Capital Gains Tax
Tax Working Group Delivers its Report to Government
There has been much discussion in the media over recent months regarding the content of the above report and in particular, the introduction of a Capital Gains Tax (CGT).
In short, the Report has recommended the following to Government:
- Capital Gains to be taxed through a realisation based capital gains and most losses on all types of land and improvements, shares intangible profit and business assets.
- Family Home to be excluded.
- CGT would apply to gains and losses after the implementation date (Valuation Day).
- CGT to apply when individual sell assets.
- CGT on small businesses can be deferred if annual turnover is less than $5 million and the sale proceeds are reinvested in similar class assets.
- Capital Gains won’t be adjusted for inflation.
- Investors to have up to 5 years to have some assets valued.
- CGT forecasted to collect $6 billion annually within 10 years.
- Investment in art works excluded from CGT
- Money gained from CGT to be reinvested into the tax system by re-determining tax breaks.
- Depreciation an option for owners of commercial and industrial buildings.
The Government plans to make comment on report by April 2019 and any new resulting laws to be in place by April 2021.
Some general thoughts on the Report are:
- Everyone will need to know the rules. If implemented, this could be the biggest shake up to taxation since 1986 when GST was introduced.
- All assets (barring family home), will need a valuation.
- The timetable is very tight, especially when you consider the need and design of high quality legislation.
- The tax definition of an asset will need to encompass what will be included and excluded.
- Kiwisaver by virtue of definition will be hit because on the GCT on investments.
- The ultimate challenge will be to keep the tax take neutral in terms of tax take v tax reinvested.