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ASFONZ Submission on IRD Taxation of Investment

The government’s Discussion Document on the tax treatment of “collective investment vehicles”

The government released its Discussion Document on the “treatment of collective investment vehicles and offshore portfolio investments in shares” in June 2005.

ASFONZ has released its first submission today. In that submission, it agrees that the tax treatment of “collective investment vehicles” (“CIVs”) needs to change. What we have now, according to ASFONZ, is both illogical and unfair. The Discussion Document requested comments on a number of issues of detail concerning the government’s recently announced policy.

ASFONZ councillor Jill Spooner, said that ASFONZ decided to take a two-stage approach to its submissions on the Discussion Document:

- a paper released today[1] addresses issues of principle;

- a follow-up paper will address specific issues raised in the Discussion Document.

Jill Spooner said that ASFONZ expresses considerable concern at the practical implications of the principles on which the Discussion Document is founded. It strongly urges the government to re-visit the basis on which CIVs and their members should be taxed.

ASFONZ suggests in its initial submission that a “first principles” approach has not been taken to date. It says that the changes will inevitably produce unintended consequences. According to ASFONZ, they will also introduce an unnecessary layer of complexity that will at the same time raise costs, lower understanding and increase inequity.

According to ASFONZ, the proposals change the meaning of “income” in several ways, so it says that complexity will inevitably increase as providers test the boundaries. “We must expect that to happen”, said Jill Spooner. “That’s not a criticism – providers will not be doing their jobs unless they test those limits for competitive advantage.”

ASFONZ strongly believes that there is an alternative to the Discussion Document’s framework for a logical and fair basis for the tax treatment of both CIVs and their members/investors. In its initial submission, ASFONZ suggests a broad framework that should be used instead. That framework does not require the creation of the artificial definitions of income that the Discussion Document suggests but instead recognises the true nature of the transactions involved. ASFONZ suggests that both the current and any proposed regimes should be tested against the standard it describes.

The framework does not involve tax concessions for superannuation schemes or other CIVs. Instead, the objective is to tax savers’ CIV income on approximately the basis that would apply if the saver earned the income directly.

ASFONZ thinks that the national debate on a tax regime for CIVs needs to include an option that offers a “pure” attempt to flow income from the CIV to investor/members. That would mean members’ being taxed on the basis that they had earned the income directly. ASFONZ says that its submission offers a practical foundation that will see the “income” of investor/members calculated in ways that will be familiar to taxpayers. It suggests that the Discussion Document recommends a regime that moves away from natural concepts of “income”.

ASFONZ councillor Jill Spooner said that “ASFONZ urges the government to restart the process of developing a robust and workable framework for the tax treatment of CIVs and their members.” She said “Even now, it is not too late to start again. Surely it is better to get it right.”

[1] Part 1 of our submission on the discussion document concerning collective investment vehicles - Issues of principle


ASFONZ is "the Voice of Workplace Super" in New Zealand. It is a voluntary, not-for-profit organisation made up of major workplace superannuation schemes as well as their professional advisers and service providers.

We are widely representative of workplace schemes, with a membership that embraces all types of superannuation– public and corporate, union-sponsored and industry-based - as well as individuals interested in superannuation issues.

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