Forum Archive Index - February 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Derek,
 
>
>
>You seem to have a good grasp of the proposed tax, 
>can you please give comment on the following questions. 
>
>

I've only read Cullen's comments on Friday and referred back to the 
tax committee review report, in particular the bits he said he 
approves of.   So I'm working on logic, not inside information.


>
>
>Does the Risk Free Return Method formula apply in
>addition or instead of capital gains tax?
>
>

By capital gains I presume you mean shares bought and sold in share 
trading?   This is a tough call to estimate considering the law is 
not yet drafted.   It is possible that at the start of the year you 
will be declared to own a certain dollar pool of 'capital stock' 
(being the total value of trading shares you have held at any one 
time in the last year) that you will use for trading.   

Let's say it is $100,000 in your case.   The 'deemed rate of return' 
would be 5% (say, as determined by the government) and if your tax 
rate was 36% you would be required to pay 0.36 x 0.05 x $100,000 = 
$1800 at the end of the year.   This amount would be due no matter 
what your trading results were for the year.   Would they tax you on 
capital gains from your share trading as well?   My guess is no, but 
you would also lose the deductability of losing trades if this was 
the case.  Nevertheless if you were unlucky enough to lose all of 
your $100,000 you would still owe $1800 tax.  If you were a 'good' 
trader you might actually be better off under this scheme, but only 
if they decided to stop taxing your capital profits.

>
>
>One solution may be to move to Australia or 
>the UK (if I got really desperate) do you know if 
>either of these countries have a similar tax?
>
>

No, neither of these countries has a 'wealth tax' as proposed by 
Cullen.   But both have capital gains taxes (for share investors, 
not just traders as is the case here), and certainly at least the UK 
still has death duties, albeit with a rather high threshold in $NZ 
terms (around 250,000 pounds).

>
>
>Would trading as a company rather than an individual 
>allow me to get around this tax?
>

I am sure it could be arranged.   Set up a new private company 
offshore (try Bermuda, it worked for Brierley's) so that it holds all 
your shares.   Although the shares it holds are listed, the new 
company itself isn't.  Because you hold shares in this offshore 
company that isn't listed, you will therefore escape the wealth tax.  

Easy isn't it?   I am sure that the big boys will be setting up such 
companies as we speak and it will only be the Mum and Dad investors 
that will be caught in the wealth tax web in the future. 

SNOOPY 



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