Tech start-up founder angry at tax proposal

Engineer Bart Schroder fears a third of his retirement fund could be lost at the stroke of a pen if a capital gains tax is brought in. He has bet big on the technology his start-up company developed in the hope it can capture a global niche market and one day be sold off to fund his retirement.

“I took huge risks to make this company work . . . paid myself nothing while paying employees the going rate, invested all my savings [and] scrimped and saved,” he said. “[Now] this Government wants to take one-third. They didn’t take the risk, they didn’t put up any savings, they didn’t go without pay. Is this fair?”

His comments come as a wide range of businesses and investors reacted sourly to the Tax Working Group’s proposal to introduce a capital gains tax, estimated to raise $8 billion over five years.

The tax could hit a swathe of assets, including second homes, baches, shares, businesses, farms and land, with most people likely to pay tax rates of 33 per cent.

While Schroder feared the tax would discourage new start-up businesses, one of Auckland’s leading property investors said it would also fail to benefit first-home buyers and create a mountain of costly red tape.

Financial advisers have slammed it for potentially targeting KiwiSaver and retirement funds, while art collectors seem to be among the few left smiling after it was suggested art should be exempt from the tax.

The tax could be introduced in 2021, with any capital gains made after this date liable for taxation and those made earlier being exempt.

But Schroder said this could hit his business, Cleverscope, especially hard.

It has made a tool it hopes will be useful to engineers developing new technologies for products ranging from wind farms to electric cars. The

I took huge risks to make this company work . . . paid myself nothing while paying employees the going rate, invested all my savings. Ben Schroder

tool has been more than 10 years in the making and is yet to sell in large numbers after Cleverscope suffered setbacks with the global financial crisis and competition from China.

That meant the company would have a low valuation at the moment and a high valuation later if successful, leaving him liable to a big tax bill.

Matthew Gilligan, managing director of accountancy firm Gilligan Rowe and Associates, said a capital gains tax would probably lead property investors to hold on to their rentals over the long term to avoid paying the tax.

Gilligan — who owns more than 30 properties in Auckland, while his firm represents about 9000 clients — said this meant first-home buyers would not benefit from an investor sell-off as some pundits predicted.

The cost to investors of complying with the tax and the cost to the Inland Revenue Department of enforcing it and ensuring home owners don’t inflate their house price valuations ahead of the tax’s introduction would also be prohibitive, he said.

He suggested an extension to the bright line test, so investors are hit with a tax if they buy and sell a property within a 10- or 15-year period, would be a simpler way to tax property sales.

Gilligan also called the Tax Working Group’s suggestion to apply capital gains tax to KiwiSaver and superannuation funds “appalling”. He said the superannuation industry was still relatively new in New Zealand and the tax would deter people from putting money into retirement funds.

Art and Object auction house director Ben Plumbly said collectors were also keeping their eye on the working group’s recommendations.

His auction house traded $11 million of art sales last year, but Plumbly said capital gains were always a secondary concern for those buying art.

“I don’t know of anyone who calls themselves an art investor, they call themselves art collectors,” he said.