Simply the best portfolio management tool for DIY investors. How does one calculate the conversion to NZ dollars? 4) Would you recommend a couple to sell down to $99,999 at purchase price in order to avoid the considerable problems of proving each year that shares purchased perhaps 40 years ago were indeed purchased at a seemingly low price? listed on the Australian Securities Exchange (ASX), qualify for the exemption from the FIF rules on its website, a FIF superannuation interest (from 1 April 2014). From there you can upgrade to an NZ Expert plan to run your FIF Report, as well as other premium features including: Traders Tax Report – Calculates taxable gains for individuals who hold shares on revenue account (i.e. So it isn't all bad. You'll need to pay tax on your overseas income even if: you do not bring it into New Zealand. In such cases income is calculated under the comparative value method for as long as the person owns the investments. February 3, 2007 Q. I have some questions regarding the $50,000 exemption with respect to the new overseas tax legislation: In that case, then, you will receive those dividends tax-free - putting you at an advantage, in those years, over people not affected by the new tax rules. New Zealand's capital gains tax applies only if you hold shares in companies not based in New Zealand or the Grey List countries, which are Australia, Canada, Germany, Japan, Norway, Spain, the UK or US, says Pippos. Browse new legislation. For the purposes of calculating the cost of these shares, would they be valued at zero (what we paid) or the market price of the shares? In effect, then, part of the tax will sort of be on capital gains. "This compliance cost savings measure is intended to cater for situations where a person may no longer have records of the purchase price of shares acquired many years ago." If this is you, Sharesies can’t handle your tax for you and you should seek tax advice. # Will investors now have to give a statement of assets each year to the IRD? The answer to your third question is: "Yes, you can ignore the tax." All investors will see is lower returns. Individuals will pay tax, at their personal tax rate, on the lower of: If you should be paying the tax but don't, you are likely to be in trouble if you are audited. "This will be followed by further help, including a booklet and an online calculator which will calculate the answers investors can put in their tax returns from the data they input," says the department. If you get interest and dividends from overseas, there are different rules depending on your situation. As noted above, being a New Zealand tax resident, you'll generally pay tax on your worldwide income. "If the shares make a loss then no tax is payable," adds Frawley. For example BHP Billiton and Rio Tinto are dual listed in Australia and Britain, but are they resident in Australia? A. They also jointly own shares costing $30,000. The normal rule applies, of course, that when someone dies taxes are paid on their income in the year of their death. Some not-so-good news from Frawley: "The person in this example is treated, for the purposes of the $50,000 threshold, as having acquired the shares for their market value at the time they received the shares under their employee incentive scheme." My answer - not Peter Frawley's - is that if your international share holding originally cost, say, $50,000 to $70,000, and you have no plans to buy any more international shares, it would probably be a good idea to sell down to below $50,000. If you own overseas shares that cost less than $50,000 (or $100,000 for couples) you're exempt from the FIF rules. And over the years, there'll be ups and downs. He adds that "it has been a requirement for many years with the current Grey List exemption for a person to know whether the companies they invest in are resident in Grey List countries (Australia, United Kingdom, Germany, Norway, Spain, United States, Canada and Japan)". Inland Revenue has already published a summary of the new offshore tax rules on its website, www.ird.govt.nz (under "news and updates"), and it plans to publish a more detailed explanation of the rules on its website shortly. He adds that "individual facts and circumstances are taken into account". A. If one spouse dies and leaves their assets to the survivor, and that causes the survivor's portfolio to exceed the $50,000 limit, the surviving spouse will then be subject to the new rules. However, the exemption will apply for a limited period to trusts created on a person's death, so that trustees have sufficient time to deal with the deceased's estate under the will." Is it still April 1, 2007, i.e. Don't let the tax drive your decisions too much. It's irrelevant what happens to their value after purchase. But if you do buy more shares, you need to add the cost of those purchases to the original costs of your current holdings. And if the value of my investment is $49,000 on April 1 and then $49,000 the following March 31, can I ignore the tax regardless of how much it goes up (and assuming I sold bits during the year) in between? And that would be a sure-fire way of boring most readers witless. A. PIR: Prescribed Investor Tax Rate. However, Frawley says "The Reserve Bank monthly data will be acceptable to Inland Revenue for the purposes of applying the $50,000 threshold." Your exemption lasts for up to 4 years and means you do not pay PIR on income that you get from foreign