Wealth tax now on the agenda

The government has signaled that it has yet another plan for how to tax international investments. This one is not a capital gains tax, but a wealth tax, according to one expert.

Sunday, September 17th 2006, 10:24PM

The U-turn (which was first flagged in last week’s Good Returns Weekly Wrap) was unveiled on Friday.

Ministers Michael Cullen and Peter Dunne announced, in a press release, that they were writing to the Finance and Expenditure Select Committee, hearing submissions on the largely unpopular proposed capital gains tax regime and offer them a new alternative.

The so-called “fair dividend rate method” has three key points:

Individuals would be taxed on a maximum of 5% of the value of their offshore shares in a given year, with any dividends received counting towards this 5%
Where an individual has had a return of less than 5% (and they are able to prove it) they will be taxed at a lower rate
Individuals would not be taxed in cases where there was a negative return

The proposal, which has been labeled by legal firm Philips Fox as a “wealth tax”, is light on details. One of the key points is that it appears to make investing offshore (outside of Australia) slightly more favourable than domestic investments.

From the details released so far the latest proposed regime applies only to individuals who have more than $50,000 invested offshore.

Managed funds though will be subject to a flat 5% rate. The ministers says that it “is necessary that (fund managers) know what the fair rate of return is at the beginning of a period.”

“Managed funds would use a version of the fair dividend rate method that would tax 5% of the value of their offshore portfolio share investments each year. There would be no variation to this rate.”

The latest idea appears to have come from New Zealand First leader Winston Peters. He says he is pleased with the idea. "New Zealand First has been working with the government to ensure that the finance and expenditure select committee could consider an alternative to the complex treatment of overseas taxation contained in the original Bill," Peters says.

Details of how the tax would work are here in Features
Phil’s Blog comments on the issue overall
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Wealth tax now on the agenda

The government has signaled that it has yet another plan for how to tax international investments. This one is not a capital gains tax, but a wealth tax, according to one expert.

Sunday, September 17th 2006, 10:24PM

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