The Sir Michael Cullen led Tax Working Group (“TWG”) has recommended that the Government extend the taxation of capital gains (“CGT”). By a majority 8-to-3 of TWG members, a broad-based or comprehensive CGT is recommended. Opposing this, the 3-to-8 minority recommend that a more moderate approach to extending the taxation of capital gains starting only with one asset class – residential rental property – with a possible extension to other asset classes later.

VCFO: Sir Michael Cullen could not procure a consensus view on a CGT regime. This disparity is driven by differing TWG member views on whether the efficiency, compliance and administrative costs of a CGT outweigh the increased revenue, fairness and possible integrity benefits within NZ’s current tax system and economy. In short, this is about a “big-bang” approach over an incremental and limited approach.

This is the most significant water-shed in this country’s tax system reform history since the introduction of GST some 34 years ago. This TWG is the ‘first’ of seven Tax Groups since the 1960’s to recommend introducing a CGT regime. (Prior groups accepted that a CGT is desirable on general policy grounds of equity but, did not support it given the complexities and compliance costs of a CGT too great relative to the revenue gains).

VCFO: A CGT will have major ramifications and costs for the private sector, including venture capital, privately-owned businesses and investors, the property sector, our primary sector, and investment and retirement funds. We give coverage of the impact for these and other sectors in this Report.

VCFO: A question we ask ourselves is whether the TWG and officials have fully grasped the fundamental difference between an investor / entrepreneur and a salary & wage earner? Business owners take “risk” and create jobs and production, while wage earners take a guaranteed pay packet and go home risk-free.

If any CGT should apply, we share the views of the minority TWG that a broad-based CGT carries serious risks, including compliance costs, damage to our capital markets, stymying the essential growth of this country’s productivity, entrepreneurship, innovation and experimentation. Also, fiscal risks exist for the Government (the Government assumes a proportion of private sector risk in taxing gains from business assets and shares). Of major concern also is that the TWG’s CGT recommendations are based on a vast amount of “judgement” and uncertainty.

In this Special Edition, we provide a guide to the CGT proposals as follows:

  1. What is the process and timeframe from here and what chances the Government will introduce a broad-based CGT?
  2. How much CGT revenue is at stake? Revenue forecasts for each asset class
  3. What are the main features of the recommended CGT?
  4. What is the CGT impact for different investor / owner sector groups?
  5. Where to from here?


1.   What is the process and timeframe from here and what chances the Government will introduce a broad-based CGT?

The Table below summarises the timeframe.

DatePlanned Completion EventProcess Outcomes / Relevancies
February 2019Final Report of TWGRecommendation for ‘broad-based’


April 2019Formal response from GovernmentDecisions on the preferred features that a CGT will take – some, most, or all, of TWG’s recommendations
May to September 2019IRD Discussion Documents and consultation feedbackRefine the detail of the CGT design features
December 2019Tax Bill introduced by GovernmentDraft of the CGT legislation introduced for Parliamentary Select Committee stages
July 2020Tax law passedFormal promulgation of CGT regime
September 2020NZ General ElectionsIf a Labour-led Govt is re-elected the CGT legislation will come into force
1 April 2021Proposed start-date for CGTCapital assets undergo valuation to re- set the cost base for CGT

VCFO: This timeframe is extremely ambitious and is dangerously congested. The design of CGT legislation involves enormous policy and statutory drafting complexities. It is imperative that the legislative rule book is subject to a thorough drafting and consultative process. We expect delays in the process Tabled above, and, if a full CGT eventuates as the TWG recommends, believe a start date of 1 April 2022 to be much more realistic.

The TWG presented a range of options to the Government about the design of a broad-based CGT. In turn, Finance Minister Grant Robertson and Revenue Minister Stuart Nash jointly stated that it was not bound to accept all the TWG recommendations and, further, it was highly unlikely that all recommendations would be implemented – whatever that might mean.

