TAX 6 Report: Evaluation of Property Sales Taxation Rules

This report examines the taxation of property sales in New Zealand, focusing on sections CB 3, 4, and 5 of the Income Tax Act 2007, particularly concerning the sale of equity shares in resident companies. It critically evaluates these rules, potentially using Adam Smith's principles of equity, certainty, convenience, and efficiency. Furthermore, the report analyzes the proposals from the Tax Working Group's 2019 final report, assessing their potential to address the existing weaknesses in the current taxation system, specifically concerning investments in equity shares by individuals. The analysis covers the impact of these proposals on the existing tax framework and the potential benefits and drawbacks of the suggested changes, providing a comprehensive overview of the current and proposed taxation landscape in New Zealand.

Running head: TAX 1
Taxation
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Part A
In New Zealand, a company is said to be a resident for the country at the point that it is
‘incorporated’ under the law of New Zealand. Also, those companies that get their incorporation
from outside the country are said to be residents for New Zealand in case their management is
done in the country (Oslen, 2019).
According to section CB3 of the Income tax Act of 2007, making profits in a given
scheme or any other activity, the income that is earned by an individual who carries on his own
activities for the purpose of gaining profits is termed as a ‘personal income’. In New Zealand,
resident companies pay their taxes basing on the worldwide income they obtain (Mueller, 2016).
The tax rate charged to these companies is constant and it is at 28 percent. Basing on Adam
Smith’s principle of equity, a company or an individual should pay tax proportion to their
income or profits gained but for the case of New Zealand, all resident companies are equally
charged and this is in contradiction with this canon (Mueller, 2016).
Also, rule CB4 of the act states that for any personal asset gained due to disposal, revenue
is gained by an individual because of selling off his personal property is entitled to him given he
acquired the asset with the aim of disposing it off. The buying of assets is brought up by the
‘base cost’ of those assets that are being sold at the price they were purchased for the purpose of
tax depreciation (Oslen, 2019). This may bring about a rise in the assets’ cost base. However, for
any addition assets, the seller is likely to be paying more tax. In New Zealand, the past tax
liabilities are meant to remain with the company and are not to be shifted together with assets.
This is because the buyer may legally succeed practices that are faulty or even compliance

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processes. In this case, the buyer may have interest in making taxes due with an intention of
identifying and solving such risks and weaknesses (Oslen, 2019).
In addition, CB5 of the income tax Act states that the revenue that an individual earns
from ‘disposing off’ the individual property income in case the entire business is to sale in that
very type of property. In New Zealand, there is a tax known as the ‘value added tax’ which can
also be termed as ‘Goods and Services tax’ (Oslen, 2019). Now, the rate is at 15 percent and this
should be attached to all the sellers of products and services under the companies that are
registered with Goods and Services Tax. The sale of main business products to the buyer by any
registered company goes hand in hand with supplying of goods for the purpose of Goods and
Services Tax minus the presence of any rule and the goods are charged at the standard rate.
However, the business is rated with zero by the supplier in case it is a ‘going concern’ (Lamensch,
2012).
Part B
The tax working group provided several measures to protect the a steady fast adherence
of the tax system through improving the administration responsible for taxes that is thought to be
established minus considering increase in the amount of tax on additional income received from
capital gains. This could be done through the following; strengthening the enforcement of
resident companies since there seems to be problems with the calculation issue within the affairs
of taxation. Also, the fall of Revenues on the ‘hidden economy’ may be enforced through
creating strict requirements of reporting.
In addition, the group emphasized on the establishment of a single agency for the
government that is responsible for collecting debts. This could increase on New Zealand’s

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economies of scale and better outcomes for citizens who lend money to their government (Alessi
et al, 2012). Even an advocacy for every taxpayer should be in place with an intention of helping
solve disputes that exist among small taxpayers and revenue authorities (Press releases, 2019).
The tax-working group in New Zealand encouraged conducting of frequent reviews on
‘charitable sector’. This will help the tax collectors to ensure enjoyment of tax concessions
within the businesses the follow are forwarded to their social benefits (Jarczok-Guzy, 2017).
Furthermore, the group encouraged boosting saving. In their explanations, the group
created several measures to boost savings, especially for the low and middle-income earners
(Press releases, 2019). Some of these measures were paying back the “employer Superannuation
Contribution Tax (ESCT) for members of Kiwi Saver who earn lower than $ 48,000 annually
and also reducing the tax rates for Kiwi Saver lower and middle income savers. This implies that
the respective group will have to reduce on their total tax on their account of Kiwi Saver even
though the revenue got from capital gains of their the accounts is subjected to taxation (Press
releases, 2019).
As it is outlined in section CB3 of the income tax Act, the group also introduced the issue
of reducing personal income tax through researching on various forms of reducing personal
income tax. Its better when the New Zealanders are paid more revenue at the tax that is quite low
probably at 10.5 %. This would help solve the problem of income inequality, many full-time
workers benefit in the process and those who are new entrants are supported too (Press releases,
2019).
Also, the tax working group supports the new approach for the taxation in businesses and
it explains that there is no need to cut down taxes or even adopt a progressive tax system.

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However, the group provides measures that may lead to the growth of the business, increase on
their production rate and reducing the costs spent in line with the rules of taxes. The report by the
tax-working group focuses strongly on environment and at a later stage the recommend the
proper use of taxes to weaken the activities that negatively affect the business (Press releases,
2019). The group came up with a framework on which they based on to decide the period when
taxes are best to be applied.

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References
Alessi, A., de Goede, J. & Wijnen, W. (2012). The Treatment of Services in Tax Treaties. Bulletin for
International Taxation. Vol. 66, No. 1.
Jarczok-Guzy, M. (2017). The Principles of Tax law Equality in the context of direct taxation. Journal
of Economics and Management. Vol. 30 (4), pp 12-19
Lamensch, M. (2012). Are ‘reverse charging’ and the ‘one shop scheme’ efficient ways to collect VAT
on digital supplies?. World Journal of VAT Law, Vol 1, Isssue 1
Mueller, P., (2016).Adam Smith on Public Policy: Four Maxims of Taxation. Retrieved from:
https://www.libertarianism.org/columns/adam-smith-public-policy-four-maxims-taxation
Oslen, D., (2019).Calculating taxable gains on share trading in New Zealand. Retrieved from:
https://www.sharesight.com/blog/calculating-taxable-gains-on-share-trading-in-new-zealand/
Press releases. (2019). Tax Working Group delivers Final Report. Retrieved from:
https://taxworkinggroup.govt.nz/resources/tax-working-group-delivers-final-report