Expect to see a huge brouhaha next week over tax - this time though it won't be about income tax cuts, but a discussion document proposing a capital gains tax on offshore managed funds.

The trigger for this will be a discussion document proposing that offshore-based funds are taxed under a comparative value method. The paper is being produced as the government has rejected the risk-free rate of return idea put forward last year by Craig Stobo.

Here's what's likely to be in the discussion document:

• Tax all offshore-based funds on a comparative value basis
• The tax rate will be on 100% on the change in comparative value of the funds
• Abolition of the grey list
• Have a threshold for individual investors. Investors below this level will be taxed only on dividends.

The big debate leading up to this discussion document has been about what level should the tax kick in at?

Since no one I have spoken to has come up with any compelling or consistent arguments to support a level of less than 100%. Don't be surprised if the paper suggests all the change in comparative value should be taxed.

Investors in domestic funds will be subject to a different approach. They will be treated on a flow-through basis and be taxed at their own marginal tax rate.

Such a move will create a huge home bias for investors - which apparently officials are comfortable with.

That's a really odd position to take when you think about the NZ Superannuation Fund. This fund is mandated to maximise returns without undue risk to the fund.

Its conclusion was that to achieve this objective it needed to invest the bulk of its money offshore into shares.

While the industry will be big in their opposition to this discussion paper, I understand that National Party leader, Don Brash, and finance spokesman John Key, are gearing up to go big on this too.

I wouldn't be surprised to see the changes to New Zealand based funds made by the due date, but changes to international funds pushed back.