK funds and want to protect their New Zealand domiciled product.
In the end the industry's lack of unity made the Government decide to do nothing for now.
"Nothing is going to happen tomorrow," a spokesman for Finance Minister Michael Cullen said.
"The minister has been getting mixed messages about what needs to be done."
Because the industry couldn't decide what it wanted, the Government wasn't going to change the rules, he said.
Opponents of the UK funds suggested the Government could change the FIF rules to include these UK funds.
Such a change would mean that any capital gains made by these funds would be subject to tax.
Cullen's spokesman said that instead of making ad hoc rule changes, a full review of the FIF rules would be undertaken.
He described this as being: "one of the biggest issues for the Government in tax."
"Moving the grey list has huge ramifications," he said. "The Government is nowhere near thinking about that."
While the minister had instructed officials to look at the issue no changes are likely to be made during the Government's first term in office.
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