Newspaper article: Accountants expect capital gains tax bonanza

Source: Business Day

Tax experts are licking their lips at a boom in possible work to help navigate clients from being the haves to the “have yachts”.

Labour’s initial proposal for a capital gains tax came with a promise that a panel of experts would iron out any teething problems, but the accountancy industry wasted little time in pointing out what it believed to be obvious initial holes.

From exemptions on business sales when close to retirement, plus antiques, stamp collections and yachts, the complexity of the initial proposal would result in a vast annual project to calculate the capital value of assets, experts warned.

Grant Thornton Wellington chairman Peter Sherwin said the initial proposals were “back to the future” with the now simple income tax system and “pure” GST set to be replaced by complex schemes. “From a purely selfish point of view, this is very, very good news,” he said. “They say it is going to be a game changer; well, it’s certainly going to be a game changer for the accounting and legal industry in terms of where the opportunities to navigate through the exemptions.”

John Shewan, PricewaterhouseCoopers chairman, said aside from the exemptions, the issue of annual valuations of assets on “CGT day” also existed. “That is an enormous task and remember, valuation is an art, not a science.”

Shewan, who joked that the plan could triple PWC’s staff numbers, said because the proposed 15 per cent CGT rate was much lower than company tax, a huge body of work would occur to differentiate capital gains from other types of profits.

“I’m simply not persuaded by the suggestions in this package that it’s a simple tax. It’s far from simple.”

Deloitte’s Patrick McCalman said aside from accountants seeking loopholes, considerable uncertainty existed about how a new tax would alter consumer behaviour.

While Labour knew what it was giving away through cuts to GST and income tax, no-one knew how CGT would affect human behaviour, and therefore how much revenue it would gain.

“CGT is new to New Zealand, so we don’t know what kind of behaviours it is going to drive, and if the CGT doesn’t deliver what’s being spent elsewhere, the big question is, how do you balance the books?”

Economists, meanwhile, stuck up for the plan. Westpac chief economist Dominick Stephens predicted a CGT would cause lower house prices, especially at the lower end of the market, and higher rents, which would inevitably lead to higher rates of home ownership.

He played down the significance of the additional work for professional advisers. “What is the difference between paying an accountant to avoid CGT and paying a real estate agent to buy an investment property?

“They’re both just activities designed to avoid tax.”