Government may wait until April before deciding on capital gains tax

Friday, 1 February 2019

Taxpayers may need to wait until April to find out whether the Government will attempt to implement the Tax Working Group's recommendation for a broad-based tax on capital gains.

Finance Minister Grant Robertson said ministers had now received the working group's final report, which they planned to release to the public on February 21.

He said the Government might make 'initial responses' then.

But he said the Government did not expect to release the Government's 'full response' until April 'following detailed discussions with officials and consultation between government parties'.

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'As previously indicated, it is the Government's intention to pass any legislation to implement any policy changes arising from the report before the end of the parliamentary term,' a statement from Robertson and Revenue Minister Stuart Nash said.

'No policy measures would come into force until 1 April 2021 – giving New Zealanders the chance to vote on any decisions made by the Government.'

The Tax Working Group's experts have done their job and now it is down to the politicians.

National warned the Government it was leaving itself little time to pass what it said would be an extremely complex piece of legislation if it elected to pursue a broad-based tax.

A spokeswoman for Robertson would not give further details of the timeline for passing possible tax reform into law. Any changes would consulted on 'widely'.

Much of the contents of the Tax Working Group's final report were revealed after several members of the group, including chairman Sir Michael Cullen, set out their thinking at a one-day conference hosted by Victoria University in Wellington in November.

Cullen said then that 'a clear majority' of the 10-person working group had reached an agreement on extending the taxation of capital gains.

Finance Minister Grant Robertson has indicated the Government will keep its initial comments limited when it releases the Tax Working Group report on February 21.

Fellow working group member and Council of Trade Unions economist Bill Rosenberg strongly hinted that the working group would recommend handing back the proceeds either by introducing a $7000 tax-free threshold for income tax, or by halving the lowest rate of tax on income under $14,000 from 10.5 to 5.25 per cent.

Both measures would cut almost everyone's annual tax bill by $735 at a cost to the Crown of about $2 billion.

Under its proposed capital gains tax regime, profits from the sale of assets and investments such as rental properties and shares would be taxed alongside other 'income' at people's marginal income tax rate.

Broadly-speaking capital gains on the 'family home' would not be taxed, and nor would any gains on the likes of artworks – which could increase their relative appeal as investments.

People would be taxed on assets they already owned, but only on the gains that they made after April 2021, and there would be no adjustment to take into account inflation.

Roll-over relief – if people decided to reinvest their capital gains – would be 'narrow', but capital gains tax would not be payable when assets changed hands through inheritance.

In most cases, tax would only apply when people sold an asset for a profit, rather than 'accruing' each year on investors' paper gains. But Cullen said there would be exceptions.

However, any of those details could be altered by the Government or during the Parliamentary process.

Robertson appeared to hint at the challenges Labour might have persuading coalition partner NZ First to back major reforms on Tuesday, saying the Government would need to 'work out what package it can agree to as a coalition government'.

'Get on with it'

National finance spokeswoman Amy Adams warned that pushing the final call to April ate up time the Government should be using to consult on and the plan then create 'complex' legislation.

'The timing is starting to look really, really uncomfortable and complicated. We're not going to see what the Government's going to do until April.

'They have previously committed to putting out a discussion document on whatever they're going to do. Then you've got to draft the legislation and this is incredibly complicated tax legislation, this is not a simple bill, at all.

'Then you've got an entire Parliamentary process and select committee. The reality is it's an election year next year, so who knows when the House will lift but August is a likely bet.

'It's starting to look like a very short runway, which indicates it could be quite a rushed process which only increases the risks to the complexity and difficulties and unforeseen consequences.

'So I think the Government, if they're going to do it, they need to get on with it pretty quickly, tell New Zealanders what their plans are, so that we can have a proper process of going through it and consulting on it and working through the details, because I just can't overstate how complex these things are.

'The treatment of losses, the protection of losses, or rollover relief, all of the aspects that go with capital gains taxes. It's not a yes, no, shall we do it or shan't we issue, there's a range of things to decide.'