Stobo report makes funds more attractive

The Stobo tax proposals mean fund managers can spend more time on their products and less time on tax issues.

Friday, November 19th 2004, 3:36AM

by Rob Hosking

The Stobo report - if implemented – should produce a level playing field for investments.

The issue now is the nature of the grass on that playing field, and where the boundaries.

“It’s tremendous,” Tyndall Investment Management’s Anthony Quirk says. “There’s still a lot of detail to be worked out but it establishes the idea that you can’t favour one industry over the other with tax and that’s something we’ve been trying to fix for years."

The Stobo report notes that at present the different tax treatment between investments pushes investors to different investments and that fund managers spend a lot of time on tax issues.

“At the moment providers have to spend so much time designing their products around tax. That is expensive – you have to get legal opinions and so on.

"This way will allow people to put all their intellectual energy into the products, and it will make financial products a lot more attractive.”

Quirk says he can’t see too many fish-hooks in the proposals.

One issue advisers will need to get their minds around is the proposed "flow through" arrangement for domestic funds. Under the Stobo proposals, fund managers will pay a withholding tax, similar in principle to the resident withholding tax currently paid by banks on interest earnings.

This “flow through” method then allows the individual taxpayer to reconcile the tax paid with their overall assessable tax at the end of the financial year.

Fund managers will have to get their systems in place to make those sorts of deductions.

There is the risk of some tax leakage there, says Kensington Swann tax specialist Tony Lines.

“It assumes those tax payers are not direct holders of equities, or holding them on revenue account.”

That issue of taxation of direct holders of equities was explicitly outside the report’s scope – and that may come back to haunt the government, he says.

“That would have meant revisiting the whole 33% imputation regime, and the Treasury would have opposed that,” he says. “But I don’t know how credible that will be going forward.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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Sovereign takes regulation bull by the horns »

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