The Government has options with a spectrum of choices. “At one end of the spectrum there is a clear case to include residential rental properties (by taxing either the realised gains or deemed returns from these assets. In the middle of the spectrum, there are listed shares, land- based businesses and commercial property. At the other end of the spectrum, there is greater complexity regarding the treatment of corporate groups, unlisted shares and business goodwill”.

 VCFO: Labour has consistently supported a CGT. The Green party strongly support a CGT, while NZ First’s Winston Peters has historically not supported it. Finance Minister Grant Robertson is passionate about the need for social equity and fairness and a CGT is a natural fit within his political philosophy.

VCFO: The Government’s response is due within two months, in April. This should indicate how far they want to extend the taxation of capital assets – see above options.

Government will be wary of how the business sector and broader electorate respond. It is imperative that the private sector lobby strongly to have any chance of influencing Government option taking. We believe the minority TWG “limited approach” be preferred.

We note that the process mapped out is akin to rugby TMO decision making – “tell me if I should not award this try”. In this case, the TMO is the general electorate given plans to pass legislation for a CGT in 2020, but with implementation in 2021 after the September 2020 elections so allowing any change of Government to repeal a CGT.

Where will the electorate stand? Of note here is that CGT regimes typically only affect a small proportion of the electorate. In the USA and Canada the top 1% of taxpayers pay 60% of total CGT. In 2014 the Labour Party estimated that only 10% of Kiwi’s would pay CGT in any year.

Colloquially speaking, a CGT is a tax on the wealthy.

That said, with the CGT proposals increasing the tax paid by KiwiSaver PIEs, more than 2 ½ million Kiwis could be affected in some way (although this is alleviated for low to middle income earners through proposals to introduce KiwiSaver benefits with contributing tax concessions for this group of taxpayers.

The final introduction of a NZ CGT, whatever the design, will be highly dependent on the political capital / support of the incumbent Government come the 2020 general election.


2.   How much CGT revenue is at stake? Revenue forecasts for each asset class

 TWG delivered modelling of CGT revenues predict a broad-based CGT will raise $8.3 billion of new taxation over the first five years. We have an abbreviated Table below of these tax numbers.

$ Billions1st 5 years to


% total CGT2nd 5 years to 2031% total CGT10 – year total CGT% total CGT
Residential rental property and second


2.78 Bn33.5%9.73 Bn41.6%12.51 Bn39.5%
Commercial, industrial, other


1.25 Bn15.0%4.46 Bn19.0 %5.71 Bn18.0%
Rural property0.86 Bn10.3%2.77 Bn11.9%3.63 Bn11.5%
Domestic listed shares

– not held by managed funds

2.95 Bn35.5%5.81 Bn24.9%8.76 Bn27.6%
Domestic listed shares

– held by managed funds

0.47 Bn5.7%0.60 Bn2.6%1.07 Bn3.4%
Private company sharesN / A*0.0%N / A*0.0%N / A*0.0%
Intangible assets – goodwill, brands, trademarks, IP, etcN / A*0.0%N / A*0.0%N / A*0.0%
Totals8.31 Bn100%23.37 Bn100%31.68 Bn100%
% of NZ GDP (Y5/Y10)0.7%1.2%
% annual tax revenues (Y5/Y10)2.5%4.2%

Projected 5-year & 10-year revenue per asset class within a broad-based Capital Gains Tax regime. Source: Reported figures taken from Secretariat for Tax Working Group

VCFO: Some observations on the CGT Revenue forecasts:

  • No costings are forecast for CGT on gains from sales of private companies or for intangible assets (as these are not known with any certainty);
  • Without costings for private companies and intangibles, the figures are understated;
  • Gains already subject to tax – dealers, developers, brightline sales – are not adjusted;
  • Assumes that the CGT “lock-up” effect will extend asset holding periods by 10%;
  • Assumed 3% price inflation (with additional 2.8% on properties for building improvements);
  • Capital gains fluctuate as markets go up and down and vary – CGT is a volatile revenue stream;
  • On a per asset class, residential rental properties and second homes deliver the highest proportion of CGT taxation revenue at close to 40% of total CGT over 10 years;
  • This high revenue proportion was a large factor in the views of the minority members supporting a restrictive CGT approach only on the basis that the complexities and compliance costs of including other asset classes outweigh the revenue gains. The above Table demonstrates this viewpoint, and VCFO strongly


