Breakthrough on Aust tax credits

Finance minister Michael Cullen delivered some good news yesterday to investors who own assets in Australia.

Currently the tax system is a major disadvantage to New Zealanders owning Australian assets and vice versa as Australian franking credits can't be used in New Zealand while Australian investors can't use NZ imputation credits.

"This is a problem that obviously requires a bilateral solution -- one that preserves the tax bases of both countries and is acceptable to government and business in both countries," Cullen says.

Cullen says progress has been made towards resolving this long-standing problem, and a framework is being developed.

"The final agreement of the two governments to such a mechanism is subject, of course, to its benefits outweighing its costs before it can be considered for implementation."

Cullen says that the mechanism developed should be one that allocates both franking and imputation credits to shareholders in proportion to their shareholding of the company, a mechanism known as pro rata allocation.

"Obviously, however, imputation credits will be useful only to New Zealand shareholders, and franking credits will be useful only to Australian shareholders.

"This approach effectively eliminates the double taxation of those affected in triangular cases."

An issues paper should be ready for publication by the end of the year.