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Taxation Of Investment Income


Taxation Of Investment Income

The Government has released more detail on the radical reforms to the taxation of investment income from both offshore equity investment and domestic investment through collective investment vehicles.

The key changes (to the proposals released last year) announced today by Finance Minister, Dr Michael Cullen, and Revenue Minister, Peter Dunne, are:

- the withholding tax on 'flow through' income from qualifying collective investment vehicles (QCIVs) will be capped at 33%, ie the tax rates for flow through income will be 19.5% and 33% with investors in QCIVs whose tax rate is 39% continuing to have their income from these savings taxed at 33%;

- the exclusion from taxable income of gains and losses on New Zealand equities held by QCIVs will be extended to include investments held by such entities in Australian resident listed companies;

- for non-QCIVs, shares in Australian resident listed companies will not be subject to the new rules for taxing offshore portfolio (ie < 10%) investments ie they will retain 'grey-list' treatment;

- for offshore portfolio investments, which are to be taxed on a mark-to market basis under the comparative value (CV) method (essentially a capital gains tax on unrealised gains), the CV income will be discounted but only to 85% of the market value movement calculated under the CV method; and

- the annual 'cashflow' cap on the CV income, available to individual taxpayers will be set at 5% of the opening market value of the portfolio of investments rather than 6% as proposed last year.

The reforms will be included in a bill to be introduced into Parliament in May and will apply from 1 April 2007.

Further information on the changes announced today will follow in a Tax Tips Special. The Ministerial announcement and supporting documents are available on http://taxpolicy.ird.govt.nz/ For more information on the proposals as released last year refer to Tax Tips 11/2005.

This news was brought to you by PricewaterhouseCoopers. For back issues of Tax Tips, refer to our web site at: http://www.pwc.com/nz/taxtips

Best regards
The Tax Tips Team


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