investments as long as: the income from them is made outside New Zealand New residents and New Zealanders who have been living outside New Zealand for at least 10 years can get an exemption from paying tax on some investments. The idea is to be able to recognise certain franking credits for New Zealand tax purposes. FIF-Exempt Overseas Income & Overseas Tax Credits Content also available for tax entities or on our global site.. A. Only you can decide if the strategy is worth the hassle, costs and possibly sleepless nights. This is then converted to a certain number of shares, which are added to the base shareholding. But changes in New Zealand's exchange rate with one country will to some extent be offset by changes with another country. The FIF tax must be paid even if none of the earnings ever come into New Zealand and even if you receive no dividends. * * * Generally, I think the diversification gains of owning offshore shares outweigh the disadvantage of paying the tax. Richard Prebble: China has silenced New Zealand, NZ regulator issues Bitcoin warning: Be prepared to lose all your money, It's mother vs. son in Britain's priciest divorce war, 'It's desperate down there': West Coast town hanging on for Govt help, Police seek skipper and yacht last seen in the Marlborough Sounds. Inland Revenue is being unfair, if it leaves it up to the taxpayer to determine a company's residency. i.e. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. By the way, you won't have to prove each year that your shares cost less than $50,000. March 24, 2007 Q. If you have a job to come to, it is a good idea to open an account before you get here. This is monthly data, and strictly speaking taxpayers are supposed to establish the exchange rate on the day they bought the shares. Income Tax Act 1994, ss CF 6, LC 6, NG 1(2)(a). Most New Zealand based fund managers have converted their retail funds into PIE funds. As the original investment is over the $50,000 threshold, will I be hit again with this new tax or can I have the shares revalued at their market value on April 1, 2007 - which presumably will be well under the threshold unless there is a miracle between now and April 1 - and then be outside the new tax regime? Do any readers know of any? The New Zealand stock exchange is the NZX and the Australian stock exchange is the ASX. That means that if the cost of your overseas shares is $51,000, all of those shares are subject to the new rules. # Personal investors have an exemption of $50,000 of the original cost (not current valuation) before the tax is payable. The rules apply when less than 10 percent of the shares in a foreign company are held, or units of less than 10 percent in an overseas unit trust. Tax Technical - Inland Revenue NZ. "A person may choose to treat shares acquired before 2000 as costing half their market value on 1 April 2007 for the purpose of the $50,000 threshold," says Frawley. There's some compensation, though. The amount of tax your employer takes may not be all the tax you need to pay. It's a swings and roundabouts thing. A. If you hold overseas shares (excluding Australian-listed companies) that cost more than $50,000 NZD in total, then you may be obliged to follow FIF (Foreign Investment Fund) tax rules with the IRD. A. Does this investment strategy make sense for the first year, or is it too good to be true? Generally New Zealanders don't have enough invested in overseas shares - in terms of reducing their risk by spreading their money into different investments. It also covers managed funds held overseas and … In general, there are two methods in which you pay tax on your investments. However, help is at hand. IR330C - choose a tax rate for your schedular payments. Sorry if this is a dumb question, but I would like an answer. Or do the shares have to be held specifically 50/50 in each individual name? Alternatively, the couple could have jointly owned shares totalling up to $100,000. Find out whether you need to pay UK tax on foreign income - residence and ‘non-dom’ status, tax returns, claiming relief if you’re taxed twice (including certificates of residence) "The new rules have been designed to minimise investors' compliance costs," he says. A. I will include more in the next few weeks. at no cost to us. "This is set at a maximum of 5 per cent of the investment's opening market value." In fact, New Zealand has the least cash circulating per person than any other OECD country. 2) Is the $50,000 exemption or threshold based on the total cost of the shares including brokerage, or is it just the cost of the shares? 4) In light of what we've said above, let's change this to "Would you recommend that a person sell down to $49,999." Q. Investments in overseas companies and managed funds costing less than NZ$50,000 and Australian shares not included in the FIF regime will usually be treated under the normal income tax rules, when on the basis the shares were not acquired with an intention of disposal, shareholders only pay tax on dividend income they receive. "Broadly, under the new method tax is paid on 5 per cent of the share portfolio's opening market value each year. Will the IRD produce a booklet that could be used as a guide for those with overseas investments that clearly set out the rules of what can and cannot be done? Frawley also points out that under the current law "people are still taxed on their dividends even if their shares go down in value, resulting in a net