The Tax Working Group's final report was released yesterday with recommendations across a wide range of New Zealand’s tax system
Most recommendations are consistent with those outlined in the Interim Report released last September.
The most talked about topic of a broad capital gains tax has been supported, but a number of other recommendations have also been detailed further, including a suggested increase to the bottom income threshold (thereby lowering tax for low to middle income earners) and how the New Zealand tax system may be used to combat environmental challenges facing New Zealand.
Some interesting points on the recommendations are:
- Tax the capital gain on sale of land, shares, business assets, intangible assets such as goodwill. Tax would be imposed when the asset is sold, and at the seller's marginal tax rate. Expenses such as improvements costs would be able to be offset, but more detail is needed in this area to know specifically what other expenses would be allowable such as interest incurred over the life of a mortgage.
- The family home, and personal assets such as cars, paintings, jewellery, and household appliances are excluded assets. This does not include a holiday home.
- Assets would be valued from when the asset enters the tax base which will generally be when the rules come into force, when a person migrates bringing assets with them (transitional residency would apply) or when a person changes their use of their asset (i.e. no longer meets the excluded asset criteria.)
- The capital gain on the sale of shares in companies and on the sale of a business would be taxed.
- In some circumstances capital losses would also be able to be offset against other income, but some losses are recommended to be ring-fenced and only be able to be offset against gains from other included assets. No losses can be claimed on land which is used for private purposes.
- A deferral from capital gains via ‘rollover relief‘ would be available for some events such as death, but this may depend on the type of asset and its use before and after the event. The report also discusses business restructures, small business rollover (replacing business assets) and the sale of closely held businesses upon retirement (suggesting taxation at Kiwisaver rates up to $500,000).
The government's full response, including any planned new taxes, is expected in April, but Labour has undertaken to take any proposed CGT to the next election