by Rob Hosking
Finance Minister Michael Cullen, on Friday, announced the release of a discussion paper on reforming the taxation of New Zealanders’ investments in offshore equities.
One option being canvassed is the risk-free rate of return method flagged in the McLeod Tax Review of 2001.
Cullen took the opportunity, in a speech before the Institute of Chartered Accountants, to defend his approach to tightening tax loopholes.
The government took some fairly strong criticism when it announced it would be changing the taxation of Australian unit trust investments by New Zealanders.
Noting the widespread media coverage of that issue, Cullen said it is “is only one amongst a number of problems with the tax rules applying to portfolio investment in offshore equities. The options that will be presented in the issues paper are an attempt to address all the main problems identified in this complex area.”
That, and other issues, have “raised some concerns about the government’s commitment to the generic tax policy process – that we were moving towards legislating by means of press statement.”
“I can understand the reasons for the concern,” Cullen says. “But [they] involved revenue protection measures requiring a rapid response. Faced with revenue risks from widely publicised transactions that were clearly contrary to policy intent, the government chose to announce the law changes, and then to proceed to consultation before introducing legislation. In the circumstances, would the critics have preferred early legislation with no consultation?”
Other tax rules under review regarding investment relate more to money coming into New Zealand.
Overseas investors wanting to put their money into small, unlisted New Zealand firms often hit a tax barrier - they may be exempt from tax in their own jurisdictions but are subject to New Zealand tax when they sell their shares.
“This may create a problem for them because they have no access to tax credits owing to their tax-exempt status in their country of residence.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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