loss for the year. I've had trouble finding any other calculators that cover a range of currencies and give daily data earlier than that. You should use the exchange rate on the date of purchase. Yes. # Not all investors will have to give a statement of assets - only those to whom the new rules apply. Australasian shares are usually lower than that. Some argue that 5 per cent is not a reasonable amount, as dividends on non- Wages and salaries are usually paid directly into a bank account. Just to complete the picture, NZ-based share funds that invest only in Australian listed and based shares will not be subject to the rules. In the reader's example the reinvested dividends will be picked up in the opening market value of the shares each year." If I may ask one more thing, if the value of one's overseas investment fluctuates wildly due purely to currency changes (which is a big risk for the $) will we be taxed on the gain but not be able to claim the losses? "For those that have a buy and hold approach [i.e., they do not buy and sell shares in the same year] the new rules are relatively simple to apply." February 10, 2007 Q. I refer to the recent reply regarding the new overseas tax legislation from Inland Revenue, which stated that the Aussie exemption doesn't include companies that are not resident in Australia, even if they are listed on the Australian stock exchange. they are classified as traders by the IRD), Diversity Report – Shows how your portfolio is diversified across various groupings, at a chosen point in time, Benchmarking – enables you to select any ETF in the Sharesight database to compare against a holding or your overall portfolio, Contribution Analysis Report – Explains the drivers behind your portfolio’s performance, be they stock selection, asset allocation, or exposure to certain countries, sectors, or industries, 5 ways Sharesight helps NZ investors at tax time, How Sharesight calculates your investment performance. And that means, says Frawley, "it is not appropriate to recognise capital losses". Q. US tax: $1.50 USD (one-off), $0.50 a year A one-off $1.50 USD fee is deducted from your first deposit to cover the set-up, and after that, a $0.50 fee is deducted from your account each year to sort your US taxes for you. They are all taxed under the new rules, as are New Zealanders' investments in UK investment trusts listed in New Zealand. Mary Holm is a seminar presenter, author and publisher. These investments are usually called FDR prohibited or CV enforced investments. The FIF regime was introduced to prevent NZ taxpayers using offshore entities to avoid or defer their NZ tax obligations. It also covers managed funds held overseas and … Tax for non-resident taxpayers. But even if we ran nothing else for weeks, I couldn't answer them all in the column. This is your personal tax rate. "If the investor is an individual or family trust and the total return (dividends and capital gains) on their portfolio of directly held shares is less than 5 per cent, then tax is paid on the lower amount." The IR330C form is the IR form you need to complete to choose the rate of tax you have deducted from your payments. The new rules don't apply to individuals whose non-Australasian overseas shares cost less than $50,000. Dividends/income received from such investments are not directly taxable. A. Multinational Enterprises - Compliance Focus 2019 (PDF 941KB) Download guide Compliance focus documents from previous years. You don't have to do any more calculations in subsequent years. If you are a resident, but non-domiciled, the amount of UK tax you have to pay on foreign income and gains may sometimes depend on whether or not you bring money or assets into the UK. As it may not be readily apparent that an Australian listed company is not an Australian resident, is Inland Revenue going to provide such a schedule on its website, which will ensure that taxpayers can comply with the new legislation. A. While no general capital gains tax applies in New Zealand, tax on gains made may apply to NZ investors trading shares when: They purchase a property with the intention to sell it (this rule was introduced in 2016) They purchase shares or other investments with the intention to sell it at a profit (rather than hold the shares and earn income from holding them) In these … Therefore, in your situation there may be relief to the extent the Australian company operates in New Zealand and the dividends arise from that operation. However, with the new system due to be implemented this year, what does one do? The foreign investment fund (FIF) taxation regime in New Zealand is broadly designed to prevent taxpayers from using investments in offshore entities to avoid or defer their tax obligations. Thanks very much. For example: A woman owns shares costing $40,000 and her husband owns shares costing $5000. These rules apply to offshore investments held by New Zealand-resident taxpayers and target overseas companies who do not pay dividends. Sorry for bombarding thee. zero)? Note, though, that the rules don't apply to investments in Australian resident listed companies, or if the total original cost of your non-Australian offshore shares is $50,000 or less. It won't matter whether the value of your overseas shares changes because of changes in the share price in the home country or because of currency fluctuations. If you are not a tax resident, you pay tax on investments you have in New Zealand. * * * From 