Working Group issues recommendations

The "Tax Working Group" has issued its final recommendations to the Government for tax reform, writes Murray McClennan in this week's Taxing Times.

What are the main recommendations?

The group acknowledges that the tax system requires significant change.

It supports the alignment of tax rates, especially between trusts, PIEs and individuals.

The company tax rate needs to be competitive with other countries, especially Australia.

The imputation system is supported.

To fund a reduction of top tax rates, tax take will have to be funded from elsewhere (base broadening).

So now the really good stuff. How does the group believe the Government should fund the shortfall if rates are reduced?

GST up to 15 per cent (with targeted transfer payments to those on low incomes).

Residential rental properties to be taxed on a "risk free return" basis (that is, a tax on a notional return of, say, 6 per cent).

Introduction of a low-rate land tax – more tax on all landowners.

Removal of depreciation on, at least, some buildings and removal of 20 per cent loading for new plant and equipment.

Comprehensive review of welfare policy required.

The introduction of a specific capital gains tax was not recommended due to the practical challenges.

Both the Tax Working Group and Government widely recognise that many New Zealanders investing in residential rental properties are not bearing their fair share of the tax burden.

It is important to note that there is no draft legislation on the table.

This group has merely made some recommendations which the Government can then consider and potentially use to produce draft legislation in the future.

Any announcement of tax changes would probably be made around budget time in May.

» Queenstown-based Murray McClennan is a tax director at WHK Cook Adam Ward Wilson.

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