TaxBlog

Phil has some good thoughts as usual on the new investment tax.

The following is what was said in the House according to Hansard:

John Key: Will the Government cave in to any other companies if they too start to take out full-page ads in the newspaper, and in that case, which companies?

Michael Cullen: No. I see suggestions are made that those who set up UK investment trusts should have some kind of transitional exemption. Those trusts are set up deliberately as avoidance mechanisms using the grey list.

Phil goes on to say:

Cullen is wrong, wrong, wrong. Many UK listed investment trusts like Foreign and Colonial have been around for more than a century. They are a bonafide investment structure both in the UK and New Zealand. They are another form of legitimate managed fund but with a number of differences to the traditional NZ-domiciled fund.

It’s a pretty bad move by Cullen to call the UK listed trusts tax dodges. There are many possible reasons why trusts may be resident in the UK. In any case, by using the phrase tax avoidance this automatically paints the trusts in a bad light. If the can legally reduce their tax liability, this isn’t avoidance Dr. Cullen.

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The first winner of survivor Richard Hatch has been sentanced to 51 months in jail for tax evasion.

In addition to the “Survivor” prize, Hatch, 45, of Newport, was convicted of evading taxes on $327,000 he earned as co-host of a Boston radio show and $28,000 in rent on property he owned. The charges carried a maximum of 13 years in prison.

ABC news has some useful and humerous hints for Hatch:

1. Don’t Brag: Hatch is a notorious showman, but his “Survivor” celebrity is likely to irk other prisoners. “There’s a pervasive belief that reality TV isn’t all that real and prisoners are very big on credibility”

2. If a Guard Asks for an Autograph, Give It: Hatch should be clear with officials that he won’t ask for special privileges, but he should also be accommodating. Prison guards are not supposed to ask celebrity inmates for autographs, but they sometimes do. And if that happens, Brogdon recommends that Hatch should just go with the flow.

3. Don’t Tell People Why You’re in Prison: Even in minimum-security prisons, tax evaders don’t get too much respect. “It’s a wimpy crime, low on the food chain in the prison culture, and not likely to make him a star.” “If he tries the double-dealing that worked so well for him on ‘Survivor,’ it’s going to be disastrous …

4. Keep Your Shirt On: Being an avowed nudist made him a standout on “Survivor,” but in prison, nudism is not a lifestyle he’s likely to enjoy.

5. As Soon as You Get Out, Call Mark Burnett: Hatch isn’t necessarily through with reality TV. Mark Burnett — the man who created “Survivor” — also put Martha Stewart in “The Apprentice” when she got out of prison.

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 A good post over at Phils blog on the new investment tax:

It’s becoming clear that the government’s new bill on taxing investments is going to be a shambles and the outcome is likely to, therefore, be a mess.

…there was an acknowledgement that the bill being introduced was incomplete.

This reinforces my view that important tax law was being rushed into Parliament without proper thought and preparation from the politicians.

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Australia is pushing for qualified New Zealanders to make the move across the ditch.

Australian Treasurer Peter Costello waded into New Zealand’s tax debate, saying average wage earners in this country would “pay a lot less tax in Australia” and welcoming more skilled Kiwis over the ditch. “If they can play rugby union they will be doubly welcome,” he told ABC Radio.

The tax debate drags on and on here. With Cullen saying he thinks tax cuts might be an option:

Finance Minister Michael Cullen countered Budget criticism with stronger hints yesterday that he will consider cutting personal tax alongside business tax changes if big revenue forecasts by Inland Revenue prove right.

The higher tax rates here will make many of our young and brightest make the move. There is no real incentive for young people to stay here, student loans being one perhaps, but if the salaries are higher overseas it make still make better financial sense to move.

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Virgin Blue appears to be under the hammer from the ATO after conducting a restructure to maximise the GST benefits. Thanks to Esco for the story.

US-based International Lease Finance Corporation leased Virgin Blue the 11 Boeing planes that made up its first fleet. It charged the nation’s second-biggest airline a fee and, as a foreign company, was able to claim GST refunds from the tax office.

The restructuring proposed by Mr Godfrey was allegedly designed solely to extract extra GST credits by creating a series of transactions to shuffle the ownership of the airliners between different companies.

The ATO claims the deals are not eligible for GST credits because ILFC owned all the companies involved in the transactions, the sales were not conducted at “arm’s length” and had no Australian connection.

The ATO is demanding repayment of $71 million in GST credits and $42 million in penalties, saying ILFC and its agents “took steps to prevent or obstruct” tax office investigators.

Further details have been released that the ATO has accused Virgin Blue executives of destroying documents relating to an elaborate taxation scheme after the airline became the target of an investigation.

