The Tax Working Group has recently released its Interim Report. We're thinking you most likely won't want to read all 194 pages, so here's the edited highlights! It's important to note that no final decisions have been made yet - the interim report is just a preview of what may be in the final report, which is due to be released in February 2019. As always, if there's anything you'd like to discuss, on this or any other issue, don't hesitate to get in touch.
Key highlights of the Tax Working Group Interim Report include:
Taxation of Capital Income
• Otherwise known as a capital gains tax.
• An extension of the tax net to include business/income assets not already taxed. Personal assets like cars and art works would be excluded. The family home would be excluded but second homes and holiday homes would be within scope.
• Possible tax options include a tax either when gains (or losses) are realised, or a risk free rate of return method, or a combination of both.
• Any gain, or loss, if taxed, will be calculated based on a valuation of assets at the date of implementation of the tax (likely to be 1 April 2021). Any gains (or losses) from date of acquisition until the implementation date would remain untaxed.
• Retention of the Fair Dividend Rate (FDR) regime for foreign shares, but potential reconsideration of the rate, and removal of the Comparative Value alternative for individuals and family trusts.
• A realised gains tax brings with it detailed design questions on when and how it applies, as there are a variety of ways in which the relevant assets can be owned. This includes questions about "rollover" relief, ie whether there should be deferral of the tax arising from death, or a sale to acquire another asset. Integration with trust, company and PIE taxation regimes will also need to be considered.
• The company tax rate is recommended to remain unchanged.
• The interim report recommends removing tax on employer contributions to Kiwisaver for employees on incomes up to $48,000 and reducing both the 10.5% and 17% PIE tax rates by 5%. The highest PIE rate would remain at 28%.
• The report recommends no changes to current GST settings.
• While GST should apply to financial services, this will be administratively complex.
• Better for the Government to provide targeted relief to affected groups, rather than removing GST from items such as food.
Integrity of the Tax System
• The report recommends making directors personally liable for a company's GST and PAYE obligations and debt.
• A review of the sector is being recommended on the basis that charities need to confirm that their intended social outcomes are being achieved.
• Charities may potentially be taxed on income (other than donations) they receive.
• The Tax Working Group has not yet completed its review on personal tax rates and income thresholds.
• The Interim Report does note that addressing inflation adjusted income tax is best done periodically via a review of thresholds.
We'll be back with another update when the final report is released in February 2019, but in the meantime let us know if you have any questions or concerns.