Business organisations reacted sourly to the Labour coalition Government proposals for an all-encompassing capital gains tax (CGT), citing complexity, cost and "investment distortions".

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Aside from the family home and land, a swath of assets, including second homes, cribs, shares, businesses, farms and land, would attract a CGT charge, which could come into force by April 2021 if Labour wins the next election and gets its way.

Otago Southland Employers Association chief executive Virginia Nicholls said the administrative costs and "investment distortions" from the broad-based capital gains tax would be greater than the revenues gained.

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"Taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation, penalising New Zealanders owning shares in New Zealand, and making overall taxation on investment less consistent," Nicholls said.

The key report recommendations

• Capital gains tax to apply after the sale of residential property, businesses, shares, all land and buildings except the family home, and intangibles such as intellectual property and goodwill.
• Tax rate to be set at the income-earner's top tax rate, likely to be 33 per cent for most.
• Calculation of gains not to be retrospective - tax to be applied to gains made after April 2021.
• Art, boats, cars, bikes, jewellery, personal household items and the family home to be exempt.
• Losses on the sale of assets bought before April 2021 will generally be able to be used to reduce paid on gains from other assets.
• Increase the threshold of the lowest tax rate (10.5 per cent), allowing more income to be taxed at the lower rate.
• Increase social welfare net benefits to allow similar benefits as low-income earners post tax threshold adjustments.
• House on farms and surrounding land up to 4500 sq metres exempt from CGT, calculated as a percentage of total farm value.
• CGT on small businesses can be deferred (roll over relief) if annual turnover is less than $5 million and sale proceeds are reinvested in similar asset class.
• No support to make company tax progressive, i.e. smaller companies paying less than 28 per cent.
• Capital gains tax estimated to raise $8.3 billion over five years.
• Expand coverage and rate of Waste Disposal Levy, expand the ETS and use congestion charging.
• Better tax benefits for KiwiSavers on low and middle incomes.

Many concerns

Otago Chamber of Commerce chief executive Dougal McGowan said his initial concerns lay with the effect on businesses and the primary sector.

"Part of this is the 'environmental and ecological outcomes' section, which looks much like a taxation regime," he said when contacted yesterday.

They included taxes on solid waste to reduce landfill volumes, water extraction and pollution, and also a mention of fertiliser taxes.

The tax working group, headed up by Sir Michael Cullen, said it supported reform of the emissions trading scheme (ETS), saying it should be more "tax like", with greater guidance on price and the auctioning of emissions units to raise revenue.

It said all emissions, including agricultural, should face a price, through either the ETS or a complementary system.

"We really have to consider this and what effect it will have on the primary sector in the future," McGowan said.

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Nicholls said implementing the CGT would not significantly reduce overinvestment in housing or increase tax fairness.

"It could discourage investment and innovation and would tend to lock businesses into current asset holdings," she said.

BusinessNZ chief executive Kirk Hope focused on the fact three of the 11 members of the Tax Working Group did not favour the overall CGT recommendations.

"Their view is that administration costs, complexity and investment distortions that will result from the rules would outweigh the revenues that could be gained from a comprehensive capital gains tax as proposed.

"And it would not significantly reduce overinvestment in housing or increase tax fairness," he said in a statement.

Canterbury Employers' Chamber of Commerce chief executive Leeann Watson said the recommendations were "disappointing".

Watson said the rules should not be implemented because of the significant impact on small and medium-sized enterprises.

"There's very real concern that taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation," she said in a statement.

Taxpayers' Union executive director Jordan Williams labelled the proposal "one of the most aggressive and unfair capital gains taxes in the world", and called for it to be scrapped.

"The working group had the opportunity to propose a fair capital gains tax.

"Instead, they have opted for an aggressive unfair tax, which applies at taxpayers' full marginal tax rates [33 per cent], and even taxes inflationary gains," he said.

The $8 billion opportunity

Cullen – a former Labour Party Finance Minister – said the capital gains tax as recommended would raise roughly $8 billion over its first five years.

The revenue would then ramp up in ensuing years.

This money could be used to address some of the imbalances caused by significant income inequality.

Yesterday, Revenue Revenue Minister Stuart Nash notied that 20 per cent of New Zealanders owned 84 per cent of the assets in the country.

He also said that there was some unfairness in New Zealand's tax system which the Government needed to address.

Part of the motivation for the Tax Working Group in the first place was to see if there were ways in which the tax system might be made fairer for more New Zealanders.

However, as the matter currently stands, these are only recommendations.

The decision to make Cullen's CGT law now rests with the Government, which will reveal its plan in April.

A recent history of capital gains tax

2011:

The Labour Party, led by Phil Goff, campaigned on implementing a 15 per cent capital gains tax.

2014: The Labour Party, now led now by David Cunliffe, again campaigns on the same CGT policy.

2015: In the May's Budget of this year, then-Prime Minister John Key introduced a bright line-test, which required income tax to be paid on any gains from residential property, if sold within two years – a form of a CGT.

2017: The Labour Party campaigned on setting up a Tax Working Group, which would look into a CGT.

2017: In November, the Tax Working Group was set up and Finance Minister Grant Robertson ruled out any capital gains tax on a family home, or the land under it.

2018: The Labour-led Government extends the bright-line test to five years.

2018: In September, the Tax Working Group released its interim report which provided a bit more detail on its thoughts on a CGT.

2019: Today, the group released its final report which included a recommendation for a CGT.

2019: In April, the Government will announce to the public if it will implement a CGT.