The group is due to deliver its report to the Government at the end of this week but it is not expected to be made public yet.
Submissions from the financial services sector lobbied the group to consider changes.
The Financial Markets Authority told it that investment in New Zealand’s capital markets had very little by way of positive tax incentives and that a broader and deeper domestic capital market was widely accepted to be something that lowers the cost of capital for NZ companies and promotes economic growth.
Forsyth Barr said changing demographics would make tax on capital income relatively more important.
It said the PIE regime encouraged New Zealanders to save for retirement. But it also created incentives to invest in PIEs rather than directly.
“We think that the playing field should be levelled for those investing directly, particularly for those investing via a discretionary investment management service (DIMS), by aligning the treatment of capital gains on New Zealand and listed Australian share investments. Currently, PIEs are generally not taxed on these gains, but direct investors can be. This change would not only better align the tax treatments of investments made through these channels, but would also remove the uncertainty for investors of the capital/revenue distinction when investing in shares directly.”
It said there should also be a maximum tax rate for income from directly-held investments that corresponds to the highest PIR, to mirror the PIE regime.
“As well as improving consistency, we believe there may be positive externalities from such an approach. For example, the highly concentrated nature of the New Zealand funds management industry is often cited as a reason why smaller companies struggle to raise capital (as the proposed investment may be too small to warrant interest from large fund [1] 2 managers); levelling the playing field for direct investment in effect markedly increases the number of fund managers in the New Zealand economy.”
Variable annuity provider Lifetime argued for a reduction in PIE rates and annuity fund rates to two-thirds of the nominal tax rate.
Milford Asset Management said people should be able to make tax-deductible contributions (or contributions out of pre-taxed income) to their KiwiSaver account, capped at a significant but reasonable amount each year and to contribute over and above the annual cap on a non-tax-deductible basis.
The tax rate on investment earnings should also be lowered, it said.
The Boutique Advisers Alliance said employee contributions to KiwiSaver should be allowed to be netted off in a tax return.
“The current system encourages capping contributions at $1,042.86 to avail of all benefits available. Netting off KiwiSaver contributions against gross income incentivises the KiwiSaver member to exceed the contributions limit which benefits the member and society as a whole.
“The current system taxes a person under the PAYE framework then treats the contribution as an investment (rather than through a retirement lens) and taxes again under the PIR framework. This does not feel right when planning for retirement. Granted, the revenue from tax will decrease but this needs to be viewed in conjunction with creating an environment whereby residents of this country are protected into their retirement. The vast majority of New Zealand residents do not have the relevant experience to make informed decisions about retirement. As Kiwi' continue to live longer at 1.2 years per decade, tax policy needs to assist in this area.”
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