3.   What are the main features of the recommended CGT?

Tax on an asset disposal / realisation basis:

A CGT could be triggered whenever capital assets are sold or disposed of after the start date – 1 April 2021 – and not on an accrual basis, with the exception for PIE investments in NZ / Australian equities (see later).

What assets could be included or excluded within a CGT?

The below Table identifies the classes of assets included / excluded by the TWG. Government will need to decide their own approach on the “reach” of any CGT. What does seem certain from consensus of the full TWG is that a CGT on residential rental properties should apply. This asset class is forecast to generate most CGT tax revenue of any class. (Refer – How much CGT revenue is at stake?)



VCFO: We strongly support the minority views of the TWG about a restrictive approach to any CGT. A factor of importance to Policy Officials will be whether the exclusion of some asset classes will create investment distortions as investors pursue non-CGT assets over CGT inclusive assets.

VCFO: The exemption for residential homes is a one-home only thing. Persons with two or more “homes” would have to elect which one is their main home. A spin-off of this is the “mansion effect” where CGT exempt family homes may develop into larger and more valuable assets. There is a size restriction of 4,500 sq. meters for any home and land, but no cost or value restriction is proposed.

Gains made on assets only after the start-date – 1 April 2021 – to be taxed:

 This entails a “valuation start-date” approach to transition existing owned assets into the tax base as at the start date 1 April 2021. Gains that have accumulated on assets prior to the start-date would be excluded from CGT altogether (whenever the asset is sold). New asset acquisitions will be wholly within the CGT net.



What valuations would be required at the start date?

 Given that pre-start-date asset gains (or losses) would be excluded from tax, asset owners will be critically attentive to the valuation rules. This valuation start-date approach imposes an enormous burden on taxpayers to undertake valuations for all assets on the start-date. To ease this CGT compliance burden, the TWG offer a flexible valuation approach, and rules. It proposes that taxpayers should have five years from start-date to determine a value for included capital assets (or earlier upon actual asset sale).

Further, that the IRD provide guidance on acceptable valuation methodology with safe-harbour methods. A range of options are put forward, and include:-

  • obtainable actual values (listed shares and other market traded assets);
  • property quotable value (QV) valuations;
  • financial reporting ‘fair value’ valuations;
  • arms-length valuations from valuation

VCFO: Valuations are an inevitable compliance cost of a CGT. Reliable valuations for private businesses and/or associated goodwill involve significant time and expense. Downstream compliance burdens and costs arise from tax disputes (In Australia, ATO / taxpayer disputes over capital gains occur regularly).

Start-date triggers a ‘black or white’ outcome – tax-free or tax-pay. The opening valuation of existing assets will be a paramount exercise with significant outcomes for taxpayers and IRD alike.

VCFO: “Paper” gains or losses arising from fluctuating values of assets across the start-date is a big issue also. The Table below depicts this anomaly where falls in value of assets at the start-date may inflate gains on eventual disposal (“paper gains”), and vice versa for inflated losses.



TWG suggest that a “median rule” apply to address over or under taxation of paper gains or losses, and in this example the capital gain calculation would base cost the asset at its historic purchase price ($1m) to yield the actual gain of $500k rather than an inflated valuation date gain of $800k.

VCFO: Multiple valuation issues arise given the breadth of situations and these demonstrate the complexities of a CGT. Issues arise for: sale and buy-back transactions; associated party transfers; change of use business/private assets; use of private residence for business premises; new migrants; NZ emigrants; assets passing on death; etc, etc.

What tax rate would apply under a CGT?

