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At stake is billions of dollars a year in new tax-take for every successive government.
In what should be an initial relief for taxpayers, the majority of proposed changes happen when the asset is sold, meaning they do not have to find annual payments as their rental property, business, crib, farm or land appreciates in value.
The proposed capital gains taxes (CGT) under the Labour coalition Government would require taxes be paid on domestic shares when eventually sold, but there are concerns that might prompt savvy investors to headk offshore with their cash.
The Working Tax Group, headed up by Sir Michael Cullen, released its long-awaited recommendations yesterday.
While sweeping, complex and contentious, the working group was essentially looking to reduce overinvestment in housing, while increasing tax "fairness", between those on lower incomes and those in the higher tax brackets.
Dunedin tax specialists from Crowe Horwath and Deloitte see several points of "unfairness", with myriad ramifications for several sectors.
While CGT excludes the family home and land, it encompasses rental properties and land, businesses, plus "intangibles", such as intellectual property and a businesses goodwill.
CGT would not be retrospective and asset owners would have five years from "valuation day" on April 1, 2021, to determine a value; unless sold earlier.
Crowe Horwath tax specialist Scott Mason, who attended the "lock-in" of the report release in Wellington yesterday, said afterwards the working group's mandate was carefully limited to exclude certain aspects, inheritance tax and a CGT on the main home.
"We move from only those in the business of selling these types of assets, or speculators, being caught, to all taxpayers being caught," he said.
He was most concerned with the application of CGT to farms, and also CGT applied to income from shares.
For farms, the recommendation is a spouse only can inherit the farm without CGT, but will attract the tax if they sell in the future.
Mr Mason said the working group had left it to the Government to allow inheritance to include children and grandchildren in the future because it "did not know where to draw the line".
Deloitte partner and tax specialist Peter Truman in Dunedin said for a government looking for tax "fairness", several aspects appeared unfair.
On farm inheritance, Mr Truman said if the owner gifted it before death, it would attract CGT, but most would therefore switch to putting that gift into their will.
"This all flies in the face of regular succession planning ... and it's going to add to compliance costs," he said in an interview.
He noted that from a country without a CGT, New Zealand would now leap to having one of the highest rates in the 34-member Organisation for Economic Co-operation and Development (OECD) - at 33% for most.
Mr Mason said it was a "major concession" that small businesses, with turnover below $5million, would not attract CGT if they reinvested in a similar business within a year.
Business reorganisations and small business reinvestment would also have CGT deferred, until the business was sold.
Mr Truman, who in 30 years had not seen such sweeping proposals, noted the effect they could have on business decisions.
If a tradesman and spouse owned a $500,000 home and also a $500,000 commercial building for the business, they would attract CGT on sale of the building, but not the family home.
"Why wouldn't they just buy a $1million home instead and lease premises," he said.
On CGT on foreign shares and, eventually, domestic shares, both Mr Mason and Mr Truman were concerned a capital exodus from New Zealand could be sparked.
Mr Mason said income from foreign shares would still attract the existing "accruals" where gains are taxed on an annual basis, but domestic shares would attract CGT when sold.
The "key aspect of note" was that the net income derived is taxed at the taxpayers' marginal tax rate, up to 33%, as opposed to a lower, special CGT rate, like 15%.
There would be a tax deduction allowed for the costs, of the asset being sold.
"There are two main drivers here; perceived fairness of the current tax system in terms of the divide between low and upper wealth groups and the mismatch of tax rules across income and asset classes," Mr Mason said.
"The working group's main proposal is a recasting, or extending, of the definition of income under the main income tax legislation.
"That income includes the sales proceeds from the sale of practically every main asset class, except the family home," Mr Mason said.
Both Mr Mason and Mr Truman noted government options now included how to stage the timing of introduction, whether to phase in asset classes over time or "grandparent" some asset classes; keeping them separate from changes.
Proposed Capital Gains Tax
* Expected to raise $8.3 billion over five years, then increase.
* Tax rate - expected to be at 33% for the majority of people.
* Cut to KiwiSaver tax rates for low and middle-income earners.
* KiwiSavers' funds attract CGT.
* Calculation of gains not retrospective.
* Tax applied to gains after April 2021.
* Other proposed changes to environmental taxes, personal income tax thresholds,
retirement savings and charities.
Are you affected?
Family home and land - not taxed.
Family crib, non-rented - taxable on sale.
Rental property - taxable on sale.
Vacant land - taxable.
Businesses - taxed, including goodwill, but deferred if annual turnover less than $5 million
and sale proceeds reinvested in similar asset within a year.
Farm - taxed not at owner's death, but when spousal inheritor sells. (Excludes house and up
to 4500sqm of adjoining land).
Domestic shares - taxable at time of disposal.
Foreign shares - taxable on an annual basis.
CGT exemptions - jewellery, boats, artwork, cars, personal household items.
Intangible assets taxable - goodwill, intellectual property rights.
Maori-owned assets - no changes
Matrimonial separation/death - exempt under ``life events'', until inheritor sells.
PAYE - no changes, but recommendation to raise income threshold for low and middle
GST - untouched.
KiwiSaver's earning under $48,000; to get refund of employer superannuation contribution.
* Government to formally respond by April, and open consultation.
* Any new tax laws to be passed before end of this parliamentary term. New taxes would come
into force in April 2021 if Labour-Coalition wins 2020 election.
* National could overturn if it becomes next government.
* Asset owner would have five years from April 2021 to complete a valuation.