Cullen closes AUT loophole

Finance minister Michael Cullen has introduced a supplementary order paper into Parliament which once passes will make bonus units issued by Australian unit trusts taxable.

Wednesday, May 12th 2004, 4:59PM

A loophole through which New Zealand residents receive income from Australian unit trusts that is taxed neither in New Zealand nor Australia will be closed, Revenue Minister Michael Cullen announced today.

"Changes closing a technical gap in the way the New Zealand dividend tax rules operate are to be added to the taxation bill now before Parliament," Dr Cullen said.

"At present, New Zealand beneficiaries of offshore unit trusts - which are frequently Australian - can avoid paying tax on dividends by agreeing in advance to have amounts that vest absolutely in them to be reinvested in new units that are then distributed as a tax-free bonus issue of new units.

"That is patently unfair when identical investments in New Zealand products would be subject to income tax.

"The New Zealand tax rules will be clarified to ensure that amounts that vest absolutely in unit holders are treated as taxable dividends, and issues of units will be excluded from the definition of 'bonus issue'.

"Although the changes are expected to affect New Zealand investments in Australian unit trusts, they will also apply to New Zealand investments into unit trusts everywhere, and will be effective from enactment.

"To look at the wider picture, the government shares the concern of many in the savings industry that there is a lack of consistency in the body of tax rules that apply to income from different types of investments. Under the current rules, the tax treatment of investments can differ according to a number of factors, which can lead to the disparities influencing investors' savings decisions.

"For this reason, the government will be working with the private sector to review the whole, complex area of the taxation of offshore and domestic savings," Dr Cullen said.

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