KEY POINTS:
Guinness Peat Group has come out swinging against the amended proposal on the taxation of overseas shares, saying it still amounts to a capital gains tax.
In a submission to Parliament's finance and expenditure select committee, GPG says: "There are two types of gain from equity investments which can be taxed: dividends (being income) and gains in value (being capital). There is no such things as a "fair" dividend rate. If something more than a dividend is being taxed then that something more is capital."
It was difficult to see why it would be supported other than simply a way out of the mess created by the original proposals, the investment company said.
Faced with widespread and fierce opposition to its original plan for a tax on unrealised capital gains, the Government in September suggested an alternative: to tax individual investors on 5 per cent of the value of their overseas portfolio at the start of the year.
If they made a return, including any dividends paid, of less than 5 per cent they would pay tax on that lower amount and if their returns were negative there would be no tax.
But GPG said the compromise proposal failed to meet the original objective of aligning the tax treatment of direct and indirect investment in overseas shares.
Direct investors would pay tax only on dividends, if they had less than $50,000 invested outside Australasia. But if they held the same shares through managed finds there was no such concession. Direct investors could pay tax at up to 39c in the dollar; those who invest through managed funds could not face more than 33c.
Direct investors could potentially have family assistance clawed back or student loan and child support obligations affected; that did not apply to investors via managed funds. And for direct investors, 5 per cent of the starting value of the shares would be the maximum taxable, for indirect investors it would always be 5 per cent.
GPG also argues that taxpayers could be taxed on something they never get. If a taxpayer buys and sells shares within a year 5 per cent of the cost price is taxable, whether the shares are held for a day or 11 months, and whether the shares are sold at a gain or a loss.
They could also face tax on a higher annual opening value of the shares when the only gain was a movement in exchange rates.
GPG also objects to the process.
If the select committee did see merit in the compromise proposal it should still withdraw it from the current tax bill so that it could be put through the formal consultative and legislative phases of the generic tax policy process, it said.
It is concerned too about the future of the five-year exemption it secured for its own shareholders from the original proposal.
The logic behind that exemption remained, said GPG director Tony Gibbs. The company, which has 29,000 direct New Zealand shareholders and many more though institutional investors, could not relocate to New Zealand until it knew the outcome of the coming review of another part of the international tax laws, the controlled foreign company regime.
"We expect the Government to honour that commitment," he said.
GPG also objects to the differential treatment the current provisions enshrine between its direct and institutional shareholders.
The company backs an alternative approach to dealing with at least some of the anomalies in the current regime.
The exemption from capital gains tax which direct investors in the eight "grey list' countries enjoy should be extended to institutional investors in those countries as well, it says.
It accepts that that would cost the Government revenue. "But it is a forlorn hope that New Zealanders will switch from investing mainly in property if there is no acceptance of the need to make other types of investment equally tax effective."
The story so far
* The current tax bill has provisions that would, for many investors, tax unrealised capital gains in shares outside New Zealand or Australia.
* Retreating before a storm of criticism the Government has put up an alternative, the "fair dividend rate" method.
* But time is short and only a few select submitters have been asked for their views on the amended legislation.
* At least one of them, GPG, is unimpressed.
