This is your personal tax rate. If that is the case, you will be subject to tax only on overseas income or gains remitted to the UK. Carrigan adds, "The $50,000 exemption does not generally apply to trusts and estates. 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. That means that if the cost of your overseas shares is $51,000, all of those shares are subject to the new rules. 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. All investors will see is lower returns. IR330C - choose a tax rate for your schedular payments. Frawley adds that taxpayers affected by the new rules will still be able to claim a foreign tax credit for the foreign withholding tax deducted from their gross dividends. I must admit that sounds like a fair amount of hassle to me. A. If the rules do apply to you, when calculating your 2007/08 taxes, start with the value of your offshore shares next April 1. The $50,000 threshold. The new overseas tax legislation will affect many investors. Our Kids Accounts fees are just $0.50 to buy or sell up to 50 shares. Merger considerations and certain other corporate actions may be deemed dividends, resulting in withholding tax being payable on the capital value of your shareholding. Income Tax Act 1994, ss CF 6, LC 6, NG 1(2)(a). Some searching questions, answered here by Peter Frawley of Inland Revenue: 1) The $50,000 is a threshold. 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. They are all taxed under the new rules, as are New Zealanders' investments in UK investment trusts listed in New Zealand. 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. Inland Revenue is being unfair, if it leaves it up to the taxpayer to determine a company's residency. They facilitate international tax compliance in accordance with New Zealand tax law. "This is set at a maximum of 5 per cent of the investment's opening market value." # The total return on the shares - including dividends and any gain in price - during the tax year. The normal rule applies, of course, that when someone dies taxes are paid on their income in the year of their death. The FIF tax must be paid even if none of the earnings ever come into New Zealand and even if you receive no dividends. FIF-Exempt Overseas Income & Overseas Tax Credits Content also available for tax entities or on our global site.. Q. # The $50,000 applies separately to each investor. It's a swings and roundabouts thing. February 17, 2007 Q. March 24, 2007 Q. By the way, if you sell and then buy back less than $50,000 worth, you would be under the $50,000 threshold. My holdings will probably then be well over $50,000 (I've had them a long time). Regardless of tax, any investor in overseas shares needs to learn to ride those waves. This way the opening value of overseas investment is zero. "Any transaction that is done for the purpose of reducing tax could trigger the general anti-avoidance provisions in the Income Tax Act," says Peter Frawley. For some investments, New Zealanders are not allowed to use the FDR method. Nor does it include investments in Australian unit trusts listed on their stock exchange. 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? Note that if you have invested less than $50,000, so that you are under the threshold, you will continue to be taxed on dividends - as well as realised gains if you are a trader - as in the past. However, help is at hand. But even if we ran nothing else for weeks, I couldn't answer them all in the column. My holdings would come under $50,000 on purchase. 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. Go to www.taxpolicy.ird.govt.nz, and scroll down the homepage to February 23, "More on offshore investment changes". Nevertheless, strictly speaking the new tax is not a capital gains tax. zero)? Inland Revenue has recently published two papers clarifying a lot of the issues people are asking about. 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. You don't have to do any more calculations in subsequent years. 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. Australasian shares are usually lower than that. Do I have to revalue on April 1, 2008 or does the $50,000 exemption last forever? Does this investment strategy make sense for the first year, or is it too good to be true? For NZ tax purposes I have always shown these dividends in my annual tax return. 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. They also jointly own shares costing $30,000. Taxable gains on shares in New Zealand. Also Rinker's main business is in the United States, but is it resident in Australia? If the couple has some shares owned jointly, and some owned individually, each person would have to add half the cost of the jointly owned shares to their individual total. New Zealand tax law treats the estate of a deceased person as a trust. Overseas investments include: pension schemes. 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." You asked for older data on foreign exchange rates, for people calculating whether the new $50,000 tax threshold applies to them. The authority has ruled that the man's family links and some property investments he kept in New Zealand counted against him. You are also liable for tax in New Zealand, on any dividends from your overseas holdings. Generally, I think the diversification gains of owning offshore shares outweigh the disadvantage of paying the tax. But changes in New Zealand's exchange rate with one country will to some extent be offset by changes with another country. This is then converted to a certain number of shares, which are added to the base shareholding. And that means, says Frawley, "it is not appropriate to recognise capital losses". We worked in Ireland for a number of years and received some shares as part of employee incentive schemes etc, ie. The FIF tax must be paid even if none of the earnings ever come into New Zealand and even if you receive no dividends. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. 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? 