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Capital gains tax may hit young people’s KiwiSaver

Thursday 21st July 2011

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The New Zealand Shareholders Association said today that it was very concerned at the impact Labours proposed capital gains tax (CGT) would have on 1.6m Kiwisaver participants as well as other retirement schemes. Chairman John Hawkins said that “as the proposal currently stands, the compounding effect of reduced investment income over 30 or 40 years could be significant. Young people in particular may be quite adversely disadvantaged over time.”

 At present, managed funds including KiwiSaver and a variety of other retirement and superannuation schemes do not pay CGT on share trading on all NZ and most Australian listed equities. Hawkins quoted a written response from Labour Finance spokesman David Cunliffe to a query from the NZSA. This said “in circumstances in which there would currently be no tax payable on capital gains, the 15% capital gains tax would tend to apply”. Hawkins said “this is very different to the impression that the CGT policy release conveys”.

Hawkins said many KiwiSaver funds had a large share component as this gave the best returns over time. The impact would also be felt in the reduced income available to the NZ Superannuation scheme and possibly ACC. “It follows is that any shortfall will have to be made up from taxation, borrowing or lower benefits” he said.

The CGT proposal also lacks detail on the overseas investment regime which applies to share investments in other parts of the world. “Many KiwiSaver and other retirement funds could potentially be affected, but Mr Cunliffe was unable to provide any detail on this aspect” said Hawkins.

 The NZSA sees the proposal to extend CGT to occasional share traders as a potential problem. Clear guidelines would be required as habitual investors already pay CGT at their marginal rate. The NZSA believes many investors may reduce trading to come within the lower 15% CGT threshold. “This would have the effect of stifling the free flow of capital into productive enterprises at a time when the country is crying out for investment” said Hawkins.

Hawkins said that as individual shareholders had been subject to CGT for many years, the Shareholders Association was not speaking out of self interest. However, the consequences of Labours proposed CGT policy on investment and retirement schemes such as KiwiSaver needed to be debated.

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