The future of capital gains tax in New Zealand
The Tax Working Group has released its final report of recommendations on the New Zealand tax system. The recommendation to take the most notice of is, the recommendation to introduce a broad Capital Gains Tax.
Please see below for more detail.
What will be caught under the recommended capital gains tax?
The Tax Working Group has recommended that a broad capital gains tax should be applied to gains on all land and improvements, shares, intangible property and business assets. This includes shares in both public and private companies, and the sale of businesses.
There will be no changes to gains on the family home (other than if part of this is being claimed for business purposes) and personal use assets such as cars and boats or other household durables e.g. art.
How will the tax be applied?
The recommendation is that all capital gains should be taxed at the tax payers current marginal tax rate i.e. new tax rates shouldn’t be introduced. Nor will there be any adjustments for inflation.
The group have proposed that a Valuation Day approach should be used. This means that tax payers will need to establish a market price on the date (1 April 2021) that the proposed capital gains tax would become effective. This market price will form a cost base for your existing assets and all gains or losses on these will be calculated using this base.
Capital losses should generally be able to be offset against other types of income however, the Tax Working Group have advised that there should be ring fencing of any capital losses for portfolio investments on listed shares, and associated party transactions. This means that capital losses from these income types can only be applied to future gains on these same income types.
Any losses from Valuation Day assets i.e. existing assets as at 1 April 2021 will also be ring fenced.
We anticipate the Government’s response to the Tax Working Group’s report in April this year.
If the Government approves of these recommendations, they intend to pass legislation implementing any policy changes within the current Parliamentary term. If successful the proposed capital gains tax will take effect from 1 April 2021.
We will keep you abreast of any further information once the Government releases their response.