Tax changes: What a flippin' mess

Thursday, September 14th 2006, 6:54AM

What a crazy time it is at the moment. It seems there are a massive amount of things going on in the market at the moment. I plan to comment on a number of things over the next week or so but will start with tax.

As reported on Good Returns Finance Minister Michael Cullen is seriously looking at the RFRM model for taxing offshore investments again.

I understand this work started some time ago but was only publicly revealed this week.

I had always been pretty supportive of RFRM as long as the thresholds were set at the appropriate level. However, when the detailed work on the idea kicked in it showed that while looking to be a simple approach, it is indeed very difficult to implement.

I suspect nothing has changed in the past year or so to make it easier.

Cullen himself has waxed and waned on the idea. On balance I suspect he has always been positively disposed towards it.

He quite rightly recognised there is an issue with paying tax in years when investments have lost money. When RFRM first surfaced international shares had taken a hammering and it was impractical to implement such a scheme.

The difficult issue at the moment relates to the hearings at Finance and Expenditure Select committee. If the government is going to change tack, or as John Key says, do a U-turn, what's the point of continuing the FEC hearings on the regime in the current bill? It would be nice if the government clarified this situation.

I would say this tax issue is now a total mess and the government has handled it poorly. There is a defined process for how these things should be done, and in this case it hasn't been followed.

A final point is this: Maybe we have learnt that if the industry lobbies hard and effectively it can get results (something it has been poor at in the past). At this point it seems like a bit of a victory for the organisations who have put so much into the cause.

« Creating two classes of finance companies

Finally an announcement »

Special Offers