 The TWG propose that asset sale capital gains form a part of a taxpayer’s total income and be taxed at normal rates of tax that apply. This is 28% for companies, 33% for trustee retained income; marginal rates for individuals and trust beneficiaries (reaching 33% on income over $70,000); and also Marginal Rate PIEs up to a maximum 28% (although the TWG proposes tax concessions for low to middle income earners up to $48,000).

VCFO: Unlike many other countries that adopt a partially reduced CGT approach, no reduced tax rate or discounting of the capital gain (eg. 50%) or inflation indexation is proposed at all. This is symptomatic of the “big-bang” approach to a CGT proposed by the TWG.

How would capital losses be treated? (Beware of the fine print!)

Given the proposal that capital gains be taxed in the same way as other income, it is proposed that capital losses would be deductible against other ordinary income of a taxpayer.

However, TWG concerns over manipulation of capital losses resulted in a range of loss restriction measures being proposed as follows:-

  • Foremost here is the proposal that losses realised from all sales of valuation start-date assets be “ring-fenced” and only available to offset gains from other capital
  • Losses from sales of portfolio listed shares (less than 10% holdings) and other fungible assets be “ring-fenced” and only offsettable against other includible asset sale gains (and not ordinary income);
  • Capital losses from privately used land be non-deductible altogether (gains will be taxable);
  • Ring-fencing capital losses from manipulated transactions extend to all transactions between associated vendors and purchasers;

VCFO: “Integrity issues” have trumped fairness. For the millions of current assets that transition into the CGT regime no deduction for disposal losses would be allowable from other business or personal income but would be allowed to be offset against gains derived from other includible capital assets. This is a massive exception to the general loss offset rule and smacks of IRD paranoia that taxpayers will fully exploit start-date valuations for the highest asset CGT base possible, with resulting realisation “inflated” losses (and suppressed gains).

We accept that some taxpayers will behave this way, but our point is this blanket “ring-fencing” of start-date asset capital losses is extreme. Exceptions should be made for reliable arms-length valuations (including retrospective valuations), and specific anti-avoidance rules could buttress this approach and so allow deductibility against other ordinary income.

Assets that transfer upon death and gifts

 The TWG Interim Report outlined at some length the case for taxing asset transfers on death with limited relief. In its Final Report the TWG have relaxed its stance and is clearer about the case for deferring taxation of capital assets transferring on death under “rollover relief” provisions.

Gifting property involves a transfer of assets and hence a disposal that would prima facie be subject to CGT. The TWG have ‘integrity’ concerns if gifting of assets is outside the CGT net. As such TWG propose that no relief apply to gifting assets from CGT, except only where gifting occurs between spouses and as a donor to charities.

VCFO: The TWG hold concerns with the delay and long deferral of asset realisations (and tax) with inter-generational assets should relief be afforded from CGT. The TWG ‘terms of reference’ included “no inheritance tax”. Let’s be clear here, subjecting asset transfers on death to CGT is a “backdoor” inheritance tax – the Finance and Revenue Ministers are learning on the hoof. One plaguing issue for transfers on death is how inheritors would pay the tax? While a realisation event occurs for CGT, it is not an asset sale as such. Further, cash-for-tax asset sales mean forced sales with forced discount outcomes. We strongly oppose any form of CGT on life event asset transfers.

In parallel with taxable death events, CGT on gifts of assets is another form of Gift Duty – which was abolished in 2011. Under the old Gift Duty regime, gifts up to $27,000 in any year were exempt duty.

