New Zealand Government Amends Investment Tax Bill

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

18 May 2006

New Zealand's Minister of Revenue, Peter Dunne, has announced that the Government will bring in an amendment to the Tax Bill introduced into Parliament yesterday, with the intention of calming "ill-founded fears" among New Zealanders with overseas investments.

"The Government is eager that the public see the proposed changes to taxation on overseas investments as fair and reasonable and we have listened very carefully to the hundreds of submissions on this proposal," explained Mr Dunne.

According to the minister, the Government had agreed to a broad proposal that would exclude from the new tax rules for overseas investments in shares, for a period of five years, interests in foreign companies where:

• The company is resident, and listed on a recognised exchange in Canada, Germany, Japan, Norway, Spain, the United Kingdom or the United States;
• The company is liable to income tax in the foreign country, because it has its domicile, residence, place of incorporation, or place of management there;
• The company is listed on a recognised exchange in New Zealand;
• The company is widely held and has a substantial New Zealand shareholder base;
• The company is not a mutual fund, or investment trust.

"The five-year holiday will give those companies the opportunity to consider shifting their headquarters to New Zealand, which will bring considerable benefits to this country," claimed Mr Dunne.

He added that:

"The five-year window will also allow time for completion of the government's current review of the controlled foreign company tax rules."

"The review will include consideration of whether the rules should distinguish between active investment, such as investing in factories, and passive investment, such as investing in securities."

Last month, Mr Dunne and Finance Minister Michael Cullen announced that a fairer regime for taxing domestic investors who invest in New Zealand and overseas, which will mean a tax cut of NZ$110 million (US$67 million) a year from next April.

The new rules will remove a number of tax disadvantages for investors using managed funds, many of whom are ordinary, middle-income savers, and will tax lower income savers at their marginal income tax rate of 19.5% instead of 33%.

Also under the proposed changes, capital gains on New Zealand and Australian shares held via a vehicle like a managed fund will no longer be taxed.

However, the new legislation also seeks to ensure that wealthy investors with substantial share portfolios outside the region pay a "reasonable" amount of tax. The amount of tax will be capped at 5 percent of the increase in value of the investment in any one year.

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