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New Zealand’s general election: key corporate tax issues

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Greg Neill and Young-chan Jung of Russell McVeagh preview some of the corporate tax issues to be intensely debated during New Zealand’s upcoming general election, including those regarding commercial real estate, GST and foreign investment.

New Zealand's general election will be held on October 14 2023. As is often the case, tax matters have been a key topic of discussion in the lead up to the election. Notwithstanding the robust debate, the prospect of the election giving rise to any new taxes, or material changes to New Zealand's existing taxes, remains remote.

Major political parties

New Zealand has a mixed member proportional electoral system, under which one of the two major parties (the centre-left Labour Party and the centre-right National Party) typically require the support of one or more minor parties to secure a majority and form government.

The Labour Party has been in government for the last two terms since 2017 and gained sufficient votes to govern alone in the last election, but appears to be struggling in current polling. The early polling suggests that the National Party may be able to govern with the support of ACT, historically a minor party being right-wing liberal.

Commercial real estate investment

In a disappointing move for the commercial real estate sector, both the National Party and Labour Party have indicated an intention to remove tax deductibility of depreciation on commercial buildings.

Tax depreciation on commercial buildings was previously disallowed but reinstated in 2020 as part of the Government's COVID-19 response, with no indication that such reinstatement was a temporary measure. The current proposal to again remove those deductions risks increased uncertainty for commercial property owners and the flow of investment funds in this sector. In both cases the removal of tax depreciation has seemingly been proposed to fund other tax measures.

Foreign investment

In relation to foreign investment in New Zealand "build-to-rent" developments, the National Party has indicated that the rules under the Overseas Investment Act 2005 should be relaxed. Essentially, this will streamline the consent process if certain other criteria are satisfied with a view to accessing increased international capital. It is understood the Labour party may similarly be considering this approach.

The National Party has also announced changes to the rules regarding foreign buyers of residential property. Broadly, the proposal would keep the current foreign buyer ban for residential property worth less than NZ$2 million, but allow foreign buyers to purchase residential property over NZ$2 million subject to a 15% foreign buyer tax.

Corporate tax rate

Neither of the two major parties has proposed a change in the New Zealand company tax rate of 28%. Certain minor parties have proposed an increase to 33%.

Trustee tax rate

Income earned by the trustee(s) of a trust is currently taxed at 33%. It is proposed that this will be increased to 39% in 2024 to align the tax rate with New Zealand's highest marginal tax rate for individuals. Neither of the two major parties have proposed a departure from this position.

It is expected that specific exemptions from the 39% rate may be introduced for certain categories of commercial trusts that have not been established to utilise a lower tax rate, including trusts for employee share schemes and securitisation trusts.

Capital gains tax and wealth taxes

New Zealand does not currently have a comprehensive capital gains tax, although certain gains that would conventionally be regarded as "capital" may be subject to tax.

Somewhat surprisingly, the Labour Party has ruled out introducing a wealth tax or capital gains tax if re-elected. However, this has generally been regarded as a strategic political move to attract the centre vote. The ruling out of a wealth tax is of some note given that Labour's historic coalition partner, the Green Party, supports the introduction of a wealth tax.

Neither the National Party nor ACT have proposed a wealth tax or capital gains tax.

New GST exemption

The Labour Party's main tax policy announcement so far is the proposal to exempt the supply of unprocessed fruit and vegetables from goods and services tax (GST). This proposal has drawn significant criticism, with commentators noting that such an exemption is not consistent with New Zealand's broad-base low-rate GST system and will create administrative burdens and boundary issues.

The National Party has not proposed any similar exemptions from GST.

Digital services tax

While not formally announced as part of its election campaign, the Government has announced a 3% unilateral digital services tax (DST) that would have effect from January 1 2025. This announcement was made despite New Zealand's commitment to a multilateral solution determined by the OECD. The introduction of the DST also prompted criticism from some given it occurred on the last day of the current Parliament before the election.

The DST raises several policy issues, including the risk of contravening New Zealand's international law obligations and retaliatory trade measures (for example, as threatened by the US against certain European jurisdictions in response to a proposed digital services tax). It has been stated that the DST would be introduced only if a multilateral solution cannot be found.

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