IRD 'dreaming' on how many new tax will affect

Retired Torbay couple Adrian and Renee Rickards will be among those liable for capital gains tax. Picture / Greg Bowker

Today the Herald begins a three-part series on the new investment tax by looking at why the Government introduced the tax and how many people it will affect.

Aucklander Adrian Rickards describes himself and his wife, Renee, as a "standard" sort of a couple.

Retired now, the couple in their respective careers as a cargo planner on Auckland's waterfront and an occupational therapist worked hard to ensure their financial independence.

They also raised a family, putting some of their children through university while others went on to careers in teaching and the police.

While "not exactly the idle rich", Rickards said he and his wife, both 67, were "lucky enough" to have earned enough money over their working lives to put away for their retirement.

Having managed to save a "decent" amount, they heeded the Government's exhortation to "please stop investing in houses" and now have "a well-balanced portfolio".

About a quarter of that money is invested in shares in the United States and Britain, and while Rickards won't say exactly how much, between them they have more than $100,000 in foreign shares, which means they will be liable to pay capital gains tax on their overseas holdings under proposed tax changes.

The Inland Revenue Department estimates that only a few taxpayers - 10,000 to 20,000 - will be paying more tax on their share investments overseas as a result of the changes.

But leading sharebrokers, who are vehemently opposed to the changes, say the IRD is dreaming and there are many more "mums and dads" like Adrian and Renee Rickards who will be hit.

"Ten thousand to 20,000? That's our clients alone, is it?" Neil Paviour Smith, managing director of Forsyth Barr, scoffed last week.

"That substantially underestimates the number of people that are going to be affected by this.

"You also get situations where you have a trust that might be regarded as one taxpayer but has several beneficiaries. You've got family accounts, that have second-generation effects where money is effectively in one account but might pass through to other people over time. This affects a hell of a lot more that 10,000 to 20,000 people."

Likewise, ABN Amro Craigs chief executive Frank Aldridge said analysis of his company's client base suggested the IRD's estimates fell well short.

First NZ Capital investor services chief Martin Poulson believed there would be "a substantial number" of investors affected by the proposed change and the 28,000 Guinness Peat Group shareholders, whose protests against the new rules helped force a concession from the Government, were "the tip of the iceberg".

IRD policy manager David Carrigan admitted it was difficult to come up with an accurate and reliable estimate of how many investors would end up paying more under the proposed changes "because the direct information isn't captured anywhere".

The figure was based on the number of people claiming foreign tax credits, minus those investing in Australia, in fixed interest products and those with portfolios of less than $50,000.

Meanwhile, Adrian and Renee Rickards say the extra tax they will end up paying on their overseas shares, on top of accountant and broker fees associated with the investment, mean it just won't be worthwhile.

"In real terms, the temptation is huge to sell the overseas assets, bring them back into the country - and do what? It's such a tiny little market."

The likely answer, he suggested, was to sink them into shares in Australia, "which already owns most of this country anyway.

"It's a bit sad."

Tomorrow: How the investment tax will distort investment decisions.

Wednesday: The lobbying campaign and the chances of altering the tax.