By Rob Hosking
Monday 18th July 2005
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The tax changes proposed in the government’s discussion document released last month put forward a raft of wide ranging changes to how investments are taxed. The changes are not yet government policy but, if implemented, they would bring all investments in collective funds offshore under a capital gains tax, and exempt all onshore investments in such vehicles from capital gains tax.
The expectation has been that the result would be more funds invested locally rather than offshore.
“That is highly unlikely to happen if the changes are implemented as proposed”, says AMP’s chief strategist Tore Hayward.
"It would not be optimal for funds to move back to New Zealand.” AMP ran the changes through its “portfolio optimiser”, he says, which takes into account factors like the after tax return for the fund as a whole and a level of investment risk.
“When we do that we find, as a generalisation that it isn’t worthwhile to make any major shift onshore."
The other reason is the capital gain component in New Zealand equities is small compared to overseas investments.
However the changes mean individual investors will be worse off.
The flow through from the higher tax paid means investors will be out of pocket unless some concession are made on the tax changes planned.
One change would be taxing the capital gain at 50% of the change, rather than the full 100%, as per the current proposal.
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