Time to introduce new tax legislation will be tight

7 February 2019

Time to introduce new capital gains tax legislation will be tight. CA ANZ asks the Government to defer introduction.

New Zealand’s largest accounting group says the Government’s tight timeframe to get a broad capital gains tax ready – as promised – to take on the 2020 election campaign trail is “an accident waiting to happen.

“A capital gains tax will be a big change for taxpayers and it’s crucial that the necessary legislation is concise, efficient and clear, that is, it does the job,” said John Cuthbertson, New Zealand Tax Leader for Chartered Accountants Australia and New Zealand (CA ANZ).

“Good tax legislation takes time. From what we can see at the moment, there is not enough time for the Government to fully consult and then legislate, to meet their own deadline.”

In a pre-Christmas letter to the Finance and Revenue Ministers, CA ANZ urged the Government to consider deferring the introduction date of a capital gains tax and to stage its application, starting with income-producing land.

The working group’s recommendations, which will likely include a broad-based capital gains tax, will be made public on 21 February, possibly along with the Government’s initial response to the report. The Government is expected to release its full response in April after discussions with officials and consultation with coalition and supply partners.

"It’s these early consultation and design stages, where stakeholders and the public have the opportunity to share their views on a capital gains tax, that are at risk of being dangerously shortened to squeeze in this process before the election,” Cuthbertson said.

“This public consultation is extremely important to ensure appropriate design, while also helping gain public acceptance.”

Clock ticking

“The clock is already ticking and the Government must use every day wisely to ensure sound policy outcomes,” he said. “When you consider that Inland Revenue also needs time to draft discussion documents and legislation, the timeframe is inadequate.

“Capital gains tax legislation will be complex and, by necessity, lengthy.

“For example, there needs to be a careful weighing up of what assets are included in a new capital gains tax regime, the extent of relief available when assets are transferred and how the regime will interact with income tax legislation.

“Our expectation is that the group will continue with a valuation day approach. The most notable concern here is the capacity of the valuation industry to meet substantially increased demand for tax valuations from 1 April 2020.”

CA ANZ has made a number of pragmatic suggestions to address these concerns, such as phasing the application of the rules, along with a transition period for existing assets. This will give the valuation industry time to cope with the volume of valuations required if the Government adopts a valuation day approach. Introducing a capital gains tax gradually will also give the finance and funds management sectors time to update their systems.

Cuthbertson said that rushed policy design and implementation will lead to unclear legislation and undercut the certainty taxpayers require. “We urge Government to reconsider whether taking a fully enacted capital gains tax legislation on the election campaign trail is in fact going to produce the best policy outcomes.

“For voters to understand what’s changing, setting out the detailed policy design should be sufficient. Deferring the enactment of legislation will provide the additional time needed to ensure the legislation is sound.

“Our tax system is based on taxpayer trust. Certainty, or at least predictability, flows from coherent tax law and administration. When you rush complex legislation, mistakes and unintended consequences will inevitably result.”

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