There is plenty of coverage about the impact of the recommended capital gains tax on investments but few commentators have discussed the impact of the entire tax review on businesses.
The tax working group has only made recommendations and now
it is the Government’s task to determine what, if any, of the recommendations
Don’t lose sleep yet over the much-publicised capital gains
tax (CGT) reforms.
Capital gains tax and
depreciation recommendations for businesses
Currently, New Zealand has no CGT, so you are not taxed on
profits you make selling a business.
If you have depreciated assets and tax claims were made,
currently, the business is taxed if the asset is sold for more than its
For example, a piece of manufacturing equipment or a vehicle
that has a market value that is higher than its book value.
In 2010, the depreciation rate of buildings with long
estimated useful lives was changed to 0 per cent and the 2018 tax working group
assessed the merits of restoring the deductions.
“Subject to fiscal constraints, the Government could
consider restoring depreciation deductions if capital gains taxation is
Tax is never straight forward and the majority of the
working group reviewing New Zealand’s taxation recognised “extending the
taxation of capital gains would involve an increase in compliance and
This will impact on businesses, but the group felt the
overall goal to create a fairer tax system and reduce investment biases
outweighed these costs.
The review recognised there is a spectrum within the
recommended tax reform, with a clear case to include residential rental
properties in CGT, where as the case to include corporate groups, unlisted
shares and business goodwill, is more complex.
Who has CGT?
In 2015, nine of the 28 OECD nations did not have CGT – New
Zealand being one of them.
CGT is common in developed countries, with Denmark reported
to have the highest rate of 42 per cent in 2015.
Australia ranks 16th with a rate of 24.5 per cent.
Top Marginal Tax Rate
on Capital Gains, by OECD Country, 2015
and ecological outcomes
The tax working group reviewed the feasibility of an environmental
tax to be applied to businesses.
“There is significant scope for the tax system to play a
greater role in sustaining and enhancing New Zealand’s natural capital.”
The group recommended the Government’s policymakers
prioritising uses a tax system to “expand the coverage and rate of the Waste
Disposal Levy, strengthen the Emissions Trading Scheme and advance the use of
If your business has negative environmental impacts,
taxation could be used to modify your practices however the group recognises
this taxation is more beneficial when there is:
High behavioural responsiveness
A diversity of responses available
Significant revenue-raising potential
In plain language – if businesses have better environmental
options and the tax brings in enough funds – it will have more chance of
creating the desired impact.
There are no big changes recommended for New Zealand’s
current approach to taxation of business and they did not recommend any
reductions to company tax.
Productivity, innovative start-ups and research and
development (R&D) could experience a tax break.
Several recommendations, including changes to the loss
continuity rules, expanding deductions for
expenditure and concessions for nationally significant infrastructure projects.
Many public submissions to the tax working group focused on
“the treatment of multinationals and digital firms”.
The Government is currently working with the OECD on the
direction of international taxation and the tax working group recommends this
Did someone say “sheep”? Essentially, we will watch other
countries and do the same on the tricky international tax laws.
The Government has stated it will not announce a full
response to the recommendations until April 2019.
And, Labour says the outcomes – if any – will not take
effect until the 2021 tax year.
The tax working group recognised the “timeframes for
implementing tax reform will be challenging. The Government will need to ensure
additional resources are available for implementation if these timeframes are
to be achieved.”
There will some busy tax legislators and accountants getting
up to speed on any changes in the next few years.
For an in-depth read go to therecommendations.