Asset Rollover relief

 “Rollover relief” is common in CGT regimes. It applies to defer the taxation of certain asset “disposal” events. The TWG believe a case exists to provide rollover relief in the following situations:

  • Transfers of assets on death to a person’s spouse, de facto partner, etc;
  • More broadly (possibly) transfers of all assets on death;
  • Gifting assets to a person’s spouse, and charitable gifts;
  • Transfers of assets under a Relationship Property transfer (separation);
  • Involuntary realisations, such as natural or compulsory land acquisitions where the person reinvests the (insurance) proceeds in a similar replacement asset;
  • Business transactions that result in no change of ownership, such as switching trading structures (sole trader to company), amalgamations, transfers within wholly owned groups of companies, certain de-mergers, scrip-for-scrip exchanges;
  • Small business rollovers for the sale of ‘qualifying’ business assets (ie, assets actively used in the main business) where the proceeds are reinvested in replacement active assets within a finite time (possibly 12 months). A small business ‘could’ be a business with annual turnover of less than $5 million over a 5-year

VCFO: While positive, the rollover for small businesses should be extended with a higher turnover threshold at say $10m – $12m. NZ has close to 500,000 small businesses and helping owners to grow and expand benefits the growth of more businesses and the broader economy. It should also directly assist farmers who typically trade-up their farms.

One-off private company owner concession

 A one-off concession for owners of closely held active businesses (5 or fewer persons) who sell their interests to retire (aged 60 or over). The concession applies to the first $500,000 capital gain on exit of the business and is tied to the KiwiSaver changes that offer a 5% reduction in the marginal tax rate of the investor.

VCFO: Private business owners largely spend their life growing their business and foregoing returns to bolster retirement savings. The business “is” their retirement nest egg. The TWG concession ignores what a KiwiSaver account may have accumulated over the life of a hard-toiling entrepreneur. The concession delivers just $25,000 of tax relief and is an inadequate “token” amount.

PIE’s, KiwiSaver and retirement savings

 TWG proposals are to impose tax on NZ and Australia share gains for Portfolio Investment Entities. Unlike the mainstream proposals, taxation is proposed on an “accrual” rather than realisation basis. Key features are:

  • Multi-rate PIE’s including KiwiSaver funds be taxed on NZ and Australian shares on an “accrual” basis;
  • Investors continue to be attributed their share of MRPIE income taxable at the investor’s applicable PIE tax rate;
  • MRPIE distributions be tax free;
  • No tax on investors selling or redeeming their MRPIE interests;
  • The IRD tax rate cash-out of losses apply to accrued unrealised capital losses;
  • Listed PIEs be taxable on NZ and Australian shares on an accrual basis;
  • Investors in listed PIEs continue to receive unimputed distributions tax free;
  • No tax on investors selling out of listed PIEs;
  • A separate sub-class of PIEs be in place for land property owning PIEs (‘PPIES’);
  • Option 1 treat as look-through partnerships with tax payable on a realisation basis for either a sale by the PPIE of underlying property or by the investor of his/her interests in the PPIE;
  • Distributions under this option not taxable;
  • Option 2 treat Property PIE as a normal MRPIE entity with attribution of PIE income (incl. sales) to its investors at their PIE rate;
  • No tax on PIE distributions;
  • Investors taxable on disposal gains from selling their PPIE interests;
  • Some variants for Listed PPIEs
  • Superannuation funds (taxable as trustee income 28%) be taxable on an accrual basis on mark-to-market value of NZ and Australian shares;

VCFO: These proposals add much complexity to a well-established PIE investment regime. Integrating a CGT regime within the well-established (2007) PIE regime involves material changes to the tax system. PIE’s including KiwiSaver are well understood vehicles within NZ’s growing savings and investment settings with a simplified and concessional tax basis. The major impact under a CGT is new taxation of shares in NZ and Australian companies that currently receive excluded tax treatment for PIE’s.

VCFO: The TWG CGT led proposals impose more tax on PIE investments and reduce retirement savings for millions of Kiwis. In separate proposals, the TWG propose benefits be provided to low to middle income earners through tax credits and refunds which, together with adjusted PIE rates at the lower thresholds, should deliver $215 million of total tax savings per year for members earning less than $48,000 p.a. and more than compensate this group for the increase tax on domestic shares at the PIE level.

The double taxation conundrum for corporate capital gains and shareholders

The TWG struggle with options to deal with the following problems. We explain here with very simple examples.

