by Rob Hosking
Collective investments within New Zealand will no longer be taxed as entities.
“Rather they will be able to elect to have the income earned by a fund regularly attributed to the individuals investing in it and taxed at their marginal statutory rates,” Cullen said in his Budget speech.
That is a form of the “look through” regime advocated by Craig Stobo last year in his review of how collective investments are taxed.
That means people in managed funds will be taxed at their marginal rate and not at a flat 33%. “Some taxpayers on the 39 cent marginal rate could pay more, depending on how their financial affairs are arranged,” says Cullen.
The “look through” regime will not initially be compulsory because some providers would find it costly and difficult to change right away. That though is likely to be reviewed.
Stobo’s other recommendation – a form of the “risk free rate of return” method of taxing offshore collective investments – has finally been formally killed off.
RFRM was “conceptually simple but it quickly becomes complex in application,” Cullen says.
Instead, the government will release a discussion document within a month looking at the “comparative value” method, currently used for offshore investments which are not part of the “grey list” group.
The grey list will go and all offshore collective investments will be taxed on the basis of the change in their accrued value.
“The approach being proposed is that individual and other investors will be taxed on the change in value of their overseas shares, but with an annual cap so that tax is spread over a number of years to better reflect cash flow,” says Cullen.
A threshold has been proposed so that those with small holdings of foreign shares continue to be taxed just on dividends received.
The moves have been welcomed by the industry. The proposals “will see an important boost to tax neutrality and the benefits will flow directly to New Zealand savers investing in managed funds,” Investment Savings and Insurance Association chief executive Vance Arkinstall says.
To read reaction and analysis of the BUDGET go to FEATURES.Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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