“ASFONZ urges the government to re-start the process of developing a robust and workable framework for the tax treatment of collective investment vehicles (CIVs) and their members,” ASFONZ councillor Jill Spooner says. “(The association) will support a re-starting of this debate from first principles because we strongly believe that the discussion document’s proposals are flawed, both from a technical and an administrative perspective.”
Spooner says the association understands the reasons for seeking to align tax rates with individuals’ marginal tax rates.
“However, we suggest that the proposals in the discussion document add new distortions (such as an apparent, tax-driven bias towards investment in New Zealand instead of overseas shares). They also add significant administrative complexities that will increase the overall costs (including tax) of investing in CIVs.”
ASFONZ says that if the solution introduces additional costs that mean the net return for an investor with a tax rate of less than 33% is the same as, or worse than, at present, the tax alignment will have served no useful purpose.
“ASFONZ strongly supports the discussion document’s stated objectives, but we are concerned that they will not be met through the implementation of the proposals,” Spooner says.
She says that, in the absence of change, there may be a problem with the current regime from a tax base maintenance perspective. However ASFONZ said it has heard from some commentators that the proposed changes (and the significantly increased tax impost on offshore holdings) may result in lower levels of compliance from direct investors in respect of offshore equity holdings. In the absence of the technology to enforce the new regime, ASFONZ suggests that tax base maintenance issues are not resolved by the proposals.
Spooner says the implementation date of April 1, 2007 seems unrealistic.
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