Example: Company A makes a capital gain of $100 from the sale of a capital asset. It pays CGT of

$28. Before any distribution of this gain by Company A ($72 cash + $28 imputation credits), Shareholder A sells his/her shares in Company A at a price gain reflecting the Company’s value increase. Assuming this to be full value uplift at $72, Shareholder A will suffer personal CGT of $24 (being $72 x 33%). Double tax arises at $28 + $24 = $52 on the capital gain.

Had Company A dividend distributed the after-tax gain $72 with full imputation before the share sale, no double taxation should arise. The gain dividend would be with tax credits to Shareholder A, and the Company A value should reduce accordingly.

Example: Company B makes a capital loss of $100 from the sale of a capital asset. It has no offsettable other income. Shareholder B sells his/her shares in Company B with a price fall reflecting the Company’s value decrease of the net-of-tax amount of $72. Shareholder B incurs a capital loss of $72 which is offset from other taxable income for a tax saving of $24. Company B earns future income which is offset by the carry forward capital loss of $100. A double deduction arises from the capital loss of $52

The above loss Example assumes that Company B is able to satisfy the loss ownership continuity rules to be able to utilise the capital loss.

VCFO: Other examples exist. This issue is compounded for groups of companies via the loss offset rules, the wholly owned company dividend exemption rule, and the imputation system. The above is a “snapshot” of the complexities of a CGT regime. The TWG proposals here are highly technical, and they recognise further work is needed. As such, we do not expand here.


4.   What is the CGT impact for different investor / owner sector groups?

For each sector group we highlight below the principal take-outs under the TWG’s CGT proposals:

Business owners and Entrepreneurs:

 Capital gains from sales and disposals of business assets, business goodwill, and business investments after the start-date (1 April 2021) would be taxable. The following key points are relevant:

  • Valuations would be required for all business assets and business investments and shareholdings as at the start-date (1 April 2021) to “re-set” the relevant CGT cost-base. This is a critical exercise to calculate the post-start-date gain amount that could be subject to CGT, or loss incurred, and what pre-start-date gain can be excluded from tax upon eventual sale;
  • Valuation options are proposed, and to be permissible up to 5 years of start-date, but stringent record keeping of asset registers are proposed;
  • Any capital losses that arise on disposal of existing capital assets that transition into the CGT regime may only be used to offset future capital gains (but not other ordinary income);
  • All capital assets purchased after the start-date would be wholly within the CGT tax net;
  • Capital losses from sales of ‘new’ assets can be offset against other ordinary income;
  • Small business owners (turnover $5m) looking to “step-up” and expand may be advantaged by limited rollover relief of sale gains where gains are reinvested in a replacement business within 12 months;
  • A very small concession for small business owners who sell and retire;
  • Capital gains would be taxed at existing applicable tax rates (company 28% / personal 33% top rate).

Residential Property investors (excluding the family home):

Under any form of CGT regime, it appears almost certain that assets involving property for residential use will be subject to CGT, including secondary homes. New legislation already imposes tax on sales of residential property under the brightline 2-year and 5-year sale periods, while long established land tax rules already tax gains from the sale of land that is acquired for a purpose of re-sale, or is subject to minor development within 10 years, and more.

Key CGT features are:

  • A CGT on residential property should over-ride and replace the existing ownership brightline tests meaning gains from all start-date sales fall into the CGT taxation net;
  • Properties used by owners (or trust beneficiaries) as their family or main home will be excluded. This is the place where a person chooses to make their home by reason of family or personal relations or for other domestic or personal reasons. This exemption would not be available to foreign (non-resident) property owners;
  • Ostensibly, only one family home can arise, but owners of two or more property “homes” may elect which one is the “official” family home:
  • Start-date property valuations will be critical for transitioning property to establish pre-start- date gain / loss (non-taxable) against the eventual sale gain proceeds (taxable);
  • Transitioning property losses be ring-fenced and only allowable against other capital gains;
  • Under CGT a case exists to remove the new (2019) residential rental loss ring-fencing rules;
  • Studies predict that a CGT would mean (a) upward pressure on rents, and (b) downward pressure on house prices;

Equity investors

Designing a CGT to capture gains from the sale of shares in companies while maintaining fairness across different equity classes and tax system integrity is enormously complex.

