Property the tax target

Wednesday, 20 January 2010 2 Comments

"We have a preference for getting more out of the property sector," Tax Working Group member Rob Cameron told today's launch of the group's final report.

The capital gains tax proposal got another una round the block - working group chairman Bob Buckle told the press conference that "the most comprehensive base-broadening initiative would be a comprehensive capital gains tax" but the group could not agree on whether this could be achieved without a great deal of administrative difficulty.

Largely unspoken was the fact the government has ruled it out and although Labour favours it - in sharp contrast to its attitude when in office - this stance by the main alternative government is not likely to last once its prospects of regaining office improve.

Instead, other options targeted specifically at property investors are canvassed.

The most likely to be implemented is a Risk Free Rate of Return levy - calculated each year by taking the government bond rate and subtracting inflation.

Firstly, the current 20% loading for plant and machinery investment would go.

Secondly, the report proposes removing the depreciation on buildings - at least, unless the taxpayer can prove the value has actually depreciated.

That idea has attracted warnings from the Institute of Chartered Accountants.

Tax director Craig Macalister queried whether the current "emotion" around property investment was getting out of hand.

"We need to be careful not to fall into the trap of selected taxes for different assets or investments for all the reasons why these were a failure in the past," he said.

A further proposal is for changes to the thin capitalisation rules to lower the "safe harbour" threshold to 60%.

Most members of the group are also in favour of hiking GST to 15%.

There is also a preference for a less complex system of tax rates, with the recommendation that "at the very least" the top personal tax rate should be aligned with the top savings and investment vehicles.

One further long term proposal, aimed at tax process issues, is to have an ongoing "institutional arrangement" of some sort so that when tax changes are proposed the overall coherence, efficiency and fairness of the system are taken into account.

A number of changes over the past decade - the top 39% rate, the 30% PIE and the introduction of Working for Families being but three of them - are seen as having added distortions to the system and adding further opportunity for taxpayers to "game" the system.

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