The Tax Working Group Report

There has been much discussion in the media over recent months regarding the possibility that the working group will recommend the introduction of a Capital Gains Tax (CGT). This possibility was confirmed yesterday with the issuing of the working group’s report: Future of Tax – Final Report.

The key proposals were as follows:

• A wide-ranging Capital Gains Tax will apply to the sale of property, shares and businesses.
• Family Homes and personal assets (Motor Vehicles, Boats etc will be excluded).
• The Family Bach will not escape the reach of CGT.
• CGT would apply to gains and losses after the implementation date (April 2021).
• CGT on small businesses can be deferred if annual turnover is less than $5 million and the sale proceeds are reinvested in similar class assets.
• Capital Gains will be taxed at marginal tax rates with no inflation allowance.
• Investors will have up to 5 years to have some assets valued.
• Rollover relief will be limited to some instances on death, business restructures where there is no change of ownership, involuntary events and small businesses.
• Depreciation will again be an option for owners of commercial and industrial buildings.

These new rules would likely apply from April 2021 onwards.

This is an extremely broad and wide-ranging proposal that captures all capital gains with few exemptions.

A lot more water needs to go under the bridge before we see how the final application of the proposed CGT will look. However, it appears that initial valuations will be pivotal to the application of the rules and this is an area property investor’s, in particular, will be interested in looking into further.

As it stands, the proposed rules appear poorly thought out, complex and with too few exceptions. In addition, the Working Group’s decision not to allow an adjustment for inflation results in an inequitable tax outcome.

The above rules are not final and the introduction of CGT will undoubtedly become an election issue. One thing is certain, if implemented, these rules will change the taxation landscape in New Zealand significantly.

If you have any questions at this stage please feel free to contact us.