Concessions by the Tax Working Group for relief on capital gains taxes mean transferring a property after the death of an owner or the sale of one farm and purchase of another within 12 months will not be treated as capital gains transactions, Mason, Crowe Horwarth managing partner, says.
“This is a major concession.”
The definition who a related farm transfer can be made to on the death of an owner, however, needs clarification.
“For example, initial recommendations are limited to spouses (and) de facto recipients, which would not appear to allow for rollover relief where the couple have held assets in trusts or companies.”
Working group chairman Sir Michael Cullen says its recommendations are designed to create a fair and balanced tax structure and address the inconsistent treatment of capital gains.
“New Zealanders earning just salary and wages are taxed on their full income but we have several situations where you can earn income from gains on assets and not be taxed at all.”
The group believes the increased compliance and efficiency cost is worthwhile if it reduces the bias towards certain types of investments and improves fairness.
National Party agriculture spokesman Nathan Guy says the extra costs imposed will send already low farmer confidence even lower.
Landcorp’s submission to the working group advocating water and fertiliser taxes and not opposing a capital gains tax, delivered what the group wanted, he said.
“And that is now littered throughout the report.”
Farming groups are united in their condemnation of the recommendations.
Irrigation NZ chairwoman Nicky Hyslop says a general water tax will heighten the price of food and electricity and lead to inequities such as higher rates to pay for watering parks and reserves.
A Christchurch resident uses 146,700 litres of water a year, double the national average, while Central Otago farmers and growers receive half the rainfall Auckland doles, meaning a greater reliance on irrigation.
“Only 7% of farmers use irrigation nationwide. Why are those farmers being targeted to pay a tax which 93% of farmers won’t pay when there are many regions which have very poor waterways but little use of irrigation?”
Federated Farmers commerce spokesman Andrew Hoggard says the fact three members of the working group believe a capital gains tax should apply only to residential rental properties is telling.
He described a proposed valuation day value assets for the capital gains tax as a feeding frenzy for valuers and tax advisers.
Hoggard welcomed the roll-over relief when a farm is sold to a successor and that money spent on land gifted to the QEII Trust and Nga Whenua will be tax deductible.
Mason agrees establishing a valuation day might involve significant compliance costs such as valuing a house and up to 4500 square metres exempt from a capital gains tax on the sale of a farm.
And there is little detail from the group on the issue of taxing trusts.
Another welcomed concession means a 28c tax rate on the first $500,000 of capital gain following the sale of a small business, which mirrors the treatment of Kiwi Saver.
On environmental taxes, Mason says while light on detail it singles out the Emissions Trading Scheme and Waste Disposal Levy as needing a rework.
“There was mention of taxing fertiliser to reduce usage. The logic seems consistent at first but the impact on business will be somewhat dependent on whether they are price takers or price makers.
“Interestingly, the Minister of the Environment has already professed a view that tax is not the best mechanism to effect such change.”
Discussion about taxing water rights is likely to be delayed until ownership disputes with Maori are settled.
Prime Minister Jacinda Ardern says any new taxes will be implemented from 2021.
Mason says with the Government promising to respond to the group’s report in April little time is left to formulate policy.
Heading Tax at a glance
How tax plans affect farmers:
A broadened capital gains tax
An agricutural emissions charge
A nitrogen tax
An expanded waste disposal tax
A water extraction tax
A water pollution tax
A fertiliser tax
