Tax changes may benefit passive funds

Two industry players are predicting passive funds will benefit from the government’s proposed tax changes, despite losing their tax-favoured status.

Thursday, June 30th 2005, 12:36AM

by Rob Hosking

The overall tax changes set out in a discussion document from the government on Tuesday include moving to a comparative value capital gains tax regime for offshore investments, removing the grey list, taking away passive funds current tax advantage and having a flow through regime for local funds meaning investors in these vehicles will be taxed at their marginal tax rate.

NZX chief executive Mark Weldon says several factors mean passive funds will not necessarily be depleted – in fact he believes the tax changes, taken as a whole, will see a greater level of investment.

“Passive funds are growing pretty much everywhere and it’s not because they have a tax advantage,” he says.

It is expected that the proposed tax changes will encourage people to move some of their money from offshore investments into domestic ones. “There will be more investment within New Zealand,” Weldon says. "Some of that will clearly go to passive funds.”

The proposals include the abolition of the seven tax favoured grey list countries.

“That, for passive funds, makes it a hell of a lot easier to create a product,” says Weldon.

“It’s bizarre that at the moment someone will pay tax if they invest in Samsung but not if they invest in Sony.”

AMP Capital’s Andrew Brockway says although some investors will move from passive to active investments when the capital gains tax goes, “a lot of people invest in passive for reasons other than tax.”

And he says the present rules mean passive funds can’t invest in the non-grey list countries, which opens up new areas for them to move into.

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

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