Capital gains tax may be on the horizon
Capital gains tax may be on the horizon with the new government
With the new government reversing National’s tax cuts in April 2018, the government has now announced the items that are on the tax agenda, and have also signalled other potential changes. Tony Marshall, tax advisory partner for Crowe Horwath, predicts how the government’s new tax agenda may affect farmers.
As promised, the government is forming a Tax Working Group and has stated one of the focuses of the group will be looking into capital gains associated with property speculation. Capital gains tax has always been a contentious topic and sends nervous tension through the farming community.
Marshall points out that farmers should not be worried about the value their farm has gained since they purchased it. “Capital gains should be set with a base line, meaning it will not take into account historic gains. The farm will be given a value when the capital gains tax is introduced, and previous increases in value will not be taken into account for tax.”
When the Tax Working Group looks into capital gains, Marshall also points out they may not be as lucrative for the government as they appear. “If we look to Australia as an example, capital gains tax only accounts for approximately 2% of their tax revenue after having the tax for more than 30 years. Additionally capital gains tax can create bad habits by encouraging people to invest money in assets that are not subject to capital gains tax, such as the family home, and the money will not be filtered back into the business or farm.”
Another item on the agenda for discussion is further measures to tax the profits of overseas companies like Apple and Google that earn substantial income in New Zealand but pay little in the way of tax. Marshall’s view is that the government should approach this with caution: “New Zealand is an export-led economy. If our measures are too strict, countries that we export to may adopt similar measures. Our leading exporters, like Fonterra and Zespri, may be subject to additional taxes in jurisdictions that they export to, resulting in lower returns for our farmers.”
The government has stated that any recommendations made by the Tax Working Group will not be implemented until the 2021 tax year. This means the mandate to implement the changes will be tested at the 2020 election before anyone is affected. “It is important New Zealanders keep up to date with impending changes and understand how they could be affected by them to ensure they are in the best position to react,” Marshall advises.