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Taxation Bill Positive for Trust Investors


13 December 2006

Taxation Bill Positive for Kiwi Income Property Trust Investors

The Government has passed the Taxation (Annual Rate, Savings Investment, and Miscellaneous Provisions) Bill which will change the taxation of investment income for collective investment vehicles in New Zealand.

The Bill introduces new tax rules for collective investment vehicles that meet the definition of a portfolio investment entity (PIE). The new rules treat investment through PIEs in a similar way as direct investment by individuals, removing taxation disadvantages to saving through intermediaries, such as Kiwi Income Property Trust. The changes will also prevent over-taxation of lower-income savers.

The new regime will result in most investors being taxed at their marginal tax rate on the taxable income derived by the Trust. This means that any capital gains derived by the Trust and the benefit of tax allowances will effectively pass through to most investors. This compares to the current regime whereby investors are taxed on all income distributed by the Trust.

Our understanding is that Kiwi Income Property Trust will qualify as a PIE, with the new regime taking effect from 1 October 2007. That being the case, the change will have a beneficial impact on domestic investors’ after-tax returns, with the scale of the benefit determined by individual circumstances.

The Trust acknowledges the collaborative approach of the Property Council of New Zealand, listed property entities, Government Officials and the Finance and Expenditure Select Committee.


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