1 October … In answer to your first question, "under the new fair dividend rate method dividends are not taxed separately and therefore do not need to be included in a person's tax return," says the IRD's Peter Frawley. As the new tax regime on shares in countries beyond Australasia takes effect, many taxpayers seem to think it's tougher than it really is. if you have $51,000 at purchase price, is $1,000 in the new system and subject to the tax and $50,000 exempt and taxable on income only, or is all $51,000 now included? The Tax Working Group has recommended that owners of smaller foreign-share portfolios that currently fall under those $50,000 or $100,000 caps should pay tax … If they are paying no tax that year on their offshore shares, because they have made a loss, the credit will reduce payment of tax on other income. However, I am uncertain when the law will be passed by Parliament and what are the dates/financial years when these investments would be assessed under the new law. 3) Does a married couple qualify for a total $100,000 exemption or threshold at purchase price automatically as a joint unit? A. Inland Revenue has no plans to publish such a list. For other cases, … My holdings will probably then be well over $50,000 (I've had them a long time). It seems that on April 1 we can look at the original purchase price of things to determine if we are under the $50,000 for tax purposes. # Are all companies listed on the Australian stock exchange exempt or are some still caught by the tax rules, as are UK investment trusts listed on the NZ stock exchange? Nor does it include investments in Australian unit trusts listed on their stock exchange. My holdings would come under $50,000 on purchase. Frawley says you won't have to go to much trouble to pay the tax. Basically, as long as you buy no more non-Australasian shares, you stay outside the new rules forever. That's a pity that you're planning to reduce your portfolio. You will simply be asked if they cost more than that, in which case you will pay the tax. If, however, you have larger holdings or plan to grow your international holdings, it's probably better just to pay the tax. Probably the latter. The FIF tax must be paid even if none of the earnings ever come into New Zealand and even if you receive no dividends. Predictably, perhaps, Peter Frawley of Inland Revenue has a different perspective. an insurer under a life insurance policy (and the policy is not offered or entered into in New Zealand). In that case, you will pay tax on the yield amount. A tax resident is taxed on worldwide income, with a tax credit allowed if taxes are paid overseas on foreign sourced income. Nevertheless, strictly speaking the new tax is not a capital gains tax. Overseas investments include: pension schemes. between 10% and 40% of the shares in a foreign company which is not a CFC. Perhaps you could answer a few points for your readers e.g. Carrigan adds, "The $50,000 exemption does not generally apply to trusts and estates. See www.rbnz.govt.nz/keygraphs/graphdata.xls and click on Excel tab 8. Tax residence under New Zealand’s domestic rules is determined by meeting one of two tests. We worked in Ireland for a number of years and received some shares as part of employee incentive schemes etc, ie. the other country or territory has deducted tax. Because of this, many New Zealanders invest only locally or in Grey List countries. In many cases, Resident Withholding Tax (RWT) or PIE tax is automatically deducted from you at a certain point in time, like when the income is paid – in the same way PAYE tax is deducted from your salary or wages. From what I've read it may be advantageous and legitimate to sell these on or before March 30 and buy them back in April. The FIF-Exempt Overseas Income & Overseas Tax Credits page is part of the FIF Report available within Sharesight.It provides a taxable income summary for Australian shares that are excluded from the FIF tax regime. For a start, if you hold your international shares directly - as opposed to in a managed fund - and they cost less than $50,000 when purchased, you are exempt. You asked for older data on foreign exchange rates, for people calculating whether the new $50,000 tax threshold applies to them. But the rules have since changed, and there is no longer any situation in which taxes will be carried forward. Each quarter a dividend investment statement is mailed stating the gross dollar dividend value, federal tax taken and then the net amount. I think Frawley is politely trying to tell you the new rules will be easier than the old ones, so what are you moaning about! "On-line calculators will be available on Inland Revenue's website which will calculate the tax answers for investors from the data they input," says Frawley. But, says Peter Frawley of the department, "If a person receives a dividend from a company listed on the Australian stock exchange that carries Australian franking credits (this would be stated on the shareholder dividend statement that the person receives from the company) then this should provide sufficient certainty that the company is resident in Australia." But a capital gains tax on those shares could see investors move towards more investment in overseas shares. February 17, 2007 Q. 2) The $50,000 threshold takes into account brokerage fees if these are part of the cost of buying the shares. March 10, 2007 Q. 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