Wider tax net 'big barrier' to economic recovery

If Labour seeks more tax gains from ventures like Goodman Property Trust's Highbrook business park, business leaders say investors could send capital overseas. Photo / Supplied

The prospect that Labour's proposed capital gains tax may include the sale of all businesses, shares and other assets sparked fresh debate in the business community.

Labour Party sources have been reported as saying "the tax will be broad-based, with some exemptions. It would be levied on any profits made from the sale of a business, shares, property or other significant assets".

Listed property entities and KiwiSaver schemes, which hold stakes in real estate trusts and companies, could be some of the hardest hit if the scheme is planned and Labour governs.

Units or share sales in the NZX businesses could incur the new 15 per cent penalty but the assets held within the businesses would also be hammered by capital gains tax in a double whammy effect.

Aaron Quintal, Ernst & Young tax partner, said a wider scheme would raise far more than just taxing New Zealand's 400,000 residential rental properties.

"It depends on what they're looking to do. If they're after money, then it's no surprise they're now hinting it's not just investment property. If they want to raise billions, you have to spread the net wider," Quintal said.

John Dakin, CEO of the NZX-listed Goodman Property Trust, was alarmed at the prospect of the tax net widening.

"Any additional restrictions on capital investment at this time would appear counterproductive to an economic recovery. New Zealand needs to incentivise investment and create jobs at this time, not put in place barriers," Dakin said.

"Capital gains tax is tough on our investors and if they're also having to pay tax on unit sales, it'd be doubly damaging. You want to get on with business and not delay making decisions for tax reasons."

Sir Noel Robinson, who's in a venture with Goodman developing the $1 billion Highbrook office and business park at East Tamaki, was scathing.

"We need to create jobs and building apartments or commercial property creates jobs and we have enough barriers at the moment. Capital can go anywhere, so if it's more favourable to go offshore that's what capital will do," Robinson said.

"The most important thing for New Zealand at the moment is to get people - capital - to invest in NZ, not hinder it."

AROUND THE WORLD

New Zealand

Labour's plan:
* Landlord buys house for $350,000
* House worth $500,000 at sale
* Landlord's gain: $150,000
* $150,000 taxed at 15 per cent
* Capital gains tax: $22,500

United States
* Capital gains taxed at 15 per cent average
* Landlord gains US$150,000 at sale
* Capital gains tax: US$22,500

Britain
* Capital gains taxed at 18 per cent-28 per cent, depending on income
* £10,600 tax-free annually
* Landlord, on 28 per cent tax rate, gains £150,000 at sale
* Capital gains tax: £39,032

Australia
* Capital gains taxed at marginal tax rate
* Landlord, on 45 per cent tax rate, gains A$150,000
* Tax applies to only half the gain
* Capital gains tax: A$33,750

Source: Ernst&Young, compiled by NZ Herald