Announcements
PUBLISHED 16 December 2003

Taxing offshore portfolio equity investments

An issues paper released today canvasses two options for changing the way non-controlled offshore investments in equity are taxed. One is to use a version of the risk-free rate of return method recommended by the Tax Review in 2001, which would tax expected income. The other option is to use a series of methods to tax income after it has been earned. For more information see the government's media statement and the issues paper, "Taxation of non-controlled offshore investment in equity".


Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENT

Tax options for offshore portfolio equity investments

Revenue Minister Michael Cullen today welcomed the publication of an officials' issues paper that canvasses options for changing the taxation of non-controlled offshore investment in equity by New Zealanders.

"Offshore shares are now a much more common investment choice than when the rules for taxing income from these investments were developed in the 1980s and early 1990s," Dr Cullen said.

"The main weakness of the present rules is that they tax similar offshore investments differently, depending on the country that is invested into. This creates distortions in how and where New Zealanders invest.

"The rules also create problems of tax base maintenance. This occurs, for example, when New Zealanders invest in Australian unit trusts that in turn invest in instruments like New Zealand government stock, achieving virtually tax-free returns.

"The issues paper presents two different taxation options for dealing with these and other problems. One is a version of the risk-free rate of return method recommended by the Tax Review 2001. The other option provides a choice of income calculation methods for non-controlled offshore investments, such as taxing a proportion of the change in share value and distributions.

"The paper also includes an account of work carried out by representatives of the New Zealand savings industry and officials on exploring the possibility of applying the risk-free rate of return method to domestic investment vehicles. The government is very interested in seeing this work continue.

"I hope the tax community and other interested members of the public will take the opportunity to express their views on the options outlined in the paper," Dr Cullen said.

The issues paper, "Taxation of non-controlled offshore investment in equity", is available at www.taxpolicy.ird.govt.nz and www.treasury.govt.nz.

Contact: Patricia Herbert [press secretary] 04-471-9412 or 021-270-9013. E-mail [email protected]
Technical inquiries to Helen Mackenzie [tax advisor, Dr Cullen's office] 471-9728