Accountants Welcome Rethink Over New Zealand Investment Tax

by Mary Swire, Tax-News.com, Hon Kong

14 September 2006

The New Zealand Institute of Chartered Accountants has welcomed news that Finance Minister Michael Cullen may be backing away from a proposal in a current tax bill on overseas taxation rules.

Under the proposed changes to New Zealand's international tax regime, 85% of unrealised capital gains on investments outside New Zealand and Australia would be taxed.

However, a parliamentary committee has urged the government to explore a plan offered by PricewaterhouseCoopers chairman John Shewan which would tax either the dividends received or - as a proxy for dividends - 3% of the average market value, being the average of the value at the start and end of the year.

Welcoming the news that the government was revisiting its proposals, NZICA Tax Director Craig Macalister said: "In our view the proposal in the bill had the potential to over-tax foreign-sourced income, and was very complex."

However, he added that the Institute still has reservations on the risk-free rate of return method now under consideration.

"Conceptually the change is straightforward, but the changes may not address the concerns of complexity," Macalister observed, adding that: "The risk-free rate of return rules can become complex very quickly."

"Potentially they could end up looking like a cross between a space shuttle wiring diagram and something out of a Dr Seuss book. On balance, we would prefer the status quo to remain," he noted.

Mr Macalister said that a risk-free rate of return approach will still impose a tax liability in years when investments are making losses. This was largely the reason why these proposals were not well favoured when originally floated, he suggested.

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