That said, Treasury noted that the tax impacts of lock-in, loss ring–fencing, and design and transitional issues, should not be overestimated.
Inland Revenue argued that a CGT may increase administration and compliance and that on balance the advantages of a real-world CGT would not outweigh its disadvantages and others acknowledged that a CGT could have flaws
Regarding a land tax, the TWG said that it would be easier to implement, comply with and administer than a CGT.
As an alternative to a CGT and land tax is a third proposal for a Risk Free Return Method (RFRM) tax. Under this system rents would not be taxed and expenses would not be deductible. Instead, tax would be charged on the investor’s equity in the property as if it had been invested in a government bond. For example, if the bond yield is 6%, inflation is 2%, then the equity would be taxed at 4%. Under a RFRM taxes are incurred even if people make a loss. The TWG does note that RFRM may entrench tax preferred status of owner-occupied housing, create cash flow issues for loss making property and property prices may reduce.
There will be a major public conference, hosted by Victoria University, to discuss various policy options for New Zealand’s tax system in December 2009.
The TWG papers can be viewed at: http://www.victoria.ac.nz/sacl/cagtr/twg/session-three.aspx
On previous occasions, the Prime Minister John Key has said he did not favour a capital gains tax on property and in a speech delivered to the Institute of Chartered Accountants Tax Conference (19 October) the Minister of Finance Bill English stated:
“As Prime Minister John Key and I have both stated previously: the Tax Working Group will have to come up with some fairly compelling reasons to convince us of the overall benefits of further property-related taxes or an increase in GST”.
In a speech to the 2009 NZ Institute of Chartered Accountants Tax Conference (16 October) the Minister of Revenue the Hon Peter Dunne announced that the Government would next year review the scope of gift duty.
The Minister told delegates that the Government would consider narrowing the ambit of gift duty so that it applies only to certain “gifts” – such as transfers of property to natural persons, family trusts and closely held companies.
He expected that there would be a public consultation phase early next year.
Parliament passed the Insolvency Amendment Bill during the month (29 October) which closes a potential legal loophole to prevent fraudulent debts from being written off and it amends the No Asset Procedure (NAP).
The No Asset Procedure (NAP) scheme, cancels most debt if it totals less than $40,000 and the debtor has not previously been bankrupted or used NAP. NAP, lasts for one year rather than three.
The Bill also enables improved access to the NAP and bankruptcy public registers to assist creditors, such as landlords, to make informed “financial suitability” decisions of prospective tenants.
The Minister of Justice Simon Power announced (2 October) a new regulatory regime for real estate agents.
Of interest to the Federation, the regulations will help consumers by clearly setting out the information they can expect licensees to provide before they enter into certain contractual arrangements, and by making it easier for consumers to make a complaint if problems do arise.
The regulations are:
The regulations come into force when on 17 November 2009.
The Government (12 October) announced technical amendments to the new Financial Advisers Act (to be introduced sometime in late 2010) so that financial institutions can include contractors and well as employees under the status of Qualifying Financial Entities (QFE).
Under the current legislation, property managers who receive rent or payments from tenants on behalf of landlords will need to become authorised financial advisers and be registered by the Securities Commission.
For property owner landlords this could mean the need to review their property manager arrangements and ensure that they are suitably registered and compliant with the law.