News } TBK Capital

Capital Gains Tax? Business needs some decision Now!

As we now head into March - and the end of the financial year for most businesses - I can’t see any reason to change that view. However there are possibly some dark clouds ahead as the new government has to address some of the promises they made so long ago to win the last election.

In my last “News” newsletter I reckoned it’s been a pretty good start to the New Year.
As we now head into March - and the end of the financial year for most businesses - I can’t see any reason to change that view. However there are possibly some dark clouds ahead as the new government has to address some of the promises they made so long ago to win the last election.
And probably for those shareholders in SME’s - which employ over 600,000 people, and account for around $80.6 billion, or 28% of New Zealand’s gross domestic product - the most controversial of these would be the promised Capital Gains Tax.
I was therefore delighted to read Chris Lee’s latest in the series of his excellent newsletters, his comments about the Tax Working Group’s final recommendations to the Government. His opening sentence observes is it “now faces a daunting task”. Wow does it ever!
His article mainly centres on the treatment of shares. He makes the point that under the existing regulations “traders” in shares are currently taxed anyway. And that “our (relatively) simple existing tax system offers distinct advantages over more complex designs, and the threshold for abandoning this simplicity should be very high’.
His view, my personal point of view, and that of our sister company Tabak Business Sales, is summed up simply in his statement that “Firstly, it is highly improbable that all the recommendations will translate into enforceable law in two years’ time. It would be political suicide.”
Uncertainty rules
The most annoying thing about all this is the politics - which are leading to the uncertainty. Audrey Young in last Saturday’s Herald summed it up pretty well in the title of her column “CGT is a Nightmare for Govt and anniversary gift for Bridges”.
Ardern and Finance Minister Grant Robertson appear to have no strategy of how to sell it because they don't know yet what they are selling.
“They are left with repeated references to fairness but avoiding specifics.
“That is the trouble with tax reform. It sounds so good on the hustings and in theory but when it comes to practical application, it creates anomalies and can deliver something completely unintended on closer examination”.
It was interesting to note that 6 out of the 9 letters to the editor in that paper were against CGT.
Personally I’ve got a lot of sympathy for Liam Dann’s view. He says “So, extending [CGT] beyond five years wouldn't be an enormous shock. It would just be more of what we already have. Sell your rental any time, not only within five years, and you'd cop the CGT. It's easier to take a freezing plunge, when you're already a bit acclimatised to the cold water.”
His point is valid. The capital gains tax proposal doesn't rebalance the system towards investment in the productive economy the way in which many in the business sector hoped it would. And young, innovative companies may be hit hard because they tend to retain and grow capital rather than paying dividends.
His summary is pretty good, and very much in line with our thinking at TBK Capital. He writes “Are we comfortable with tax that might disincentivise investment in New Zealand's next Xero?
“I'm not sure I am.
Which makes you wonder why in God's name Labour is taking so long to simply rule out everything else.”
Not surprisingly, when asked did they think the post-election gloom had finally started to ease, the Employers and Manufacturers Association new boss Brett O'Riley said "No, I think it's probably gotten worse. I think people are incredibly nervous."

Clearly the faster this government addresses CGT the better. In may be political suicide if they come up with the wrong answer, but if they don’t soon it will almost certainly be a major disruption to our economy.

Open for business
Those of you who read my last newsletter may have also felt my frustration about how long it takes for many businesses to be up and running again following the Christmas/New Year break.
Well I have to say in the last week or so, even with the uncertainty around the politics mentioned above, in TBK Capital we’ve seen a large increase in enquiries from businesses seeking capital or loans to expand.
So if you’re looking to raise debt or equity for property or business, or thinking about selling your business, we’ve got the people here to help. To find out more, reply to this email or call me.
Or if you’re interested in investing in businesses, or property, here’s some opportunities we have on our books now.
Northland Manuka Oil – harvesting now
It was interesting to read in yesterdays’ Herald about a two-year programme to plant 200ha of Ng?ti Hine Forestry Trust land in Manuka. If you’re interested in this rapidly growing industry, and would like to invest in a Manuka plantation that’s ready for harvest now, see our Opportunities newsletter here.

