The final report of the Tax Working Group was publicly released this morning. As expected it covers a wide range of matters, from the introduction of a capital gains tax to environmental and ecological taxes.
The capital gains tax proposals have naturally captured most attention. The Report recommends that a realisation-based capital gains tax apply to gains and most losses on all types of land and improvements (except the family home), shares, intangible property and business assets at full marginal tax rates, with no allowance for inflation. The capital gains tax would apply to gains and most losses after the implementation date (Valuation Day). Private assets such as cars, boats and art are to be excluded.
The Report suggests that collectively-owned Maori assets merit specific treatment and that the Government engages with Maori to consider this further.
Eight of the 11 members favour a broad-based capital gains tax, which is projected to raise $8.3B over five years. However, three members (including a former IRD Deputy Commissioner(Policy)) oppose the broad-based proposal.
All of the members support an extension of the taxation of capital gains from residential investment properties. On balance all of the members expect that an extension of capital gains taxation would lead to some small upward pressure on rents and downward pressure on house prices.
Extending the taxation of capital gains would allow the bottom 10.5% tax threshold to be increased as a means of lowering personal income tax. But the Report also suggests raising the 2nd marginal rate (currently 17.5%).
Another notable feature is the mooted use of the tax system to modify behaviours. These include further ‘corrective/sin’ taxes (e.g, a sugar tax) and environmental taxes (e.g., a beefed-up emissions trading scheme, congestion charging, waste disposal levies).
No radical changes are suggested in relation to business tax or GST.
The Report offers a number of options as to how the Government could implement the tax on capital gains. Further comment from the Government is expected in April 2019.
The Report can be found here.
For more information, please contact your local BDO tax advisor.