A Week in Review

Richard AshbyPartner, Gilligan Sheppard

NZX & SIA plead for concession

The NZ Stock Exchange and the Securities Industry Association, are pleading to the Tax Working Group (“TWG”), that their final recommendation to Government (report out February 2019) is to exempt shares from the ambit of any new capital gains tax (“CGT”) regime.

Many of us feel that it will not only be property investment which will be affected by the threat of the introduction of a CGT, but also share investments, and arguably not only with respect to those listed on the NZX/ASX, but also those listed on exchanges located in other offshore markets as well. Although in this latest respect, it is potentially too early to tell what will happen to the existing FIF regime if a CGT is introduced.

I also question the impact on foreign investors, and their view of NZ investments going forward, should a CGT be introduced. Sure they may already be exposed to a CGT in their home jurisdictions, but considering there is no suggestion to date that there may be a special CGT rate, then arguably why would they continue to invest in NZ, if CGT rates in their home jurisdiction are significantly less than a NZ CGT rate which is based on our personal marginal tax rates.

However I’m getting off track and starting to grumble, so reverting back to the main reason for this article, a primary concern of both the NZX and SIA, is with respect to the present uncertainly surrounding how share investments in PIE’s will be taxed under a CGT regime, considering the TWG’s interim report comments that a CGT would be difficult to apply to these investment structures. Consequently, there is some level of risk that PIE’s would be exempt under a CGT regime, and therefore investment decisions could be biased towards PIE’s, encouraging investors to hold their shares through these interposed structures, as opposed to investing in the share market directly.

The joint NZX/SIA submission includes the following comments:

– “Extending capital income taxation to investments in NZ shares could create an un-level playing field between direct investment in shares and indirect investments through PIEs. That would disadvantage New Zealander’s choosing to invest directly in NZ companies, or worse, discourage direct investment entirely.

– Further, depending on how such a tax is imposed it may also result in NZ shares being more heavily taxed than foreign shares which will decrease the attractiveness of investing in NZ shares and lead to a decrease of investment in the productive sector of the NZ economy.

– Capital markets provide a lever to stimulate and support the growth, innovation and long-term success and sustainability of NZ’s businesses and infrastructure. An equitable and fair tax policy design would encourage New Zealanders to save and invest into NZ’s most productive and emerging sectors, and ensure they continue to have choices that allow them to do so”.

I wouldn’t want to pre-empt the TWG response to the NZX/SIA submission, however “falling on deaf ears” is a phrase that comes to mind, unfortunately.

Minimum Family Tax Credit OIC

Directed at low to middle income families, who have full-time earners with one or more dependent children, this credit is targeted to ensure that these families receive a minimum amount of annual income.

The formula to calculate the credit amount is fairly straight forward, the “prescribed amount” minus the “net family scheme income”, the result then apportioned to the extent the person was not a full-time earner at any time during the income year.

By an Order in Council (OIC) each year, prior to the start of the next entitlement period, the “prescribed amount” can be amended (usually upwards).

On the 26th November 2018, the 2019 “prescribed amount”, was increased from its present $26,156, to $26,572, naturally taking effect from 1st April 2019.

In essence, the “prescribed amount” has increased by just over $6k, since the 2009/10 income year.