Under TWG proposals, equity investors could be excused for focussing more on foreign equity investments taxed under the 5% FDR regime than domestic CGT includible equities, especially growth stocks. The counter to this is NZ’s imputation regime that underpins largely tax-free dividends from domestic companies. But it’s not that simple. The TWG’s CGT features the following:

  • Sales of all shares in NZ companies be subject to CGT no matter the level of holding interest;
  • Australian shares not already taxed under the Foreign Investment Fund (“FIF”) taxation rules be subject to CGT;
  • Shareholdings in Controlled Foreign Companies (CFCs) would only give rise to taxation where the CFC is “passive” and gains from share sales by such a CFC would be attributed under normal CFC rules. Share sales by “active” CFCs would follow normal CFC rules and not be attributed to NZ shareholders;
  • Foreign portfolio shares (less than 10% holdings) not be subject to CGT for NZ investors, but continue to be taxed annually under the FIF rules, most notably the annually imputed 5% FDR (Fair Dividend Rate) return method;
  • Sale losses on domestic portfolio equities would be “ring-fenced” for other capital gains relief only, and not deductible against other ordinary

It is difficult to compare. Holders of foreign equities pay tax yearly on a deemed return at 5% of the opening value of the equity. The overall tax bill depends on the holding period and the comparative valuation changes. With domestic equities tax would be payable on the includible sale profit at the time shares are disposed.

A crude example at its extreme: Assume a stock investment of $10,000 appreciates by $1,000 over 12 months and is sold. If the stock is foreign equity, the FDR calculation results in only 5% taxable, say a tax bill at $165. If the stock is domestic equity, the CGT calculation results in the $1,000 gain amount being taxable, say a tax bill of $300.

This example has fuelled criticisms that the CGT proposals favour foreign capital markets over NZ’s own share market.

Savings – Managed Funds and KiwiSaver Funds

  • The main change involves taxing NZ and Australian share investments (which are now currently taxable to PIE funds);
  • That taxation of capital gains on NZ and Australian equities be on an “accrual” basis (rather than realisation);
  • Investors continue to be attributed their share of MRPIE income taxable at the investor’s applicable PIE tax rate;
  • MRPIE distributions be tax free;
  • No tax on investors selling or redeeming their MRPIE interests;
  • The IRD tax rate cash-out of losses apply to accrued unrealised capital losses;
  • Superannuation funds (taxable as trustee income 28%) be taxable on an accrual basis on mark-to-market value of NZ and Australian shares;

These proposals add much complexity to a well-established PIE investment regime. The TWG CGT led proposals impose more tax on PIE investments and reduce retirement savings for millions of Kiwis. In separate proposals however, the TWG has softened the CGT blow for low to middle income income earners (incomes up to $48,000) with proposals to provide savings incentives through tax credits and refunds, as well as lower rate PIE thresholds. These tax regime benefits should more than compensate this group for the increased tax on domestic shares.

Needless to say, higher income earners will bear the costs of CGT on NZ / Australian shares at the PIE level with a commensurate reduction in savings.


NZ farmers would be subject to the CGT regime on farm sales as follows:

  • CGT rules contain no carve outs and farms and farm businesses would be subject to any CGT regime in the same way as all businesses and business owners;
  • Again, start-date valuation of farm land and farm businesses will be crucial to isolate pre-start- date tax free gains from post-start-date includible CGT gains;
  • A big issue for farmers will be the design of any final CGT in dealing with the common situation of inter-generational farming families. Will farms passing to family members in the event of death be subject to CGT, or will rollover relief apply?
  • Entrenched ownership and succession planning structures will need to be re-visited;
  • The farm family home (up to 4,500 sq. meters) should be excluded from CGT;
  • The small business ($5m turnover) trading-up CGT rollover concession could apply (and the case of farming merits an increase in this qualification to $15m at least);

Retirement Villages

This is a growing sector commensurate with the country’s aging demographics.