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? A. But a capital gains tax on those shares could see investors move towards more investment in overseas shares. Mary Holm is a seminar presenter, author and publisher. Pre-register here! A. 3) Does a married couple qualify for a total $100,000 exemption or threshold at purchase price automatically as a joint unit? In fact, New Zealand has the least cash circulating per person than any other OECD country. Is it still April 1, 2007, i.e. Dividends/income received from such investments are not directly taxable. Some argue that 5 per cent is not a reasonable amount, as dividends on non- 2001 New Zealand Master Tax Guide, 26-185. If that total rises above $50,000, you will be taxed under the fair dividend rate rules. Under the new fair dividend rate method no tax would be payable in such an income year." "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. Act articles 2020 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005. Alternatively, the couple could have jointly owned shares totalling up to $100,000. If you own overseas shares that cost less than $50,000 (or $100,000 for couples) you're exempt from the FIF rules. Browse new legislation. Frawley says you won't have to go to much trouble to pay the tax. There will be market-crash years when we are glad we are in the new regime rather than the current one. A. It's irrelevant what happens to their value after purchase. A. # 5 per cent of the market value of their shares at the start of the tax year, or: Generally New Zealanders don't have enough invested in overseas shares - in terms of reducing their risk by spreading their money into different investments. The answer to your third question is: "Yes, you can ignore the tax." The amount of tax your employer takes may not be all the tax you need to pay. And, knowing that people are thinking of using this strategy, I wouldn't be surprised if Inland Revenue takes particular interest in share trading over the next few months. "Broadly, under the new method tax is paid on 5 per cent of the share portfolio's opening market value each year. Murray Brewer Partner, Tax D +64 9 922 1386 M +64 27 448 8880 E murray.brewer@nz.gt.com Greg Thompson Partner and National Director, Tax i.e. By compiling all your portfolio data in one place, Sharesight eliminates the paper-chase and headaches normally associated with performance and tax reporting. Sorry if this is a dumb question, but I would like an answer. 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. Tax Technical - Inland Revenue NZ. A. Inland Revenue has no plans to publish such a list. # 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? If you get interest and dividends from overseas, there are different rules depending on your situation. From 1 October … Or do the shares have to be held specifically 50/50 in each individual name? Is taxable dividend income still capped at 5 per cent of the opening value of the portfolio (ie. * * * A. 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. Tax for non-resident taxpayers. # The Aussie exemption doesn't include companies that are not resident in Australia, even if they are listed on the Australian stock exchange. 2) The $50,000 threshold takes into account brokerage fees if these are part of the cost of buying the shares. For example: A woman owns shares costing $40,000 and her husband owns shares costing $5000. Q. I have a portfolio of UK shares over the $50,000 threshold and therefore due to fall prey to the new foreign investment wealth tax. For example BHP Billiton and Rio Tinto are dual listed in Australia and Britain, but are they resident in Australia? February 24, 2007 Q. I am in the position of having invested in a tech stock in Canada in 2002, at a cost of slightly over $60,000, as opposed to today's value of the stock of around $16,000. Examples are Private Portfolio Service Master funds (PPS), and ING property Securities Fund. an insurer under a life insurance policy (and the policy is not offered or entered into in New Zealand). 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? In that case, you will pay tax on the yield amount. If you have a job to come to, it is a good idea to open an account before you get here. Unfortunately, in your case that means that your shares don't qualify for the threshold. Q. less than 10% of the units in a foreign unit trust. It also covers managed funds held overseas and … The deutschmark was replaced by the euro from January 1999. The idea is to be able to recognise certain franking credits for New Zealand tax purposes. Don't let the tax drive your decisions too much. Your second sentence is broadly speaking right. Her website is www.maryholm.com. I hope many readers whose letters won't make it into the column can find answers there. 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." 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 … 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? On your first question, that's one way of looking at it. You should use the exchange rate on the date of purchase. That would save you some tax and some hassle. Multinational Enterprises - Compliance Focus 2019 (PDF 941KB) Download guide Compliance focus documents from previous years. "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. So you would be taxed under the current regime, which means your dividends would all be taxed. between 10% and 40% of the shares in a foreign company which is not a CFC. 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)". "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. In general, there are two methods in which you pay tax on your investments. 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. 