Overseas shares - IRD's FIF

Just been looking into this. I have downloaded the IRD's FIF document. I went thru the questionnaire and meeting one of the criteria of less than $50,000 in attributing interests I don't need FIF but I may have other tax obligations.

1. So do I just do the normal IR3 for dividends, and what does one do with the tax that is deducted overseas? Is there is a IRD brochure to assist in this regard?

2. If I had more than $50,000 in attributing interests which means I need to do FIF. With their main method - FDR. It takes 5% of the opening market value. The first year the opening value you obtain it is zero out. So if you first obtain $100,000 and it goes up to $155,000. Is $55,000 taxed at 5%? So capital is taxed? The document mentions FDR income but what about dividend income?

3. FDR - Using their example it looks like the 5% is taken straight from the opening market value. What happens if the person's return is less than 5% but more than $50,000. I know there is the CV method which takes the closing market value and minus the opening market value.


Many thanks.

Hi ray

Try these links



http://www.sharetrader.co.nz/showthr...&highlight=FIF

http://www.sharetrader.co.nz/showthr...&highlight=FIF


http://www.sharetrader.co.nz/showthr...&highlight=FIF

Other notes: The FIF applies to a single investment of $50K or more not a portfolio from my understanding, i.e. $30K in XYZ and $25K in ABC does not count
Again, from my understanding, if you pay under either FIF method, you do not also have to declare the dividends received

If not falling under the FIF rules, any dividends are declared as overseas income and if they have any "overseas" withholding tax deducted you can claim this but not any other tax paid, e.g.the franking credits in Aus. - cannot claim these like you can with NZ dividends, therefore you are taxed twice in effect - again my understanding of it.

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Originally Posted by Jay

Hi ray







Other notes: The FIF applies to a single investment of $50K or more not a portfolio from my understanding, i.e. $30K in XYZ and $25K in ABC does not count
.

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Actually I understood it was portfolio value of $50k or more. (ie very easy to be implicated)

http://www.ird.govt.nz/toii/fif/how-...how-tax-rules/

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Originally Posted by Jay

Hi ray

Try these links



http://www.sharetrader.co.nz/showthr...&highlight=FIF

http://www.sharetrader.co.nz/showthr...&highlight=FIF


http://www.sharetrader.co.nz/showthr...&highlight=FIF

Other notes: The FIF applies to a single investment of $50K or more not a portfolio from my understanding, i.e. $30K in XYZ and $25K in ABC does not count
Again, from my understanding, if you pay under either FIF method, you do not also have to declare the dividends received

If not falling under the FIF rules, any dividends are declared as overseas income and if they have any "overseas" withholding tax deducted you can claim this but not any other tax paid, e.g.the franking credits in Aus. - cannot claim these like you can with NZ dividends, therefore you are taxed twice in effect - again my understanding of it.

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I think you will find it is the total cost price of investments that make up the $50,000.

My memory appears to be suspect, thought I read somewhere in those post quite sometime ago that is was each investment,

Wording from the IDR link you posted blackcap says : For income years starting on or after 1 July 2011 where your investment does not exceed $50,000 you can elect to use the FIF rules. But you must then use the FIF rules for 4 years.
You could read that as any single investment :confused:

But then elsewhere it says "the total of your overseas investments is more than NZ$50,000 or you wish to calculate your income using the FIF rules (see Note ..."

So it is either total overseas income (interest, dividends etc) greater than $50K and/or total cost of your investment(s) at time of purchase is greater than $50K
Hope that is right, mine have not so not worried!

I'm with Blackcap and 777
Section CQ 5 When FIF income arises
(d) if the person is a natural person and not acting as a trustee,—
(i) the total cost, calculated under section EX*68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000:



I guess you need to work out what Foreign Investment Funds you hold. Wasn't there something about loosening up on entities listed on the ASX? not sure can't see an IR871-2017 list out yet. maybe this comes out after June which is the Aussie financial year end.

If your married and investments are in joint names you need more than $100,000 invested in FIFs before the FIF rules apply.

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Originally Posted by rayonline

Just been looking into this. I have downloaded the IRD's FIF document. I went thru the questionnaire and meeting one of the criteria of less than $50,000 in attributing interests I don't need FIF but I may have other tax obligations.

