Government review could cut your tax rate

The capital gains tax proposal from the Tax Working Group could create room for cuts to personal income tax, GST or small business compliance costs if implemented.

The Working Group's interim report today falls firmly in favour of broadening the existing range of capital gains taxes to capture profits on the sale of a far wider range of assets than the current regime.

The scope of the review rules out taxing the family home.

However, an expanded CGT could include: residential land other than under a family home, commercial, agricultural, industrial and leasehold interests and shares in companies.

That would likely increase tax revenue going to the Government.

Finance Minister Grant Robertson has indicated he wants final recommendations from the Tax Working Group (due February) to be revenue neutral.

In his letter of response to the report, Robertson has asked the Working Group to now recommend and consider "an overall package of measures".

"This should include measures that result in an overall revenue-neutral package."
This means any gains made on new taxes would have to be offset with tax cuts.

In the interim report, the Working Group addresses this by looking closely at options for cuts to GST, personal income tax and company tax.

While no final recommendations have been made, some options appear to be favoured.

Charged with the task focus adding fairness to the tax system the report effectively rules out cuts to the top personal income tax rate, however, cuts to the lower tax rate remain on the table.

The Working Group warns against the high cost of an across-the-board cut to GST - noting a loss of about $2 billion a year if it were cut from 15 per cent to 13.5 per cent.

But that the possibility remains live - as does the potential of removing GST on fresh fruit and vegetables.

The company tax rate is also considered. While the Working Group appears not to favour a cut to the current rate it does indicate scope for cutting small business compliance costs by adjusting the thresholds.

It also considers the possibility of a progressive company tax rate – with a lower rate for smaller businesses (a system already in place in Australia).

A spokesperson for the Finance Minister said nothing beyond the original scope has been ruled in or out yet.