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Tax changes prompt trust wind up

Thursday 22nd March 2007

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The manager of the dual listed New Zealand Investment Trust is telling investors it's time to wind up the trust, although it has been given a GPG-like holiday from the new tax rules.

All UK listed investment companies have to have a vote periodically about whether to continue on or not. The NZIT's next "continuation" vote is at this year's annual meeting.

Chairman Donald Campbell said yesterday, that the trust should be wound up as it would be disadvantaged under the new tax rules as it is UK domiciled and subject to higher tax than local funds.

"We have concluded that it is not in the best interest of our shareholders to continue as a United Kingdom investment trust. It is therefore with some regret that we recommend a vote against continuation as an investment trust."

He says that although the company has a "holiday" from the new rules, investors will still be disadvantaged.

Campbell says closed end investment companies which, like NZIT, are listed on stock exchanges, will pay on behalf of their shareholders a 33% "final" tax on their net investment income (dividends and interest, less their operating costs).

The importance of a "final" tax is that New Zealand resident shareholders subject to tax at a rate of 39% will suffer only the 33% imputation tax, not having to report their income from the PIE.

"An additional advantage to the new PIEs for New Zealand resident shareholders is that dividend imputation credits earned by the PIE can be used to reduce the income on which the PIE pays tax, so in many cases the listed PIE will be able to pay dividends effectively free of any tax."

NZIT, he says, will be less tax-efficient than New Zealand PIEs for New Zealand residents once the new rules start on October 1.

Campbell says NZIT has "been exploring the means by which we might be able to continue to give our New Zealand resident shareholders the same great investment performance we have achieved over the years, with the tax advantages offered by the new legislation."

It is looking at a number of possibilities including reorganising NZIT into a PIE.

The issue is how to do it without disadvantaging investors in other jurisdictions.

"This is a complex exercise, involving primarily the tax systems of New Zealand and the United Kingdom and the tax treaties between them, so we cannot yet make concrete recommendations."

If shareholders agree to the resolution then the board has to put a plan for a new structure forward. If the resolution is voted down then the company would be wound up.

Campbell emphasises "that we have not concluded that (NZIT) is not an attractive and viable investment for the future, only that it is no longer optimal that it be a UK investment trust."

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