Before reading this, read the box to the top right of this blog. And then note that I accept that Labour made it worse. And I was Associate Minister of Finance. Then take a deep breath and read on.
For most Kiwis, the imputation system means that the tax their companies (or the companies they own shares in) pay is part and advance payment of their personal tax. It is a matter of timing but unless they are involved in avoidance or rorts they end up paying a bit more at some stage.
Most countries don’t have imputation systems. Companies pay tax and then individuals pay tax on the dividends from the companies. They don’t get a credit for what the company has paid.
However, for overseas owners of NZ companies, the company tax rate is their final tax. And even then there is real doubt in some cases, for example banks, as to whether they properly declare their profits.
So my fairly simple proposition is; that because their final tax on NZ assets is less than a NZ owner of the same assets, and their net return is higher, they can afford to pay more than Kiwi-owned companies for a specific asset piece of land or whatever and get the same return.
What is the answer? Eliminate the margin between company and top personal rates. You can do this one of three ways:
First, reduce top tax rates down to meet company rates. Second, increase company tax to the top personal rate. Or third (my preference) be fiscally neutral about it and get them to meet at about 36c and while you are at it put the trust rate at that level too.
That means Kiwis can foot it on equal terms buying our assets – it also means we have a tax effect neutral system for choosing the form a business takes – and that is a good thing.