  • Consideration was given to “substantive” ownership treatment for transfers of occupancy advances;
  • However, the inclusion of shareholding interests of RV investors within a CGT regime was seen as sufficient with no other specific CGT event being necessary;
  • RV sales of land holdings, buildings and other capital assets would create a CGT
  • Again, start-date valuations of existing assets that transition into a CGT regime would be critical to identify pre-CGT excluded gains

Partnerships (limited partnerships – LPs) and look-through companies (LTCs)

 CGT rules should apply to realisation gains on capital assets along the same lines as the core income taxing regimes to these entities / owners.

  • Sales of included capital assets by partnerships and LTC’s would be subject to tax at the partner / shareholder level;
  • The disposal of a partnership interest or a share in a LTC is treated as a sale by the partner or shareholder of their share in the underlying assets of the partnership or LTC and this would trigger a CGT event with respect to underlying capital assets;
  • Incoming partners can have different cost bases than existing partners and this will complicate record keeping and asset gain


 Individuals would have CGT liabilities at ordinary personal income tax rates (or losses) from capital asset sales without discount or concessions. These key points arise:

  • Gains on assets including land & buildings, NZ shares, business assets, intellectual and other intangible property would be taxable under a broad-based CGT;
  • Holiday homes and other homes (other than the main home) included;
  • Foreign shares continue to be taxed under the FIF (5% deemed annual return basis) rules;
  • Property held domestically in NZ or abroad would be included;
  • Properties used by owners (or trust beneficiaries) as their family or main home will be excluded. This is the place where a person chooses to make their home by reason of family or personal relations or for other domestic or personal reasons. This exemption is only available to NZ resident taxpayers;
  • Personal-use assets such as cars, boats, jewellery, art, collectables, vintage cars, etc, would be excluded from CGT;
  • Savings through KiwiSaver PIE funds will have reduced returns for CGT on NZ and Australian equities at the PIE level;
  • Low / middle income earners (up to $48,000) would have KiwiSaver contributions boosted by tax adjustments on contributions, members tax credit, and a reduction in the PIE marginal tax rates thresholds (which would more than compensate for tax increases from CGT on NZ/Australian equities);

Foreign (non-resident) investors

 NZ’s tax treatment of non-residents is limited by our network of 40 Tax Treaties with countries representing our main trading and investment partners. For these reasons, and in keeping with mainstream country taxation of capital gains, the TWG propose that non-residents would only be subject to CGT on:

  • Interests in NZ land;
  • Interests in NZ land-rich companies (companies that derive more than half their value from NZ land), but not portfolio (less than 10%) of a listed land-rich company;
  • Assets that form part of a branch business of an overseas company (permanent establishment);
  • NZ property of non-residents would not qualify for the family home exclusion;
  • All other NZ capital assets of a foreign investor be excluded from the CGT


5.   Where to from here?

 First and importantly, and ASAP – any and all opportunities that clients get to lobby politicians (of whatever Party) about “limiting” rather than extending the taxation of capital gains must be taken. The message is:

  • that the efficiency, compliance and administrative costs of a CGT simply do not outweigh the increased revenue, fairness and possible integrity benefits within NZ’s current tax system and economy;
  • a broad-based CGT carries serious risks, including compliance costs, damage to our capital markets, stymying the essential growth of this country’s productivity, entrepreneurship, innovation and

Secondly, all clients will need to monitor the Governments formal response on CGT proposals due sometime next month in April. We expect that the Government will endorse and proceed with a CGT regime to apply to residential property and second homes as a minimum. This may well be extended to other NZ property including industrial, commercial, leasehold, business premises, etc (but maybe not farm land as a NZ First Party concession?). As such, clients will need to evaluate their property holdings and evaluate what ownership structures exist that may be better in the long run given their personal and business circumstances.