Tax break likely for super funds

By BRIAN FALLOW


People who save through superannuation schemes are likely to get a better deal from the taxman.

If a super scheme makes a profit when it sells assets such as shares, a third of the profit is now taken in tax.

But most private investors who own shares directly pay no tax on such sales.

Finance Minister Michael Cullen yesterday backed removal of the capital gains tax which applies to super schemes and actively managed unit trusts.

It is a longstanding sore point with fund managers that they face the tax, when most individual investors and passive funds, which track a sharemarket index, do not have to pay it.

In August Dr Cullen appointed Craig Stobo, former head of BT Funds Management, to consult the industry on problems with the taxation of investment income

"I don't want to pre-empt Craig's report, but I would be very sympathetic to changes along these lines," Dr Cullen told a tax accountants' conference in Christchurch.

He ruled out across-the-board tax cuts, but said the Government had room to manoeuvre, in considering options which might reduce its income.

"This does not mean I support tax concessions for the savings industry," he said.

"In my view, the international evidence is overwhelming that they do not work. I remain concerned that such incentives benefit those already saving rather than generate new savers."

But the tax rules for saving were far from neutral, he said.

"Very different tax rules and results apply, depending on whether someone saves directly or through a savings vehicle," he said.

"And if the savings vehicle route is taken, different tax rules apply, depending on the vehicle.


"If we can get the rules relating to the taxation of savings right, some of the disincentives to saving will be removed, thereby creating a good platform to develop measures to increase work-based savings for retirement," Dr Cullen said.

Simon Swanson, chairman of the Investment Savings and Insurance Association and managing director of Sovereign, welcomed the move.

The industry had been trying for 20 years to get to a level playing field between those who invested directly and those who did it collectively, he said.

The capital gains tax was a significant disincentive to investing in superannuation schemes.

Putting superannuation at a disadvantage compared with property investment accounted for some of the recent housing boom.