Cullen makes more noises on tax issues
Finance Minister Michael Cullen does not appear keen on the risk free rate of return method for taxing investments.
Thursday, October 21st 2004, 6:13AM
by Rob Hosking
Cullen is at present awaiting a report from former BT Funds Management chief executive Craig Stobo on the taxation of collective investments.
That report is due by the end of the month, and one of the options under consideration is a modified form of the risk free rate of return method, first suggested in the 2001 Rob McLeod Tax Review.
The method of taxation works by setting the risk free rate, based on the bond rate and adjudged for inflation, each year. At present this would be about 4%. The individual is taxed on that basis, regardless of the profit the investment makes.
This is likely to be popular in years when an investment makes a higher than the rate; less popular when an investment makes a loss, as the taxpayer will still have to pay the same amount of tax.
“I still have a fundamental problem with how to explain the risk free rate of return in an economic downturn,” Cullen told MPs.
The Stobo report, which will be released in early November, is expected to recommend using the RFRM method for investments offshore but move to a form of resident withholding tax for investments within New Zealand.
Cullen told MPs that “ideally” the regime should be the same for investments within New Zealand and outside it, but that “that may not be practicable.”
Late last week Cullen gave a clear indication that he wants to remove the capital gains tax on active managed funds - a move the financial services industry has been urging on governments of both political stripes for years.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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