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Capital Gains Tax and the Tax Working Group – what’s really happening?

UPDATE: Prime Minister Jacinda Ardern has announced the Government's response to the Tax Working Group report, including the decision to not introduce a Capital Gains Tax (CGT).

The Tax Working Group report found that on the whole New Zealand's tax system was working well, but made a number of recommendations to improve fairness, balance and structure.

The Government is not adopting any of the recommendations on capital gains taxation and has agreed no further work is necessary on that aspect of the report.

The final report covered all aspects of the tax system, and a number of the recommendations will now be considered for inclusion in the Government's Tax Policy Work Programme.

Top Questions

The independent report finds that overall our tax system is clear and simple but there is room for improvement. The TWG said there is some unfairness that could be addressed. We will work through ways to do this to make the system fairer and more balanced.

The Government is not bound to accept the recommendations the TWG put forward. There are options to accept some, and/or to phase or sequence aspects of the packages proposed by the Group. It is highly unlikely all recommendations will need to be implemented.

There is no need for a major overhaul of the system. Our response will preserve the key principles of our existing broad-based low-rate tax system. However, we do want our tax system to be fair for everyone. We will seek technical advice on addressing the unfair and unbalanced elements identified by the TWG and make further announcements in April on any measures to enhance the fairness and integrity of the tax system. Our aim is to ensure the system is fair for families and businesses and that it offers balance across the wider economy.

If the Government does decide to make changes, no changes arising from the report will be implemented this term. This is as per the commitment we made when we established the TWG. No policy measures would come into force until 1 April 2021 – giving New Zealanders the chance to vote on any decisions made by the Government.

The family home, increases to income tax and GST, and an inheritance tax have already been ruled out by the Government.

The Prime Minister has also announced that the Government is not adopting any of the recommendations on capital gains taxation and has agreed no further work is necessary on that aspect of the report.

The TWG has recommended raising the bottom income tax threshold, which means everyone would be paying a lower tax rate on more income.

Depending on how much the thresholds were changed, households – especially those on a lower tax rate – could have between $200 and $1200 more per year, depending on their circumstances and which recommendations are taken up.

The report recommends that the Government take steps to encourage retirement saving for low and middle income groups. One recommendation is to refund the employer Super tax contribution to savers on an income of up to $48,000, and partially refund it for people earning above that.

Another is to offer lower KiwiSaver tax rates on Portfolio Investment Entities (PIE). Members would also get higher member tax credits for each dollar saved (a maximum of $781.50 per year, up from $521).

The TWG also proposed that people on parental leave get maximum tax credit even if they do not make the required minimum contribution in a year.

These changes have been recommended because any potential changes to the way domestic and foreign shares would be taxed might affect KiwiSaver fund investment returns. The net result would make the majority of KiwiSavers better off.

Tax reform initiatives separate to the work of the TWG will continue in the meantime – such as making sure multinationals that provide digital services pay their fair share. We will keep looking at ways our current tax system fails to address global economic and social forces which affect economic activity.

The report can be found at www.taxworkinggroup.govt.nz

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