Cullen prepared to plug AUT hole quickly
Finance minister Michael Cullen said yesterday that the tax leakage through Australian unit trusts (AUT) is so great that the government is prepared to enact an interim solution “as soon as practicable.”
Friday, March 5th 2004, 5:59AM
Last year an officials paper was released which looked at options for dealing with this issue.
There has been some uncertainty about whether the paper was looking at just the AUT issue of the wider issue of tax treatment of managed funds.
Cullen said last night the work in dealing with taxation of offshore investment has a greater chance of success if it is considered along with domestic investment.
“This inevitably means that any offshore solution cannot be applied from the 2005-06 year. I am prepared to accept this delay on the basis that an interim solution is enacted to deal with the Australian unit trust issue. “ The officials paper on this tax issue suggested two options.
One was the standard return approach – based broadly on the McLeod Tax Review’s risk-free rate of return method. The other was the offshore portfolio investment rules – essentially, a modified version of the current foreign investment fund rules.
Under both options, the so-called “grey list” would be removed.
“It is fair to say that the proposals have generated significant interest and, among some commentators, a little concern.”
Cullen said neither options were perfect, nor was the current situation.
He told delegates that solutions need to be viable and “must continue to raise tax revenue and must not penalise investment in our own country.”
The government was prepared to look at using a risk-free rate of return method for savings on international and local investment as it would provide improved consistency to the taxation of savings and remove some of the disincentives.
“The savings industry is keen to consider whether a version of the risk-free rate of return method could be developed to tax the investments of domestic savings entities,” he said.
Cullen also reiterated to the conference that he has no plans for either a capital gains tax or a broad wealth tax as some commentators have suggested.
“Let me assure you that I have no such agenda,” he said.
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