The New Zealand Parliament is expected to introduce new tax legislation later this month to tighten the rules surrounding thin capitalisation, where foreign companies are attempting to reduce their New Zealand taxes by heaping tax deductible debts on local subsidiaries.
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It is the part of the OECD’s worldwide effort to reduce cross-border tax evasion by businesses with subsidiaries in more than one country, and was announced at the New Zealand Institute of Chartered Accountants’ conference held in Auckland last week.
Overseen by Revenue Minister Todd McClay, the rules are “limiting the interest deductions that can be taken here,” he noted, “and therefore helping to ensure they pay the appropriate amount of New Zealand tax.”
Also to be amended in the bill are rules relating to land acquisitions; where property owners will have to state their intentions for each new property.
In addition, McClay outlined a tax reform to the work programme. This will cover a wide range of vexed tax areas in New Zealand, including the treatment of annuities and double tax agreements with foreign trading associates.
Lastly, the politically charged issue over whether to charge goods and services tax – currently imposed on many, but not all, of the goods and services of New Zealand – on privately imported goods strictly for personal use, will be on the agenda.
NZ to implement a capital gains tax?
Capital gains tax taxes the profit an individual makes when they sell, gift or otherwise dispose of an asset.
A recent Fairfax Media-Ipsos poll now shows a majority of New Zealanders are ready for a capital gains tax; believing it be a fairer and more effective measure than lending restrictions.
This is despite the Government ruling the measure out, and it therefore not featuring on yesterday’s agenda.
However, in a recent plot twist several New Zealand MPs were revealed to be using a legislative loophole to avoid disclosing their investment properties owned within superannuation schemes and subsequently using the taxpayer’s money to settle their mortgages.
The news led the public to question MPs of the link between their reluctance to introduce the tax and their own back pockets, and led to the sway in public opinion.
The poll of 1,030 people found the public is now in favour of capital gains tax on investment properties (52.3%) – believing it would help control rising house prices.
That support has risen dramatically since the August poll – and before the MPs public shaming – when only 37.1% thought a capital gains tax would be effective.
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