Our client is personally active in the harvesting of the 800 Ha of fully grown Manuka. No time to wait for it to grow and not much capital required to harvest the leaves and extract the Oil. Gross wholesale income from Manuka oil sales for the first year is budgeted at just under $1.5 million. The financial projections show income could be over $15 million by year 5, and double that by year 10. These are available on signing a confidentiality agreement, but there is no formal IM available at his stage. Each enquiry will be treated on a one to one basis.
The business is also looking for a distributor to market the Oil in New Zealand and internationally. The opportunity may also exist for such a person or business to take a shareholding in the company owning the lease. Reply to this email or call me on +64 21 902 901 if you’re interested. 
Finally a FIT solution
See our Opportunities newsletter here. We’ve already had great interest in this Offer as worldwide Online Travel Agencies have been facing an industry shake up against pressure selling, misleading discount claims, hidden charges, and the size of commissions on sites they promote.
Our client is bnbLIVE whose smart websites and Apps are specifically designed for Free Independent Travellers which are in the 24 - 64 age bracket and form 89% of all tourists/travellers. Accommodation, activities, rentals, travel and customised package tours are all in one place. Online Travel Agencies located out of New Zealand do not provide this one stop shop. bnbLIVE is raising capital by the issue of ordinary shares in the company. The full subscription would equal 25% of the company. The IM is available now.
Standing for Engineer, Procure, Construct, Maintain, EPCM Ltd is the conglomerate of 4 separate New Zealand companies that provide industrial electrical services to blue chip companies, and to government SOEs such as Vector and Transpower. The business has been operating for 18 years in a highly technical and regulatory market with its barriers to entry.
It is seeking working capital to finance the expansion of its current operations. Currently in discussion with its bankers, it would also be interested in taking on long term partners through the issue of ordinary shares in the business. Reply to this email or call me for more information.
Effluent control for farms
Many of the farming sectors that drive economic growth in New Zealand are also seen to be one of the causes of the degradation of our environment, and consequently put at risk the perception of our global Pure New Zealand brand. Accordingly the compliance requirements of the Resource Management Act have expanded considerably in recent years, with government, councils, and other authorities paying more attention to its enforcement.
Our client has patented an effluent management system that separates solids from liquids resulting in residual water that can be either reused or disposed of in a safe, environmentally friendly manner. It provides both stationary or trailer borne units. An operational and full specification unit was completed and released worldwide in 2014. All development work has now been completed and the company is raising capital to commercially deploy sales and distribution. Reply to this email or call me for more information.
Residential development in Auckland

Our client is an experienced developer looking to build a 46 unit low-rise apartment block in a central suburb of Auckland. It’s a 24 month project and he’s looking for an equity participant to share in the development profit. Resource Consent was granted last year with building consent expected in the coming weeks. Over $500,000 has been spent so far principally on obtaining consents. Development finance has been offered for the project. Presales secured from a preliminary marketing campaign have supported the developer’s asking prices. There is some room for upward movement in the asking price schedule.
The developer is now seeking investors to assist with the completion of the purchase of the land and the development of the apartments by providing equity funding of $2 million in return for a $1.2 million share of the net profit. This is a 60% return on funds employed over the two years to completion.

The investors will receive their share before the developer receives his share. They will also be provided security above the developer, and behind the financier providing the development finance, in the form of a subordinated 2nd mortgage over the property. Investor’s funds will be held in trust prior to settlement of the land. More details are available on signing a confidentially agreement.

Want to know more?
If you’d like to know more about the Offers listed above, or any others that may be coming up, reply to this email or call me on +64 21 902 901.

Any reference above to investment is not an offer of financial products that requires disclosure under the Financial Markets Conduct Act 2013 (Act) and is available only to wholesale investors as defined by that Act. It is intended for distribution only to selected people to whom, under the relevant laws, it can be lawfully distributed. It cannot be distributed in any other jurisdiction, or to any other people. It is not an offer or solicitations in any jurisdiction in which such offers or solicitations are not authorised, or in which the person making such offers or solicitations are not qualified to do so, or to any person to whom it is unlawful to make such offers or solicitations. Any representation to the contrary would be unlawful. No action has been taken by any person that would permit a public offering in any jurisdiction where action for that purpose would be required.


John Paine B.Sc., Dip BIA
TBK Capital Limited
Level 10, 120 Albert Street
Auckland 1010, New Zealand
Phone +64 9 307 3257
Mobile +64 21 902 901

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