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Capital gains tax debate attracts international experts

Capital gains tax debate attracts international experts to Auckland

Thorny issues associated with the design of capital gains tax regimes are the subject of a debate which is attracting experts from around the world to an Auckland conference next month.

“The literature on the theory of capital gains taxation is substantial, but curiously little has been published on how governments have actually addressed the design dilemmas these taxes present,” says Professor Michael Littlewood from the University of Auckland’s Faculty of Law.

He and Professor Craig Elliffe from the University of Auckland Business School are co-organisers and hosts of the conference which they say will help fill the gap in global information and prove especially helpful in informing debate in New Zealand.

“The intention is not to discuss whether New Zealand should have a capital gains tax, but rather what form it might take if it was introduced,” Professor Littlewood explains.

“The unanswered question is what, exactly, should be taxable and at what rate?”
New Zealand has never had a general capital gains tax - though it does tax some forms of capital gain as income - aligning us with Hong Kong, but setting the country apart from an otherwise almost universally agreed doctrine that it is appropriate in principle to tax capital gains and seriously problematic not to.

Several political parties, and others, have proposed that such a tax should be introduced in New Zealand, making the optimal design of general capital gains taxes a current subject of great importance as we approach a general election, Professor Littlewood says.

Capital gains taxes present a number of knotty questions over a myriad of issues, such as what should be done about the family home.

One view is that gains made on the sale of a family home should be taxed in the same way as any other capital gain, he explains, “but whatever arguments might be marshalled in support of this idea, it seems unlikely to happen because any political party proposing it is unlikely to be elected”.

The question then, is, should family homes be categorically exempt, or should the exemption be subject to limitation, for example to only one tax-exempt family home? Or should it be limited to houses worth less than a prescribed amount – in which case, how much? Or should the prescribed amount relate to the size of the gain, rather than the value of the house? What should be done where the taxpayer buys a house, lives in it for a few years out, rents it out for a few more years, then sells it at a profit?

“The theoretical case for taxing capital gains is the subject of substantial literature, but the literature on practical difficulties associated with design is rather sketchy and may be out of date,” Professor Littlewood says.
“The aim of this project is to make a substantial contribution to the global literature on tax theory.”

The capital gains tax debate will be in two parts with a small symposium including senior Treasury and Inland Revenue officials the day preceding the conference, and a politician-free debate the following day when international experts will explain how their countries have tackled the difficult issues inherent in the system.

The conference speaker line-up in includes New Zealand and international tax experts who are all recognised as leaders in the field. Academics from the Universities of Michigan, British Columbia, Otago, Melbourne, Wellington and Cape Town; senior representatives of tax partners - Gray’s Inn tax chambers of London, Allens of Melbourne, Russell McVeagh and Ernst and Young, and the New Zealand Institute of Chartered Accountants (NZICA), will all present their views.

The overseas speakers are coming to New Zealand with the assistance of the University of Auckland Faculty Research and Development Fund, the Hood Fellowship, Lion Foundation and New Zealand Law Foundation with other sponsorship coming from the University of Auckland Business and Law Schools, NZICA, Ernst and Young and Russell McVeagh.

Title: Key issues in the design of capital gains tax regimes
Date: Friday 18 July 2014
Time: 11.30am to 6.30pm
Venue: The University of Auckland Business School, Owen G. Glenn Building, Level 0, 12 Grafton Road, Auckland


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