Home > Updates > Capital Gains Tax Review 2019
After months of deliberations, public consultation and an interim report, the Tax Working Group (TWG) last month delivered its final report.
As expected, the TWG has recommended, amongst other things, an (effective) comprehensive capital gains tax. Some critics have described the proposed regime as one of the “harshest” in the world, with many gains potentially being subject to tax at the top marginal rate of 33% with no discounts, concessions or allowance for inflation and very little in the way of exemptions, exceptions and roll-overs.
In many ways, such proposals pave the way for a grateful public when the Government inevitably announces which watered down version of the proposals it will adopt. That is, of course, assuming the “harshness” of the proposals hasn’t put the voting public off the idea of capital gains tax altogether, and importantly that the Government can gain the political support it needs to get any changes it wants to implement across the line.
Whether you are for or against a capital gains tax or sit somewhere in between, it is worth noting that the proposals outlined in the TWG’s final report are at this stage just that – proposals. And while it is helpful to understand what the proposals are, there is little to be done until we know exactly which of those proposals the Government intends to pick up and run with, and then what is likely to make it through the political minefield that will follow.
The most contentious aspect of the TWG’s final recommendations is that three of the eleven TWG members disagreed with its findings.
The dissenting members are Robin Oliver, former deputy commissioner at Inland Revenue and current principal of Oliver Shaw tax advisors, Joanne Hodge, former tax partner at Bell Gully and Kirk Hope, chief executive at Business New Zealand. The dissenting members are extremely credible, well respected and they come from a variety of backgrounds.
The crux of the dissenting members’ report is that the tax system should not impede experimentation and innovation and they consider the cost of implementing a comprehensive capital gains tax regime outweighs the benefits.
The dissenting members instead consider that the Government would be better off amending some current rules, such as gains made on residential rental properties and enforcing the existing rules better (especially around evasion and enforcing the current property rules more effectively).
There are a huge number of issues and views to consider, and in that regard, the TWG was faced with no insignificant task. What will be interesting is how the Government decides to implement the findings and proposals of the TWG, taking into account the dissenting views and also general public reaction to the final report.