KEY POINTS:
The Government's plan B for the tax treatment of overseas share investments is still too onerous and has too many anomalies, MPs heard yesterday.
If they had to go for the "fair dividend return" method the rate should be lower and the rules should be the same for direct and indirect investors.
That was the general thrust of the submissions to Parliament's finance and expenditure select committee in a final round of consultation on the radically amended provisions of the tax bill.
Many of the submitters, including the Law Society and the Institute of Chartered Accountants, still favour retaining the existing "grey list" - eight countries where New Zealand investors only pay tax on the dividends they receive - but extending the exemption to institutional investors as well. That would remove the distinction not only between direct and indirect investors but also between investment in those countries and in Australia and New Zealand.
If that is ruled out because of the fiscal cost, the submitters agreed the fair dividend method was preferable to the original proposal, a tax on unrealised capital gains.
Following a political deal between the Government and its support parties, it is now proposed to tax individual investors (at least those with portfolios worth more than $50,000) 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.
Officials calculate that because of that provision for no tax in loss years, the 5 per cent will end up being about 3.6 per cent on average.
But that concession, essentially a political one, does not apply to investors through managed funds, an anomaly most of yesterday's submitters criticised.
The MPs heard various figures for what an average dividend on non-Australasian shares would be, clustered in the 2.5 to 3.5 per cent range. Anything above that went beyond taxing a proxy for dividends to a tax on capital gains or wealth.
