From Banana republic to the OK Corral

Further to our recent discussions on the proposed capital gains tax,?Stuff?has written another article that might provoke some interest.?Let us see what you think. quote.

Last week I warned the TWG’s preferred method of bringing in the new tax which would force every asset to be valued, as at a certain “valuation date”, adding billions of dollars in compliance costs across hundreds of thousands of New Zealand’s small businesses.

Cullen, the TWG’s chairman,?accused me of “blatant scaremongering”?but I stand by the reasoning. So does the TWG’s own report, the only one the public is able to work from. end quote.

I am with the writer, Troy Bowker, on this one. Years of experience of dealing with the IRD has taught me that, if a business valuation is not done on or close to the date of the introduction of the tax, the IRD will be able to drive a bulldozer through it in any subsequent audit. Business owners need to get their ducks in a row now if they are thinking of selling within the next decade. quote.

A valuation day approach does mean there is a need to value all assets that are to be subject to the new rules as at a given day,” the TWG’s report states. “This will impose significant compliance costs on many taxpayers.” end quote.

There you go. The TWG report confirms it. What the hell is Cullen talking about then? quote.

Robin Oliver, a former IRD deputy commissioner and TWG member has described the mass valuation as “challenging”.

Oliver’s business partner, Mike Shaw, made a submission to the TWG on November 7, saying the valuation date would be “very costly and very uncertain” and was likely to lead to “many disputes with the IRD”. Shaw, who also put the cost of valuation day in the billions, made it clear that Oliver was not involved in the submission. end quote.

Not only will it be very costly it will?also be impossible. There are very few business valuers in New Zealand. Even within the accounting profession, there are not many who do valuations on a regular basis. This will be a huge problem.quote.

Cullen also claimed the costs would be lower than I believed, for astonishing reasons.

He said it didn’t matter if business valuations were not accurate and that business valuations could be “rough and ready” and would be accepted if they were “close enough”. If they are artificially too high or too low, that was not as important to him than getting CGT into law.

That should be scary news for Finance Minister Grant Robertson and Revenue Minister Stuart Nash. end quote.

Yesterday, New Zealand was a banana republic. Now it is the OK Corral. quote.

As anyone who has filed one knows, tax returns are supposed to be true and correct ? and taxpayers have to attest to that on the forms.

Imagine a tax system where a “rough and ready” and “close enough” test replaces a sworn accuracy test.? end quote.

Absolutely and the IRD pursues every case of inaccuracy that it comes across relentlessly. They take no prisoners. quote.

The reason why valuations are absolutely critical to CGT is that there are only two components in the simple formula to work out how much tax you pay when you sell an asset.? The price you sell it for minus the valuation of the asset on valuation day.

This creates a massive incentive to inflate the value of your business on day one, because it will mean you pay less tax, or even no tax, when you sell it. end quote.

Yes, but I advise caution on this. First of all, any valuer worth his salt will base his findings on a ?true and fair view? and will not deliberately inflate a valuation just to suit the client. Secondly, the IRD can question any valuation they choose and the problem here is a big one. The onus on proving that the valuation is correct is on the taxpayer. The IRD can take any position they want, and the business owner has to prove them wrong… which will be completely impossible years down the track. quote.

How you bring in a complex piece of tax law such as CGT is just as important as what and when you bring it in.? The “how” in tax really matters.

What should bother us most is Cullen’s dismissive reaction to any form of criticism. The TWG’s very existence is at the behest of the Labour government. He is no longer a politician.? He is a civil servant doing a job that we as taxpayers are paying him to do. end quote.

Cullen doesn’t care about the detail. He knows that the IRD will relentlessly pursue any cases that come to their attention where initial valuations may have been inflated, but he doesn’t care about that. He just wants capital gains tax in place. That is his sole purpose in heading the Tax Working Group, whether it is fair to taxpayers or not.

This is a frightening attitude that is typical of this government, and here we are again. Driven entirely by ideology, they force their agendas without a thought to the consequences. Cullen demonstrates this attitude as well. Don’t worry about the detail. Just tax the ?rich pricks? for all they are worth.