Overseas shareholdings face new tax

Investors will be around $110 million a year better off under planned changes to the tax laws, Finance Minister Michael Cullen says.

He and Revenue Minister Peter Dunne announced yesterday a significantly amended overhaul of the tax treatment of investments, both in New Zealand and overseas.

Broadly, the changes are positive for people who invest in New Zealand companies through managed funds such as superannuation schemes, and for those who own shares directly in Australian listed companies.

But those with substantial foreign shareholdings in countries other than Australia will face a tax on unrealised capital gains, despite the fierce criticism this proposal has attracted.

People on lower incomes who are in the 19.5 per cent income-tax bracket and who have entrusted their savings to New Zealand managed funds will have the earnings from those funds taxed at the 19.5 per cent rate, rather than the one-size-fits-all 33 per cent as at present.

Managed-fund earnings for people in the top 39 per cent bracket, however, will still be taxed at 33 per cent.

If the managed funds hold shares in companies listed on the New Zealand or Australian stock exchanges, they will no longer face a capital gains tax if they sell those shares for a profit. Investors in the fund will be treated the same as if they owned the shares directly.

The changes are intended to come into effect next April. The Government wants to avoid the charge that it will be encouraging people to save through vehicles that are taxed harder than they would be if they owned shares directly.