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Comprehensive Capital Gains Tax is being introduced in New Zealand

Comprehensive Capital Gains Tax is being introduced in New Zealand

On 01 Feb 2019 Tax working group headed by sir Michal Cullen has recommended the Government to introduce capital gain tax. The formal report is due to be released to the public on 21 Feb 2019. The government may consider the introduction from 01 April 2021


It is expected the scheme will be broad based with very little and no exemptions, excluding family home.


Sir Michael Cullen is the same person who was behind the introduction of GST in New Zealand. The GST scheme is a broad based with very little exemptions, almost everything in New Zealand attract GST. It makes New Zealand GST unique in the world. New Zealand is the only country in the world who has broad based consumption tax with no exemptions not even on essential items. GST collects significant revenue for the government.


It is expected the Capital Gain tax will be very similar to the broad-based GST concept. The new capital gain tax will be introduced on all sorts of capital items, such as shares, retirements funds, business assets, personal property and New Zealand’s most loved asset real estate.


The introduction of capital gain has been in discussion for several years. It seems, the time has come for the introduction.


What is included?


It may include.

- Land (including buildings). Includes Residential rental, Commercial, Agricultural and Industrial
- All business assets – depreciable property, intangible IP and goodwill
- Interests in equity (shares, PIEs, Kiwisaver)

- Holiday homes, vacant land.

- Controlled foreign corporations (CFC) and Foreign investments funds. (FIF)

 

The greater details of above will come out over the time. It seems CFC, FIF, Kiwi Saver, PIE, and definition of family home will require additional work and policy explanation by the tax working group. As these areas are already very complex.

 

How transition will take place.


It is expected on the introduction day; the existing assets will be valued. That, valuation shall be used to determine the amount of tax at the time of realisation. Tax amount would be realisation price – acquisition price + capitalised costs.

It is expected this topic will have heavy public interest and it will be main discussion point between political parties. New Zealand has election in 2020.

 

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