Bill too taxing for immigrants, MPs told

Ian Messerle is just the sort of highly qualified worker New Zealand would like to attract more of.

But the young American tax accountant at Ernst & Young told MPs yesterday that the Government's plan to tax offshore investments could force him to decide against staying here.

In the first day of hearings into the controversial planned tax changes, Messerle told Parliament's finance and expenditure select committee he and his wife moved to New Zealand about a year ago and his story illustrated the impact the changes could have on foreign nationals either living or contemplating a move here.

"We will have a serious cashflow problem when the unrealised gains on our retirement funds [in the United States] are taxed here.

"We will be forced to choose whether to stay or move to a more favourable tax jurisdiction."

The bill introduces a tax on unrealised capital gains on shares held directly or through collective investment vehicles in "grey list" countries - Britain, Canada, Germany, Japan, Norway, Spain and the United States. It exempts interests in Australian superannuation schemes.

The Messerles came to New Zealand too soon to qualify for relief under a recent law change which gives a four-year tax holiday on foreign income for new migrants, or for returning New Zealanders who had been away for at least 10 years.

MPs were also told the bill ran counter to the intent of such changes that recognised the increasing global labour market in many occupations

The Institute of Chartered Accountants wants offshore investments to be treated in the same way as investment in New Zealand or Australian companies.

Officials had indicated the cost of that would be about $160 million a year compared with the present bill. The institute argues that its plan:

* Removes the tax distortion between investing directly or through a collective vehicle.

* Removes the tax distortion between domestic and international shares and lessens the distortion between domestic property investments and international shares.

* Avoids the compliance costs the new regime would impose on many investors.

* Avoids imposing a distortion between investing in Australia and further afield.