by Richard Newell
BT Funds Management chief executive Craig Stobo said that the current system “creates poor investments” driving money towards unsuitable structures and often resulting in “misallocation towards non-performing investments”.
He also poured scorn on the Government’s preferred method of taxation, other than the risk free return method.
He described the other options as being "pie in the sky" he said, adding that the issues paper on possible tax changes offered only a partial solution: “There is no commitment from the Government to deal with the various anomalies that exist.”
Stobo is a firm advocate of the risk-free rate of return method.
IRD general manager policy Robin Oliver sympathised with the industry view and said it was the IRD’s wish to have tax as a secondary issue in the choice of investments. He noted that the current tax regime creates a lot of boundaries between onshore and offshore, passive and active, and between the entity and the individual that has resulted in a highly distorted market place: “A tax system by lotto”.
Oliver appeared to favour RFRM as the most suitable measure of reform, at least in the short term. however he indicated that if anyone can come up with a better alternative the IRD is willing to consider it.
One of the key areas of concern for the IRD was investors using AUTs to invest in New Zealand Government stock and thereby avoiding New Zealand tax completely. When pressed to put a figure on the extent of this activity, he was only able to say that the evidence was ‘anecdotal’ but ran into the hundreds of millions of dollars.
Chapman Tripp’s Craig Elliffe proposes that in the short term, the grey list should be modified to deal with the AUT issue to the Government’s satisfaction. Alternatively, they could change the definition of a dividend, or tackle reinvestment into New Zealand as an ‘avoidance transaction’.
Longer term, he suggests the grey list should be retained, that the concept of ‘Comparative Value’ be modified to tax only 70% of gains, and the deemed rate of return method should be replaced.
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