Cullen responds on CGT

Michael Cullen has responded to criticism that the proposed rules on capital gains tax will require every small business to have a valuation done on the same date.

Well, of course it will… if CGT is introduced with effect from 1 April 2021, then you need a valuation for your business that is current and accurate as of that day. Otherwise, you may be disadvantaging yourself… or you may be overstating your business value, and that is not an ideal situation either.

But, as you might expect, Michael Cullen knows best. And once again, I ask the question. Would you buy a used car from Michael Cullen?

Stuff ?reports. quote.

On Thursday,?Wellington businessman Troy Bowker wrote in an opinion piece for?Stuff, that the preferred approach for a capital gains tax outlined by the TWG would lead to billions in compliance costs for small business, which would need to valued by a given date.

“[A]?valuation day approach does mean there is a need to value all assets that are to be subject to the new rules as at a given day. This will impose a significant cost on many taxpayers for certain asset types,” the report states.

But Cullen issued a statement dismissing the story. He said there was?”no proposal under consideration that would require every New Zealand business to obtain a professional valuation all on the same day”. end quote.

Sorry, but yes, there is. If the valuation is not accurate at the date of the introduction of the tax, someone is being disadvantaged. If that someone is IRD, they have redress and unlimited funds. If that someone is the business owner, then they are screwed. quote.

“We’re not exactly daft on this group. We’re not going require everyone to get a valuation on the same day,” Cullen said.

“We’re spending quite a considerable amount of time looking at ways in which we can minimise the cost and increase the ease of doing that [obtaining a valuation]… And will allow, also, a considerable amount of time before it’s required for you to have a valuation…Some years, not days or weeks,” Cullen said. end quote.

Sorry, Sir Michael, but if I still had a business, I would make sure it was valued on the day… or as close to it as possible. Otherwise, it is always up for dispute. Don’t kid yourself. quote.

The tax working group’s interim report said that some assets such as property, could be easily valued by using rateable value, but valuing the good will of a business – typically a major part of a small business’ value -?was much more complex and costly to assess. end quote.

Oh no. What a crock. We all know that rateable values are all over the place. Always. No one should rely on this. It will not be equitable. quote.

Cullen, however, dismissed the difficulty, saying that the valuation of good will was always an estimate and the proposal would be to accept “reasonably fair” valuations.

“Obviously, good will is always a rough and ready estimate, at any point in time, in any case,” he said.

“What we’re effectively saying in the report is, provided the valuation is reasonably fair, it doesn’t matter too much at that point of entry into the system. From the long term revenue perspective, whether it’s entirely accurate, as long as it’s reasonably fair, it doesn’t matter that much.” end quote.

Let us not pretend that Sir Michael does not understand how the system works. Yes, he makes himself sound like everyone’s much loved grandfather, but he is not. And hey, guys. IRD is not cute and cuddly either.

It will matter that much. quote.

“If it means if there is a bit of overvaluation, because people?have an interest in things being overvalued at the start date, there’s no point in chasing the last dollar of value of capital gain, when the important thing is to get the system underway, and to make sure you’ve got a valuation which is not wildly inaccurate.” end quote.

I don’t believe Sir Michael, and no one else should either. IRD will chase ‘the last dollar’, because that is what they do. And they have the means to do it.

Let us not fall into the trap of believing Sir Michael’s platitudes.? A lot of business owners will find themselves in a dispute with IRD. Sir Michael knows this too. quote.

Bowker said Cullen’s comments were “astonishing”.

“I’ve never seen a tax system in an OECD country where the IRD accept taxpayers word without requiring a full independent valuation. Is he saying taxpayers don’t require a valuation and can pick a figure out of the air?

“If that actually becomes law as he has described, then I will be astonished.?I bet it won’t.?It’s Cullen playing politics to get his prize of passing CGT into law.” end quote.

Yes, and we won’t see it here either. Michael Cullen is playing games. And business and property owners will be the ones to pay the price. That is for sure.