The Government has announced changes to the tax regime for investments which it says will remove tax disadvantages for investors using managed funds.
Finance Minister Michael Cullen and Revenue Minister Peter Dunne said the changes were in three main areas:
* Lower income savers investing in vehicles that adopted thenew rules would be taxed at their correct tax rate. Currently, lower income savers were taxed at 33 per cent on their savings even though their current rate might be 19.5 per cent.
* Capital gains on New Zealand and Australian shares held via a vehicle like a managed fund would no longer be taxed.
* New rules would require a reasonable level of tax to be paid by direct investors who had substantial share portfolios outside Australia. Currently, individuals who invested directly in one of eight so-called "grey list" countries generally paid tax only on dividends which meant these investors were not paying a reasonable amount of tax. Managed funds were taxed on the fund's earnings.
The ministers said this requirement for a reasonable level of tax to be paid was not a full capital gains tax. The amount of tax would be capped at 5 per cent of the increase in value of the investment in any one year, not the full unrealised capital gain. The increase in value would be limited to only 85 per cent of the actual increase in value.
Dr Cullen and Mr Dunne said the Government was removing distortions which favoured sophisticated direct investors over those who chose to invest through managed funds and unit trusts.
This was not a "money grab" by the Government.
"In fact, it will cost about $110 million a year in foregone tax revenue," they said.
The fairer tax regime amounted to a "tax cut of $110m a year from next April," they said.
