Shining a light on the Tax Working Group Interim Report

By Patrick McCalman and Robyn Walker

The Tax Working Group (TWG) released its Interim Report on 20 September 2018, and on the same day Deloitte released a special alert with in-depth analysis of the Interim Report, Shining a light on the Tax Working Group Interim Report.

With two tax working groups having reviewed and reported on the state of the tax system already this century, it is perhaps unsurprising that this year’s TWG Interim Report makes few concrete recommendations for change in our tax systems at this juncture.  In the same vein, it is also unsurprising, given its interim nature, that those changes being recommended in the report are more micro in focus and that the more macro challenges, such as the taxation of capital, are still a work in progress.  However, the Interim Report is useful in raising a number of issues which, if the TWG is to be judged as “successful”, will need to be concluded in the final report scheduled for release in February 2019.

The Interim Report provides a glimpse as to where the TWG’s recommendations are heading. Refer to the “TWG decisions at a glance” summary in the special alert for a snapshot of what has been recommended, dismissed, referred to someone else or identified as needing to be worked on further by the Group.

The most highly anticipated aspect of the Interim Report is in relation to the taxation of capital. The report doesn’t give a definitive view either way at this stage, but instead provides comprehensive coverage of the issues which need to be considered if New Zealand moves to have more comprehensive taxation of capital income. The special alert considers the meaning of the “extension of taxation of capital income” (EOTOCI) discussed in the Interim Report, design issues with such an approach, the important question of whether it would raise revenue, and the alternative method considered by the TWG.

The special alert canvasses a myriad of other issues raised by the Interim Report, including the taxation of business, housing affordability, the taxation of savings, GST, the Maori economy, and environmental and ecological outcomes.

With not many firm conclusions, the Interim Report leaves us hanging until early next year as to what the future of the tax system could look like and what all the options and trade-offs will be. A key question for business will be what is in the final report to offset any potential additional taxes or additional compliance costs that may arise from the recommendations. In this respect, there has already emerged one clear recommendation: that the company tax rate should not fall from the current 28 percent rate. Given the global lowering of corporate tax rates (New Zealand is now the 7^th highest in the OECD), if this is the direction of travel to be chosen, it is important that other initiatives are explored to ensure that New Zealand remains an attractive place to do business.

We hope the special alert is useful in helping you to navigate this Interim Report from the TWG, and that our insights provide food for thought on what could eventually become the biggest tax changes in recent memory. If you would like to discuss the Interim Report further or need assistance in making a submission to the Tax Working Group, contact your usual Deloitte advisor.

October 2018 Tax Alert contents

• Government announces R&D tax incentive scheme details
• Shining a light on the Tax Working Group Interim Report
• Payday reporting for employers and intermediaries is going digital … Are you ready?
• Accounting for deferred tax on employee share schemes
• Global Tax Reset - Transfer Pricing Documentation Summary
• A Snapshot of Recent Developments