Tax proposal causes tension on the farm
A capital gains tax (CGT) will not go down well with farmers, but it might also not earn a lot of revenue, a tax specialist says.
Tony Marshall, a tax advisory partner for Crowe Horwath, said most farmers made more out of their farms when they sold them than they earned from operating them.
In Australia, where there has been a CGT for the past 30 years, it accounts for about 2 per cent of tax revenue.
In New Zealand, the Government has reversed National’s proposed April tax cuts, and has formed a Tax Working Group under the chairmanship of Sir Michael Cullen, which will investigate whether a CGT should be introduced.
However, despite such a proposal sending ‘‘nervous tension’’ through the farming community, farmers could comfort themselves that historic capital gains since they bought their properties would be preserved, Marshall said.
‘‘Capital gains should be set with a base line, meaning it will not take into account historic gains,’’ he said in a statement.
‘‘The farm will be given a value when the capital gains tax is introduced, and previous increases in value will not be taken into account for tax.’’
Besides not being very lucrative, a CGT might also encourage bad habits.
‘‘Because the family home is exempted from the tax, there is a tendency to build bigger and more expensive family homes rather than putting investment into your business.’’
Marshall said caution also needed to be taken over taxing multinational companies such as Apple and Google, because major New Zealand exporters might find themselves on the receiving end of extra taxes.
‘‘Fonterra exports a lot to China and China might turn around and
"Capital gains should be set with a base line, meaning it will not take into account historic gains."
Tony Marshall, Crowe Horwath
say ‘We will tax Fonterra on the income it derives from there,’ even though it doesn’t have a physical presence there,’’ he said.
‘‘As an exporting nation we need to be careful about how we tax those multinational corporations. New Zealand is an export-led economy. If our measures are too strict, countries that we export to may adopt similar measures.
‘‘Our leading exporters … may be subject to additional taxes in jurisdictions that they export to, resulting in lower returns for our farmers.’’
Recommendations made by the Tax Working Group will not be implemented until the 2021 tax year, so any proposed changes will be tested at the 2020 election before anyone is affected.
In 2014 Labour’s then finance spokesman David Parker said a CGT would arrest housing speculation. In Australia, home ownership had been lower than in New Zealand until a CGT was introduced there, and now it was higher.
Federated Farmers said that, with a CGT, people would choose not to sell and so productive investments would be wasted.
Federated Farmers vicepresident Andrew Hoggard has argued the Tax Working Group should have primary sector representation.
‘‘Ideally it would be good to have someone on the group who understands the agri-sector and its tax issues. Given the likely focus on environmental taxation, capital gains and land taxes, it would seem a reasonable thing to do.’’