Transport companies will be among many businesses wondering how they'll be affected by the proposed capital gains tax.
Some important details raised by the Tax Working Group are yet to be worked through – for example, it's not clear yet whether, or by how much, capital losses would be able to be offset against other income.
The Government has said it would indicate its views on the Tax Working Group's recommendations by the start of this month.
So, at the time of writing there is no confirmed position that would allow transport companies to start planning for a new tax regime. However, the basic direction of the Tax Working Group's proposals is well-known: A broad-based tax on the increase in value of most business assets.
I was a member of the Tax Working Group as a representative of business and appreciated the Group's work in trying to find the fairest way possible to tax capital gains in New Zealand.
However, from a business perspective I'm not able to support the totality of the Tax Working Group's recommendations. Along with two other members of the group, who are tax practitioners, I have concerns about how the recommendations would affect business growth.
A new capital gains tax would add to the tax burden on business and would reduce the investment that businesses could make in other areas. An extra tax bill for business would reduce the money that could be used to hire more staff, or purchase training, assets or technology to make the business more productive.
Enterprises in NZ already pay a high rate of corporate tax, and an additional tax would not help them grow their business and create jobs for NZers.
Transport companies might find a capital gains tax a fairly intrusive tax, covering vehicles, premises, land, equipment and other business assets. Shares and intangible property would also be covered and could be difficult to value accurately.
There are also concerns about the mechanics of how the tax would operate, including the proposed "valuation day" approach. Under this approach, the capital gains tax would apply from April 1, 2021 – requiring the valuation of all business assets by this date.
This could lead to a log-jam of valuation work and increase the risk of conflicting valuations of assets. Overall, the approach would be good for valuers, accountants and tax advisers – but not so much for ordinary businesses.
From a wider viewpoint, I think taxing capital is not a useful move for a country with a very shallow capital pool – where many businesses already face difficulty raising capital for investment. Our tax settings should encourage capital growth to enable jobs and economic growth – not discourage it.
There are other details in the Tax Working Group's proposals that would bring problems for business growth.
Taxing capital gain when an asset is sold would reduce the incentives to sell a business. But selling a business releases capital that allows new businesses to develop – so a capital gains tax would tend to slow down business sales and make the general environment more static.
The Tax Working Group has suggested exempting small businesses (those with an annual turnover of less than $5million) from the tax if the business premises are sold and the money is reinvested in a similar, expanded business. This would be a fairly arbitrary line however, and raises the question of why all businesses could not have a similar exemption.
Business owners might argue that they have worked hard to build up a business and should not be taxed on its increase in value when they come to sell it.
I believe that those who build and grow businesses are critical to the NZ economy and their efforts should not be discouraged by a capital gains tax.


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