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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 39
EMIGRATION AND IMMIGRATION
If the New Zealand tax system if based on residence and source, then for New Zealand residents, CGT will apply to
capital gains realized even on assets held outside New Zealand (e.g. land or buildings) – if so, then:
o
There is incenve for New Zealand residents to emigrate to avoid tax
People can temporarily give up their New Zealand residence (e.g. by living in a tax haven for a few
years), then sell their assets while overseas to escape CGT – this is especially a problem because many
capital gains occur once in a lifeme (e.g. you can accumulate a large amount of real estate, and when
you want to sell it, you do it in this way)
The tax system can deal with this issue by treang emigraon as a taxable event
o
There is inequity for immigrants who already owned assets outside New Zealand before becoming a resident
If the immigrant sold the asset while resident in New Zealand, they would have to pay tax on the
whole of the capital gain from when they bought the asset unl they sold it, including the part of the
gain that accrued from when they purchased the asset unl they became resident in New Zealand
The tax system can deal with this issue by establishing basis in respect of assets outside New Zealand
Emigraon
o
Would crystalize liability in respect of (a) land outside New Zealand and (b) shares
At the moment the taxpayer ceases to be a New Zealand resident, they will have to pay tax as if they
had sold their non-New Zealand assets at market value at that me – they pay tax on any increase in
value of the overseas assets that accrued while they were resident in New Zealand
Once they pay tax and are non-resident, any further increases in value in the assets will not be taxed
o
Otherwise there is enormous scope for avoidance, especially given the “once in a lifeme” nature of many
capital gains
Immigraon
o
Would establish basis in respect of assets outside New Zealand
The person must sll pay tax on any gains from when they were resident in New Zealand, but they
person only needs to pay tax on the amount calculated from the proceeds of sale minus the value of
the asset when they became resident in New Zealand
Therefore, the part of the gain that accrued from when they purchased the asset unl when they
became resident will not be taxed
TRANSITION IN LAW
If New Zealand were to introduce a CGT, what should happen when a taxpayer bought an asset before the tax was introduced
and sold it aſter?
Tax the whole gain (that is, the proceeds of sale minus the purchase price)?
o
You tax both the gain that accrued aſter the tax was introduced and the gain that accrued before the tax was
introduced
o
Most people would think this would be unfair
Tax the gain that accrued from the day the tax was introduced unl it was sold?
o
This is the more likely opon
Give the taxpayer the choice of paying tax on the whole gain from when he bought the asset unl he sold it?
o
This may be advantageous for the taxpayer if the asset has a fluctuang value
Exempt the gain altogether (the Australian approach)?
o
This would be inequitable
o
Rich people who already own significant assets before the tax was introduced will never sell them even if the
assets are underperforming – this is inefficient
o
There are difficult situaons where the asset changes aſter the tax was introduced:
Example: the land was purchased prior to the tax and had an old building on it. Aſter the tax was
introduced, you demolish the old building and construct a new one. Is this the same property?
Example: you own 100% of shares in a company prior to the tax. The company is now worth more
(because for example the company owns more assets) aſter the tax is introduced.
CAPITAL GAINS CURRENTLY TAXABLE
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