The other Boleyn girl

Since coming back from hols your correspondent has been struggling with an annoying cold. That bad side is that my yoga practice has suffered. Good side is that I have had greater opportunity to sample the ever expanding Netflix menu.

So for comedy I can recommend Santa Clarita Diet, Huge in France and Derry Girls. For documentaries I can recommend Bobby Sands 66 Days, Black Panthers and Period. End of sentence. Oh and Knock Down The House of course. Obvi.

Now for reasons that are beyond me – although constant checking for the next season of The Crown may have had a minor effect – Netflix is recommending The Other Boleyn Girl to me. A book I read many years ago while stuck in an airport but not one I want to watch immediately after a documentary on IRA hunger strikers.

AI still has a way to go.

Anyway the story is that there was apparently an older Boleyn sister that Henry was keen on before he was keen on Anne. And she was probably better coz she loved him much more but is now like super obscure – or possibly completely fictional – and so like it all could have been so different.

Now in CGT land there is also another Boleyn girl. Leading up to the finalisation of the report one of the members – Robin Oliver – put together a sketch of an alternative way of taxing more capital gains.

It has the pithy title of Robin Oliver: Taxing Share Gains but not Gains Made by Companies: Member Note for Session 24 of the Tax Working Group. It also got the slightly more pithy title in the media of CGT Light.

And yes I know there won’t be anymore taxation of capital gains but acceptance is a process and, as a relational being , I am (over) sharing.

So off we go!

Now I am sure you all know dear readers the final design was one of:

  • Gains taxed from valuation day
  • Loss ringfencing in ‘transition’ period but limited constraints thereafter
  • Applying to most – currently untaxed – assets
  • Limited rollover relief when buying other assets
  • No change to existing rules for debt or foreign shares

And the associated issues with this were:

  • Difficulties with valuing hard to value assets like goodwill particularly when only part of a business is sold off
  • Revenue risk in downturns
  • Incentivising ownership of foreign shares over New Zealand shares
  • Lock in
  • Complex rules to prevent double deductions within corporate groups
  • Troy Bowker getting upset a lot.

Now there were possible ways of reducing all those issues – except maybe the last one. But Robin had a go at looking at it all a bit differently while still ultimately taxing more capital gains on a realised basis.

In particular he suggested:

  • Taxation of gains on residential property – valuation method as per final report
  • Possible taxation of other land but with extensive rollover provisions
  • Inclusion of depreciable property – although in practice this just means losses and/or depreciation would return for buildings that fall in value with gains taxed if rise in value. Maybe software would also be affected but most depreciable assets already get deductions for their decline in value.

So far not that much different to the final report. However there were four key differences:

  • No increased taxation of capital gains – other than above – at company level
  • Shareholder of listed companies taxed on gains on sale from a valuation day
  • Shareholder of unlisted widely held companies taxed on gains on sale. Existing holdings grandparented
  • Shareholder of closely held company taxed on gains on assets sold by company. Existing goodwill of companies grandparented.

In some ways this option was lighter than that of the final report:

  • Existing holdings of widely held unlisted companies would be outside the tax but they would also be outside the complexities of valuation, the median rule and loss ringfencing.
  • Existing goodwill of closely held companies would also be outside the tax but also outside the complexities of valuation, and the median rule.

Now while the grandparenting thing seems like a big gift, it would have been less than Australia did coz they grandparented – didn’t apply the tax to – all existing assets and now 30 years later Australia collect lots of money (1). And yeah it would have been less money to play with in the immediate period but a whole lot more money than is the case now.

The non-taxation of assets in widely held companies would give a timing advantage to shareholders as tax wouldn’t be paid until the shareholders sold their shares. But it would mean that such groups wouldn’t have the compliance cost of the double deduction rules. And the Government wouldn’t have the risk that those rules didn’t actually work all that well and lose lots of money in the process. Coz it’s not like that has never happened before.

But in other ways Robin’s option was actually tougher. Shareholders of closely held companies would be paying tax on any capital gain earned by the company – at their marginal tax rate. So if that was 33% they would pay tax at 33% not the company rate of 28%.

Robin prepared all this as a possible option for Ministers and the Working Group made it very clear that the choices were not binary and the hard stuff was in the active business area. So it could have been worked up by officials as an option in any discussion document – even if they weren’t wild about it at the time. (3)

The Government might even have grandparented all existing assets as Australia did and take away all the noise. And yeah it would take a while to build up but after 10 years or so (4) – serious money.

But it was not to be. And in the end all possibilities went the way of the real Boleyn girls.

Thanks for listening.


(1) Page 28

(2) Paragraphs 11-13

(3) Robin’s response to officials comments

(4) Figure 3.10

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