FDR could work

Renewed calls to align the offshore investment tax regime with the government’s original policy goals for the changes look set to dominate debate on the fair divided rate (FDR).

Thursday, November 9th 2006, 7:02AM

Submissions close today on the radically overhauled changes to the regime. The original changes were part of an omnibus tax bill and were so unpopular with investors - especially direct investors - they attracted a record number of submissions for tax legislation.

The revamp though, it has been widely argued, will disadvantage the managed funds industry.

Direct investors will pay a maximum of a 5% fair dividend rate – which will include both capital gain and any dividend while managed funds will, in the current proposal, pay a flat rate of 5%. That replaces the existing disadvantage faced by managed funds with another one – and is at odds with the government’s declared policy aim of removing that discrepancy.

“We think the fair dividend rate could work,” Investment Savings and Insurance Association chief executive Vance Arkinstall told Good Returns.

“Our main point of concern is that it doesn’t achieve the objectives the government announced in the bill when they first setting it up about aligning tax rates and removing distortions.

“We think the government and officials are underplaying the effect the advantage direct investors will have over those going through managed funds.

“It’s a major issue. But one that with a wee bit of goodwill and flexibility can be resolved.”

The current proposal has enough good points to work, he says.

“FDR is a huge step forward from where we were. It could, with just a wee bit more work, provide a good outocme. The cost of doing that won’t necessarily be that great.”

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