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By Michael Woodward, Mackay Bailey, Accountants, Christchurch, NZ.

Recently, the tax Working Group led by the former Minister of Finance in the previous Labour Government – Sir Michael Cullen, released their much awaited recommendations. While there is a long road to be travelled before the recommendations become law, the current government has signalled a strong preference towards the introduction of a capital gains tax. The government has indicated that it will release a response to the recommendations in April with any changes to be implemented by the 2021 tax year at the earliest.

The key recommendations were:

  • The introduction of Environment taxes – extend the application of the Emissions Trading Scheme and congestion charges. Look for ways to tax water pollution and the extraction of water from rivers for commercial purposes. (Such as irrigation schemes and bottling plants).
  1. Extend the current lowest marginal tax rate band from $0 to $14,000 to $0 to $20,000 or $30,000.
  2. Look for ways to more effectively tax cross border digital transactions.
  3. Implement a capital gains tax (CGT) to be based on the applicable marginal tax rate of the tax payer. The CGT will include:
    1. Shares
    2. All land (farms, commercial property, rental properties, holiday homes, overseas land owned by NZ tax residents). The only exception is the family home.
    3. Intangible property (such as goodwill and intellectual property)
    4. Business Assets

A potential CGT is a significant change to the NZ tax landscape and would have massive implications for all tax payers. We will be keeping a very close watch on the response from Government and any changes as they are enacted.

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