Tax Working Group recommends CGT

The Tax Working Group’s report was released yesterday morning. There are no surprises. Just about everything in it has been well heralded. The main item in the report is its recommendation that New Zealand should implement a Capital Gains Tax (CGT). quote.

The Tax Working Group is recommending the Government implement a capital gains tax and use the money gained to lower the personal tax rate and tax polluters.

The capital gains tax (CGT) recommended would cover assets such as land, shares, investment properties, business assets and intellectual property.

Any gains on the sale of these assets would be added to the seller’s overall yearly income and be taxed normally at realisation

Other assets, such as the family home, cars, boats and art, would be exempt from a CGT.

He [Michael Cullen] expected the capital gains tax the group recommended would raise roughly $8 billion over the first five years.

The decision to make Cullen’s CGT law now rests with the Government, which will reveal its plan in April.

With the $8 billion raised from the CGT, the Government would have a number of other options taxation ? one being around the taxation of personal income.
If the Government chose to go down this route, Cullen recommended increasing the bottom taxation threshold from $14,000 a year to between $20,000 and $22,500.
“This would reduce income inequality, benefit all full-time workers and support those transiting into work,” the report said.

The report also said the Government could use taxes to protect the environment, by slapping a tax on harmful environmental practices ? such as pollution.
Cullen said the group “very strongly” supported a tax on pollution and water extraction.
He also said Government could strengthen the Emissions Trading Scheme, to make it behave more like a carbon tax.

The Government has said that if it does decide to impose Cullen’s CGT, it would pass legislation before the next election.
Cullen said the Government would need to dedicate a lot of resources to make sure it could achieve this timeline and said international experts would likely have to be brought in.

A Newspaper. end quote.

No surprises there. The worst thing about it, apart from the introduction of the tax at all, is the fact that virtually everyone will pay the tax at the top rate of 33%, whereas most countries have lower rates applying to CGT. If in a subsequent budget, the government then increases the top tax rate – quite possible, it has already been suggested – then CGT will apply at that rate too. Very soon, you might find yourself paying 38% of your hard earned capital gains to the government. Just think about that for a minute.

So there we have it. Capital Gains Tax is on the horizon. Now, it is Game On.