The government’s Discussion Document on the tax treatment of “collective investment vehicles”
The government released its Discussion Document on the “treatment of collective investment vehicles and offshore
portfolio investments in shares” in June 2005.
ASFONZ has released its first submission today. In that submission, it agrees that the tax treatment of “collective
investment vehicles” (“CIVs”) needs to change. What we have now, according to ASFONZ, is both illogical and unfair. The
Discussion Document requested comments on a number of issues of detail concerning the government’s recently announced
policy.
ASFONZ councillor Jill Spooner, said that ASFONZ decided to take a two-stage approach to its submissions on the
Discussion Document:
- a paper released today[1] addresses issues of principle;
- a follow-up paper will address specific issues raised in the Discussion Document.
Jill Spooner said that ASFONZ expresses considerable concern at the practical implications of the principles on which
the Discussion Document is founded. It strongly urges the government to re-visit the basis on which CIVs and their
members should be taxed.
ASFONZ suggests in its initial submission that a “first principles” approach has not been taken to date. It says that
the changes will inevitably produce unintended consequences. According to ASFONZ, they will also introduce an
unnecessary layer of complexity that will at the same time raise costs, lower understanding and increase inequity.
According to ASFONZ, the proposals change the meaning of “income” in several ways, so it says that complexity will
inevitably increase as providers test the boundaries. “We must expect that to happen”, said Jill Spooner. “That’s not a
criticism – providers will not be doing their jobs unless they test those limits for competitive advantage.”
ASFONZ strongly believes that there is an alternative to the Discussion Document’s framework for a logical and fair
basis for the tax treatment of both CIVs and their members/investors. In its initial submission, ASFONZ suggests a broad
framework that should be used instead. That framework does not require the creation of the artificial definitions of
income that the Discussion Document suggests but instead recognises the true nature of the transactions involved. ASFONZ
suggests that both the current and any proposed regimes should be tested against the standard it describes.
The framework does not involve tax concessions for superannuation schemes or other CIVs. Instead, the objective is to
tax savers’ CIV income on approximately the basis that would apply if the saver earned the income directly.
ASFONZ thinks that the national debate on a tax regime for CIVs needs to include an option that offers a “pure” attempt
to flow income from the CIV to investor/members. That would mean members’ being taxed on the basis that they had earned
the income directly. ASFONZ says that its submission offers a practical foundation that will see the “income” of
investor/members calculated in ways that will be familiar to taxpayers. It suggests that the Discussion Document
recommends a regime that moves away from natural concepts of “income”.
ASFONZ councillor Jill Spooner said that “ASFONZ urges the government to restart the process of developing a robust and
workable framework for the tax treatment of CIVs and their members.” She said “Even now, it is not too late to start
again. Surely it is better to get it right.”
[1] Part 1 of our submission on the discussion document concerning collective investment vehicles - Issues of principle
About ASFONZ
ASFONZ is "the Voice of Workplace Super" in New Zealand. It is a voluntary, not-for-profit organisation made up of major
workplace superannuation schemes as well as their professional advisers and service providers.
We are widely representative of workplace schemes, with a membership that embraces all types of superannuation– public
and corporate, union-sponsored and industry-based - as well as individuals interested in superannuation issues.