Key points
- We don’t know yet which measures suggested by the Tax Working Group will be adopted by the Government. There is still a lot of water to go under the bridge.
- The proposed capital gains tax makes investing in New Zealand and Australian share markets less attractive, yet there is no proposed change to the tax regime for other share markets.
- While managed funds like KiwiSaver will be required to calculate their tax bill every day and continue paying tax each year, direct investors holding the exact same shares will not face a capital gains tax bill until they dispose of the shares.
- The proposed regime will dampen demand and liquidity in New Zealand’s capital markets. Three reasons for this are:
- overseas shares receive favourable tax treatment compared to Australasian shares;
- direct investors are incentivised to hold shares for longer, hold foreign shares over domestic shares and invest in their family home; and
- investors in unlisted companies receive preferential tax treatment over investors in pooled investment schemes.