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? And that would be a sure-fire way of boring most readers witless. You buy and sell shares through a stock broker To buy and sell shares on the stock exchange (called ‘trading’) you’ll need to place an order through a stock broker – this is a company licensed to … However, investors in these funds won't have to deal with the new taxes on their tax returns. A. If this is you, Sharesies can’t handle your tax for you and you should seek tax advice. "The new rules have been designed to minimise investors' compliance costs," he says. If, however, you have larger holdings or plan to grow your international holdings, it's probably better just to pay the tax. The FIF regime was introduced to prevent NZ taxpayers using offshore entities to avoid or defer their NZ tax obligations. As noted above, being a New Zealand tax resident, you'll generally pay tax on your worldwide income. But it might be pretty hard to argue that you had any other purpose. I've had trouble finding any other calculators that cover a range of currencies and give daily data earlier than that. On currency changes, the situation is the same, really. If you should be paying the tax but don't, you are likely to be in trouble if you are audited. There are also some costs for selling and buying and a risk of price movements in the meantime to take account of, but the benefits could outweigh these costs. The funds will handle the changes. "The new fair dividend rate method seeks to tax an amount approximating a reasonable dividend yield on a person's investment each year," he says. In contrast, a non-resident is taxable only on New Zealand-sourced income. However, what will happen on April 1, 2008? How does one calculate the conversion to NZ dollars? But how are dividends on shares purchased during the year treated? Simply the best portfolio management tool for DIY investors. A. PIR: Prescribed Investor Tax Rate. "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. We have a couple of shares which were bought some years ago for around 2000 and are now worth 55,000. I will include more in the next few weeks. The IR330C form is the IR form you need to complete to choose the rate of tax you have deducted from your payments. "This is so taxpayers can refer to the fixed actual cost when determining whether the threshold applies to them, rather than having to track changing market values over time," says Peter Frawley of Inland Revenue. "It is an inherent feature of the new method that no losses are carried forward as each year is treated separately. 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. Q. Is it the rate that applied at the date of purchase, and if so where can one find out the exchange on a certain day, say in 1997. # Include the dividend as usual and not enter it in the value of the shares, or 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." "If the shares make a loss then no tax is payable," adds Frawley. # If tax due is accrued is it still to be wiped upon death? The Reserve Bank holds monthly NZ dollar exchange rates for the US dollar, British pound, Australian dollar, Japanese yen, and Germany's deutschmark, going back to January 1985. But I guess investors will get used to noting the value of their international shares on April 1 each year, and keeping track of dividends. Read our guide on using the NZ FIF report to see how easy it is. In effect, then, part of the tax will sort of be on capital gains. The New Zealand stock exchange is the NZX and the Australian stock exchange is the ASX. The rules apply when less than 10% of the shares in a foreign company are held, or units of less than 10% in an overseas unit trust. There's some compensation, though. If the rules do apply to you, when calculating your 2007/08 taxes, start with the value of your offshore shares next April 1. 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. This is an annual tax on the rise in value of your holdings, not a tax on the sale. # Does "overseas investment", i.e. So it isn't all bad. Go to www.rbnz.govt.nz/statistics/, click on "Exchange rates" on the left side, and then on "B1 historical series". will be your status as a New Zealand tax resident. However, with the new system due to be implemented this year, what does one do? Because of this, many New Zealanders invest only locally or in Grey List countries. February 3, 2007 Q. I have some questions regarding the $50,000 exemption with respect to the new overseas tax legislation: It also covers managed funds held overseas and … 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. The law has already been passed, and will apply from April 1, 2007 for people whose tax year runs from April 1 to March 31, which is most individuals. The good news is that investors on a Sharesight NZ Expert or Sharesight NZ Pro plan can run their own FIF tax report in just a few clicks using both the FDR and CV method. By the way, you won't have to prove each year that your shares cost less than $50,000. That's a pity that you're planning to reduce your portfolio. A. Individuals will pay tax, at their personal tax rate, on the lower of: The woman's total would be $40,000 plus $15,000 (half of $30,000), which brings her over the threshold. Most New Zealand based fund managers have converted their retail funds into PIE funds. A. "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." Only you can decide if the strategy is worth the hassle, costs and possibly sleepless nights. 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. 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? # Will investors now have to give a statement of assets each year to the IRD? * * * A. When the deceased person was not resident in New Zealand at the time of death, the estate is classified as a foreign trust. And I don't think the new tax rules are harsh enough to warrant most people getting out of international shares. They come into the regime the following year. If you are not a tax resident, you pay tax on investments you have in New Zealand. But if you do buy more shares, you need to add the cost of those purchases to the original costs of your current holdings. These investments are usually called FDR prohibited or CV enforced investments. Frawley says there are several websites that have foreign exchange calculators with historical data. 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. Yes. "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." Yours is one of many questions I've received about the tax changes. As a New Zealand tax resident, you pay tax on the total income you receive from all your investments, whether they're in NZ, the US, or elsewhere. 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