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Tax changes may have unintended consequences: Hildyard

Wednesday 4th of October 2006

Tower Investments chief executive Tony Hildyard says the government's latest U-turn was a significant change and it reintroduced different tax treatments for those who invested through managed funds compared with those who invested directly.

Under the proposals managed funds would pay taxes under a "fair dividend rate" based on 5% of the opening rate value, whether or not the investment made a profit, while direct investors would pay a maximum of 5% but only to the extent that the investment was profitable.

Hildyard believes that the proposed changes restore a tax-created disparity and may disadvantage managed-fund investors, and could compromise the objectives of KiwiSaver.

"The 5% rate is too high and will have other unintended consequences if it is not addressed," he says.

Hildyard remains positive about KiwiSaver and says for it to get off to a good start there needs to be equity between managed funds and direct investments.

"KiwiSaver is a managed fund, and as such it should provide investors with all the benefits that managed funds offer without having to jump an additional tax hurdle compared with direct investment."

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Paul Flood: The danger is that the 'goalposts' (regarding what is acceptable or unacceptable adviser conduct) may be susceptible to change. Our 'Principles based' legal/regulatory environment lends itself to “prevalence-induced concept change” over time, perhaps not so much in the written laws and Code, as in the interpretation of the prescribed principles.
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