Changes make NZ firms' Australian investments less taxing

New Zealand businesses with investments in Australia will benefit from proposed changes to the country's capital gains tax regime.

The changes announced in the May budget will see wider exemptions from capital gains tax paid by non-residents when they sell out of their Australian investments.

Under present rules, non-resident investors pay capital gains tax when they realise their investments in private Australian companies or stakes of more than 10 per cent in public companies. This will no longer be the case if the legislation is passed in its current form.

But there are some restrictions. Investments in businesses the main assets of which are land, buildings or mining rights will still be subject to the tax.

Nevertheless, PricewaterhouseCoopers tax partner Peter Boyce said the changes were very significant.

"Australia is obviously wanting to attract investment and this is good news for New Zealanders that are investing there.

"Non-resident investors into Australia and foreign-owned Australian groups should consider the implications of these proposals on their current investment structures and future plans as soon as possible."

Ernst & Young's Geoff Nightingale said the changes removed one headache from direct investment in Australia.

"It makes your investment a bit more liquid and means you don't have to think that hard about structuring for the capital gains tax on exit.

"It's of most interest to New Zealand businesses or companies who actually want to establish an Australian based subsidiary or buy an Australian business and expand it."

For some New Zealand investors the move would "very beneficial".

"People that are already into Australia and might have been sitting on a capital gain are suddenly free from that constraint in terms of their decision about staying or exiting or growing or selling down."

Legislation has been introduced to Australia's Parliament and the new rules are expected to come into force within a couple of months.