The long-awaited final report of the Tax Working Group has been released and it proposes to cast a very wide net over investment assets to be taxed for capital gain. Government may choose to accept, reject, or modify the proposals contained in the report. As it stands, capital gains tax would apply to rental properties, land, business assets and shares. The family home and personal possessions would be excluded. The tax take would be used to fund lower income tax rates, for example by raising the threshold at which the marginal tax rate changes from 10.5% to 17.5%. NZ Superannuation, which is based on average take-home pay, would slightly increase.

The report proposes that the tax be imposed on all assets owned at the date the tax changes come into effect. This means that all assets would need to be valued at that date (Valuation Day). The good news is that any capital losses would be able to be deducted against other income. Also, the ring-fencing of tax losses on rental properties which has been proposed may no longer be necessary.

For KiwiSaver it is proposed that the Employer Superannuation Contribution Tax could be refunded in full into member accounts for those earning less than $48,000 and partially for those earning between $48,000 and $70,000. Other options include increasing the annual tax credit and reducing the rate of PIE tax on the fund.

The proposed taxes would be paid when the gains are realised, with the exception of managed funds, which would be taxed annually on an accrual basis. This would create a slight timing disadvantage for managed fund investors compared with direct investors, who would only pay on the sale of an investment.

These proposals are far-reaching, complex, and likely to cause huge disruption for investors and product providers.