1. So do I just do the normal IR3 for dividends, and what does one do with the tax that is deducted overseas? Is there is a IRD brochure to assist in this regard?
My opinion is that you convert the dividend to NZ dollars and return the income. Withholding taxes deducted might depend on the double tax agreement with the country in question but generally convert to NZ dollars and include as overseas tax to ensure you are not taxed twice. Not sure if there is a brochure. Remember do not include Australian franking credits


2. If I had more than $50,000 in attributing interests which means I need to do FIF. With their main method - FDR. It takes 5% of the opening market value. The first year the opening value you obtain it is zero out. So if you first obtain $100,000 and it goes up to $155,000. Is $55,000 taxed at 5%? So capital is taxed? The document mentions FDR income but what about dividend income?
My understanding of FDR is that in the year of purchase there is no income to declare but in the second year in your example there is $7,750 income (155,000*5%). regarding dividends if you are using the FDR then actual dividends paid are not considered although you still can include foreign withholding tax
3. FDR - Using their example it looks like the 5% is taken straight from the opening market value. What happens if the person's return is less than 5% but more than $50,000. I know there is the CV method which takes the closing market value and minus the opening market value.
This question is a bit confusing for me but assuming you mean if actual dividends and capital gains are less than 5% is the Comparative Value(CV) method preferable? Logically it must be but you must use either the FDR or CV method across your entire FIF portfolio. You can not mix and match.


Many thanks.

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I would disclaim that my understanding is limited and I will await any criticism or correction from the general public.

Actually I think they have just scrapped FIF tax.

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Originally Posted by BDL

Actually I think they have just scrapped FIF tax.

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Really? Where did you hear that?

What we should do is vote The Opportunities Party in and with the equity tax coming in we could do away with the FIF regime altogether.

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Originally Posted by BDL

Actually I think they have just scrapped FIF tax.

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I hope not. It saves me a fortune.

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Originally Posted by BDL

Actually I think they have just scrapped FIF tax.

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They have not. But as of 1 April 2017 any stock listed on the ASX of Australian resident companies (rather than just those in the ASX All Ords) will be exempt from FIF regime.

However it will continue to apply to other international shares and investments.

Interesting.. What does that mean for asx listed etfs? Like the vanguard and ishares etfs. Does that change?
Have you got a link to the update?
Thanks

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Originally Posted by sonny n share

Interesting.. What does that mean for asx listed etfs? Like the vanguard and ishares etfs. Does that change?
Have you got a link to the update?
Thanks

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Good question. I am guessing that Vanguard and I shares will still be under the FIF rules as they are not Australian resident companies (albeit listed on the ASX).

Much thanks.

Yes, I re-read the document I have. It is the "full portfolio" re: $50k threshold.
Page 14 of the document has a table to calculate if you meet the threshold and it uses the words "total holdings".

Yes the first year doesn't need to but the following year in my example the $155,00 times 5%.
Yes, FDR or CV can be used but thru out the entire year, for the year if CV is lesser then CV can be used instead of FDR.

Is FIF done via the IR3?
Once FDR or CV income is calculated. If FDR was the chosen one and it was $7,750. Is this $7,750 taken as income and then we pay tax on it, hopefully not the entire $7,750.


Cheers.

Yes, you're just taxed on the $7750 at your personal income tax rate.

These are the Australian shares exempt from FIF http://www.ird.govt.nz/calculators/t...tion-2016.html

Thanks for that! :)

These are done on the IR3 right?

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Originally Posted by rayonline

Thanks for that! :)

These are done on the IR3 right?

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Yes. When you complete the IR3 you will be directed to also complete another form as well declaring your foreign income (forgot the exact name of the form sorry, but you will be given the link while completing your IR3).

Thanks, think it's the IR458.

It says, "10% or greater income interest and less than 5% passive income (attributed income exemption)".

Are shares considered as passive income? So if the 10% figure isn't met, is the IR458 required. Or is a different form.

Not sure what "other form" you are referring to but I have never filled one in. Simply put the income in the "overseas income" box and the overseas tax where it is supposed to go.


Rayonline to simplify it you have to pay tax on the increase of your funds over a year plus your dividends to a maximum of 5% of the opening balance. Overseas tax paid can be claimed separately.

Buying and selling throughout the year has to be accounted for and can be complicated if you don't get a thorough understanding of the procedure. You postings would indicate you have a way to go so be careful.

I been following the document. Yep there is an adjustment for buying and selling. I get that, a procedure though to calculate.

To start off I won't meet the FIF obligation anyway.

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Originally Posted by rayonline

I been following the document. Yep there is an adjustment for buying and selling. I get that, a procedure though to calculate.

To start off I won't meet the FIF obligation anyway.

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Remember it is the cost price of your investments that is used to calculate whether you are above the $50,000 or not. The change in value of the investment is ignored.

Assuming no more purchases, (or sales) does it get re-calculated at any some point 777 from your understanding?

That is, if I bought 1 or more "qualifying" shares to the value of $49,500 and by 31 March next year were worth $60K without any further purchases, maybe only dividends received, under present law nothing to declare except the dividends

As I understand it you are correct. However if you were to reinvest the dividends (i.e. take shares instead of cash) then they would add to your $49,500.

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Originally Posted by 777

Remember it is the cost price of your investments that is used to calculate whether you are above the $50,000 or not. The change in value of the investment is ignored.

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Yup the acquired cost of them. I won't be buying $50k of shares to begin with anyway...