Trans-Tasman Tax Deal Comes Into Force

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

02 April 2003

A trans-Tasman tax deal between New Zealand and Australia agreed in February came into force this week, and will reduce the incidence of double taxation of dividends between the two nations.

However, it appears to have received a lukewarm welcome from the business community.

The new deal allows for tax credits in one country to be passed on to the other when an investor is moving money between the two nations. In effect, this means tax will only have to be paid once on these investment profits.

For example, under the old regime, a person in Australia buying shares in a New Zealand-based company would not be able to use the former country's tax credit, known as a franking credit, which attaches to the dividends of the shares. Likewise, a New Zealander was also unable to exploit the franking credit under the old regime, as the system didn't recognise credits outside their tax jurisdiction.

At the time of the initial agreement, Australian Treasurer Paul Costello talked up the accord, announcing that: "It will enhance investment across the Tasman. That will be good for both of our economies ... I think it is a significant breakthrough after such a long time we have agreed on this system."

However, not everybody is convinced of the new system's value. Clark Perkins, head of investment house brokerage JB Were in New Zealand believes the change will have a "marginal impact". He argues that there will still be a degree of double taxation despite the new rules, and there remains "a lot of inefficiency" in the laws.

The tax credits will also only be applied in proportion to the shareholders' origins. That is, if 50% of an Australian company's shareholders are in New Zealand, only 50% of the value of the tax credit will be refunded.

One consequence of the change, according to some is that it will eliminate the often intense competition between the two jurisdictions as they bid to attract more business. Olaf O'Duill, chairman of Wellington-based Australasian finance company Tower told the NZPA that it will remove the need to constantly review the best location in terms of domiciling a business.

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