Oz/Kiwi Tax Reform Process Must Continue, Report Urges

by Mary Swire, for LawAndTax-News.com, Hong Kong

19 March 2003

Reporting in the run-up to the April 4 introduction of new bilateral legislation which effectively solves the long-running tax 'triangulation' dispute between Australia and New Zealand, the New Zealand Herald suggested the extension of the trans-Tasman tax credit regime as the next project for the two governments.

Following a meeting last month, it was announced by Australian Treasurer, Peter Costello and New Zealand Finance Minister, Dr Michael Cullen, that from April 4, the profits of firms doing business in each country with subsidiaries in the other will have their tax payments recognised by the other government, thus avoiding the effective double taxation which has traditionally proved such a disincentive for trans-Tasman investment.

The two men reportedly agreed to a series of regular bilateral meetings in order to continue to harmonise the tax, legal, and regulatory regimes of the two countries. However, as the New Zealand Herald observed yesterday:

'Harmonisation does not necessarily reduce the amount of tax payable and in many cases it can increse it. For example, New Zealand businesses are unlikely to appreciate harmonisation if it comes in the shape of a New Zealand capital gains tax. A more substantial form of trans-Tasman tax co-operation would be to ensure that income earned by a resident in one country from activities in the other is subject to only one level of tax.'

The report went on to add:

'New Zealand and Australia have provisions that achieve this result in certain circumstances...But the credits or exemptions are subject to some important limitations. For example, an individual NZ shareholder in an Australian company is not entitled to a credit against his/her NZ tax for Australian tax paid by the company.'

'The agreement by each country to extend these credits or exemptions would be much more significant in lowering the barriers to trans-Tasman investment than harmonisation.'

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