tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, December 6th, 7:49AM

News

rss
Latest Headlines

Govt to close down managed fund tax loophole

The funds management industry was, yesterday, delivered the news it didn't want to hear.

Thursday, August 7th 2003, 12:21AM

by Philip Macalister

The Government made it clear yesterday that it wasn’t prepared to tolerate the use of tax-effective Australian unit trusts (AUTs).

In a speech delivered to the Institute of Chartered Accountants in Auckland, Finance Minister Michael Cullen said using AUTs instead of New Zealand based vehicles to get around paying tax was unacceptable.

"From the Government’s perspective this is unacceptable and, if necessary, we will change the law to ensure that this option is not available," he said.

The speech (delivered by Associate Revenue minister David Cunliffe) is a watershed for the funds management and financial planning community.

Russell Investment Group (formerly Frank Russell) pioneered the first AUTs for the ANZ, and many other managers have followed suit, including NZ Funds, Assure/Spicers, BT Funds Management, and more recently AMP and St Laurence.

While the government has made its intention clear, how far it will go and what it covers is less certain.

The speech (read what Cullen said here) gives an example of an investor who goes into an AUT which invests in New Zealand Government bonds. Cullen says by doing this the investment is virtually tax-free.

"An identical investment through a New Zealand vehicle would be clearly subject to New Zealand tax."

Some people have interpreted this to mean that the government is only interested in AUTs investing in New Zealand fixed income assets.

However, Cullen’s tax adviser, Helen Mackenzie, says the Government wants to look at the broader issue, which includes other tax effective funds such as United Kingdom-based Open Ended Investment Companies (OEICs).

However, she was unable to say how much revenue the government was missing out on by managers and investors using AUTs.

Cullen also noted there had been quite a lot of media comment in this area. Although he was not specific a speech made by PricewaterhouseCoopers tax partner John Shewan at the Financial Planners and Insurance Adviser conference and reported on Good Returns, has created much debate in the industry.

Shewan, yesterday, said that it was only a matter of time before the government moved to tighten up tax treatment of offshore unit trusts.

“There has been a general notion that Mum and Dad investors holding these investments on capital account won’t be taxed on the gains. That is not correct – and it’s never been correct, if they are acquired with the purpose of selling them.”

Despite the discussion period between now and whenever a decision is made on the October discussion document, Shewan suggests the government has given a clear steer which way it is thinking.

He points to Cullen’s comment that “it seems to me to be a mighty effort to argue that shares or units with no realistic dividend yield were purchased otherwise than for the purpose of sale. That would make all the gains taxable.”

The question is less whether the government will move to tighten up the rules, but rather how it will do it.

"Will we have the equivalent of the Springboks spitting in investors’ faces, or something more gentle than that?” Shewan says one of the positives is that managers have warned investors of the risks.

"The industry has been quite responsible in drawing attention to this, in investment statements and prospectuses. But I am amazed so little attention is paid to it. I’ve seen investors going into these Australian trusts with the intention of selling them a few weeks later.

“Frankly that is just dumb, because they will be taxed.” The government has not made any plans for how it will tackle this issue. It will release an issues paper in October that will raise options to deal with this problem and other issues that arise under the foreign investment fund rules.

One option is to implement a risk free rate of return regime as suggested last year by the McLeod tax committee. Another similar option, known to be favoured by some at the Inland Revenue Department, is a deemed dividend regime.

« News Round UpSovereign takes regulation bull by the horns »

Special Offers

Commenting is closed

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
  • Partners kills its matrix
    “@Backstage, thanks. I agree there is no relationship to CoFI, though, from a service perspective, I have two other providers...”
    2 days ago by JPHale
  • Partners kills its matrix
    “Partners Life has decided to stop using its COM for advisers as it believes the system may breach the CoFI regulations which...”
    3 days ago by Amused
  • Partners kills its matrix
    “Insurance companies should stick to their lane. They are not advisers and even those that employ advisers should not be crossing...”
    3 days ago by Tash
  • [GRTV] The nitty gritty of Smart’s ETFs
    “Advisors should consider all gateways into investment markets including cheaply priced ETFs to provide access to low priced...”
    3 days ago by Pragmatic
  • DRS member or not - client care remains advisers’ responsibility
    “FAPs are members of DRS too. Substitute “adviser” for “FAP” and the story is actually a lot more accurate. If...”
    4 days ago by Aggressively_passive
Subscribe Now

Weekly Wrap

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.94 - - -
AIA - Go Home Loans 7.49 ▼5.79 ▼5.49 ▼5.59
ANZ 7.39 6.39 6.19 6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.79 5.59 5.59
ASB Bank 7.39 ▼5.79 ▼5.49 ▼5.59
ASB Better Homes Top Up - - - 1.00
Avanti Finance ▼7.90 - - -
Basecorp Finance ▼8.35 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.54 - - -
BNZ - Rapid Repay 7.54 - - -
BNZ - Std 7.44 ▼5.79 ▼5.59 5.69
BNZ - TotalMoney 7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼5.69 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 6.95 ▼5.79 ▼5.59 5.69
Co-operative Bank - Standard 6.95 ▼6.29 ▼6.09 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - ▼5.99 ▼5.89 -
First Credit Union Standard ▼7.69 ▼6.69 ▼6.39 -
Heartland Bank - Online ▼6.99 ▼5.49 ▼5.39 ▼5.45
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 6.65 6.40 -
ICBC 7.49 ▼5.79 ▼5.59 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.25 6.89 6.59 6.49
Kiwibank - Offset 7.25 - - -
Kiwibank Special 7.25 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society ▼7.94 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank ▼7.49 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo ▼4.94 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.19 6.49 ▼6.39 ▼6.39
TSB Special 7.39 5.69 ▼5.59 ▼5.59
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac 7.39 6.39 6.09 6.19
Westpac Choices Everyday 7.49 - - -
Westpac Offset 7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 5.79 5.49 5.59
Median 7.49 5.99 5.79 5.69

Last updated: 5 December 2024 10:06am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com