This is an interesting situation. Accounting firms have recently become gun shy because of all of the legal action happening in the States. However EY doesn’t seem too concerned and has waded into this one with all guns blazing.

In terms of the legal action by the ATO it’s the usual situation. Tax loophole, company takes advantage of it, ATO allege that the “restructuring” was conducted only for tax purposes. So when it goes to court, whether virgin will come out on top will depend on how well they’ve covered their backs on this one.

There’ll be more to come on this one…

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It was announced that the government will launch another review on business compliance costs. Lianne Dalziel said:

This is a taskforce that has real teeth and will get things done. I will be looking for early results – I want runs on the board.”

Whoopdy-do, another review,” National’s economic development spokeswoman, Katherine Rich, said.

“The past six years have been littered with Labour reviews, strategy papers and ‘blueprints’.”

The government has had the opportunity to make changes in the past, so I fail to see what has changed since then.

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Michael Cullen today announced his ninth budget called by Don Brash the Bondi Budget. Aptly named because more New Zealanders will move to live in Bondi according to Dr. Brash.

Here at tax blog we have extensive coverage of the budget or at least we’ll tell you about other peoples analysis. The key point from the budget was that there were no tax cuts. This is an issue which continues to fester, and give the government headaches. They are in a double bind, ,if they grant tax cuts they will be selling out their core voters, in they don’t they may lose ground in the middle, and middle income earners pay more tax than Australian middle income earners.
NZ Herald

Full text of Cullens speach for those with too much time on their hands

Useful brief coverage for those short of time.

Expert analysis in case you are interested in what the experts think.

Details on the boost in transport spending.

Reaction from the other political parties .

The Public’s view of the budget.

Details of the education policy announced in the budget.

Broadcasting and Creative given more money

Stuff.co.nz

General coverage of the ‘investment budget’.

More general coverage of the budget.

Business responds to budget.

Economists react to budget with yawns.

Science and research given more money in budget.

Tourism given funding boost in budget.

Budget consistent with credit rating – S & P

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The Government has backed down on GPG. This press release was sent out today at 4.30pm:

Investors in widely held foreign companies that have a substantial New Zealand shareholder base, such as Guinness Peat Group, will be granted a five-year holiday from the proposed rules for taxing offshore share investment, the Minister of Revenue announced today.  It will be limited to investment in companies that meet certain criteria. The change will be made by means of Supplementary Order Paper to the taxation bill introduced today.

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I’m going to trial giving some brief tax stories. Let me know your feedback on whether you like it.

Some members of the community are calling for the carbon tax to be re-introduced.

The ATO is in heated negotiations regarding whether their IT supplier can offshore the production of their system. This may result in a loss of privacy of Australians tax data.

The IRD has brought up an expensive system to manage the new Kiwisaver retirement package, before the legislation has even been passed by parliament.

More calls for tax cuts in NZ.

The IRD have closed a pub in Gisbone called Sootys.

Lastly, Te Puke 29-year-old man, Balwinder Singh has been jailed for tax evasion. From reading the article it seems as though there is still some tax evasion mastermind at large. The judge commented that there was no way that Mr. Singh had the requisite knowledge of the NZ tax system to come up with the scheme.

And for those of you asking where GPG’s website setup for their shareholders on the new investment tax is. It is www.gpg.co.nz

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Here’s one the general public probably doesn’t know about.

New Zealand is a tax haven.

What – you are thinking, after all this stuff about us being over taxed, how can NZ be a tax haven? The answer is in our world unique trust regime. You see NZ is the only country in the world where trusts are taxed based on the setlor’s residency. Other countries determine trust residency based on trustee residency. Therefore it is possible (and if structured well) likley that a trust may not be a tax resident anywhere (thus paying no tax).

This is the case in this article.

Diep le Shaker, the prominent Dublin restaurant whose building is at the centre of a High Court action between a woman and her son, is owned by a discretionary trust in New Zealand that has no tax obligations.

A New Zealand company called Sokel owns 80 per cent of the restaurant through a complex legal structure. Sokel is controlled by a Dublin-based businessman called Matthew Farrell, who leases the premises from the ffrench-O’Carrolls.

Court documents seen by The Sunday Business Post show that Sokel is a discretionary trust and is not obliged to pay tax on its dividends. Sokel owns a company called Killardport, which in turns owns Diep le Shaker and another Dublin restaurant, the Buddha Bar.

When asked why the company’s profits were routed through New Zealand, Farrell said last week that he had ‘‘absolutely no comment to make’’.

News to some. Unfortunately New Zealanders can’t take advantage of this regime because if the setlor of a trust is a NZ resident then the trust is taxed in NZ.

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