Labour's Tax Policy Announced

Posted: 18th July 2011

Phil Goff, Leader of the Opposition, has announced that Labour's Tax Policy includes the introduction of a capital gains tax, raising the top marginal tax rate from 33% to 39% for income over $150,000, introducing a tax-free threshold for the first $5,000 of income and exempting fresh fruit and vegetables from GST.

The key points of the proposed capital gains tax are that:-

1.  Rate: The CGT will be set at a simple low flat rate of 15% with no indexation for inflation
2.  Gain: The tax will be applied to net gains.
3.  Exemptions: The family home, personal assets, collectables, small business assets sold for retirement and payouts from retirement savings schemes, including KiwiSaver, will be exempt.
4.  Scope: The CGT is broad based and comprehensive.
5.  Implementation: The CGT will be forward-looking and only apply to gains accrued after implementation.  Past gains will not be affected.
6.  Canterbury: Real estate in the CERA zone will not be liable for CGT for an initial period of five years from the commencement of the CGT. After that it will be reviewed.
7.  Point of Taxation: The tax will be applied on realisation. In most cases this will be the point of sale.
8.  Treatment of Gains at Death: Capital gains on inheritance passed on after death will be rolled over to the heir, and not payable until the gain on the asset is realised.
9. Trusts: The intention is to ensure trusts are not used as a means of avoiding a CGT.
10.  Capital Losses: Losses can be carried forward and offset against future capital gains.
11.  Treatment of traders: Assets currently taxed at the individual's marginal or at the business tax rate will continue to fall under the existing regime.
12. Expert Panel: An Expert Panel will be established to deal with issues that are technical in nature and involve areas where a high degree of specialised knowledge is required before a final decision can be reached.

The key points of the Capital Gains tax, Labour says, is to:-

1.  Raise $2 billion over 15 years
2. Pay off debt
3. Cut taxes for most New Zealanders
4. Save assets from sale
5. Fund the increasing cost of our aged population

This new policy is being promoted as the alternative to National's plan of selling down State owned assets and the election looks like it will be billed as Asset Sales vs Capital Gains Tax.

Whilst it is refreshing to hear a difference between the two parties, the jury is still out on whether it will help Labour's election hopes as National continues to ride high in the polls.