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  1. #1
    Pump
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    Default FIF question: Selling shares to stay under threshold?

    My understanding of the FIF threshold is that the total cost of foreign investments has to be 50k or less to not be taxed.

    So lets say I want to keep my threshold under so I purchase 50k of foreign share A. One year later I decide I want to reduce my position in share A and purchase new foreign share B.

    Am I able to stay under the threshold by selling 25k of share A and purchasing 25k of share B?

    What if the total value of share A is now 100k, can I still do the same thing and remain under the threshold (sell 25k worth of share A and invest 25k elsewhere)? How about selling 50k worth, would that mean the total cost is 0 so it is no longer counted at all?

    Thanks, hopefully I explained that well enough.

  2. #2
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    Quote Originally Posted by Pump View Post
    How about selling 50k worth, would that mean the total cost is 0 so it is no longer counted at all?
    If sell a bunch of shares that cost you 50k, they rise to 100k and you sell 1/2 for 50k, the remaining shares still cost you something (25k).

    I haven't looked into FIF closely, but it appears the cost is calculated on a FIFO basis, unless it is subject to the quick sale rule. Ref: https://www.ird.govt.nz/technical-ta...tfolio-entity/

    I'm not a tax expert, so would suggest seek professional advise if you are unclear.
    Last edited by scottwalshnz; 23-05-2015 at 07:12 PM.

  3. #3
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    Have a look at what constitutes as an FIF company to get a clearer idea of what you add up. When I talked to IRD companies that are not FIF classed aren't included in the total but if you go over the NZD$50,000.00 of FIF companies ALL your overseas shares are added to the mix. Great system huh!
    Plenty of info here about it but the IRD website does have a good explanation about it.

  4. #4
    Pump
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    Quote Originally Posted by scottwalshnz View Post
    If sell a bunch of shares that cost you 50k, they rise to 100k and you sell 1/2 for 50k, the remaining shares still cost you something (25k).

    I haven't looked into FIF closely, but it appears the cost is calculated on a FIFO basis, unless it is subject to the quick sale rule. Ref: https://www.ird.govt.nz/technical-ta...tfolio-entity/

    I'm not a tax expert, so would suggest seek professional advise if you are unclear.
    Thanks I think I understand it better now. Before I wasn't thinking of selling the shares as individual units. So if you purchased 100 shares for 50k and sold 50 then your investment cost would be 25k, regardless of the current price.

  5. #5
    On the doghouse
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    Quote Originally Posted by Pump View Post
    My understanding of the FIF threshold is that the total cost of foreign investments has to be 50k or less to not be taxed.

    So lets say I want to keep my threshold under so I purchase 50k of foreign share A. One year later I decide I want to reduce my position in share A and purchase new foreign share B.

    Am I able to stay under the threshold by selling 25k of share A and purchasing 25k of share B?
    Yes

    What if the total value of share A is now 100k, can I still do the same thing and remain under the threshold (sell 25k worth of share A and invest 25k elsewhere)?
    Yes

    How about selling 50k worth, would that mean the total cost is 0 so it is no longer counted at all?
    The FIF regime threshold balance works on the purchase price of shares. So if you paid 50k for those shares and sold them for 50k then your FIF balance is extinguished providing these were the only FIF shares you owned. If however, the shares had doubled in value over the year that you owned them, then selling 50k worth would only be selling half your shares. So your FIF balance for tax calculation threshold purposes would be 25k (the purchase price of the shares you didn't sell).

    Thanks, hopefully I explained that well enough.
    Pump, as a 'user' (cough, cough) of the FIF regime since its inception, I can confirm your above post is almost completely correct. The only points I would make in clarification are that:

    1/ 'foreign shares' should more correctly be described as shares which do not have either an NZ imputation credit or an Australian franking credit account. Most Australian shares that in common parlance could still be described as 'foreign' are exempt from the FIF regime. Because of this, a share that is listed in New Zealand - but doesn't make any profits in NZ - could still fall under the FIF rules.
    2/ Shares that fall outside the FIF regime are still taxed. But they are taxed according to the way your usual NZ share investments are taxed (on dividends only).
    3/ If an FIF regime share has a very high dividend yield, you will likely pay less tax under the FIF regime than you would if that same share was taxed under NZ sharemarket tax rules. IOW the FIF regime is not necessarily always bad and something to be avoided.

    SNOOPY
    Last edited by Snoopy; 28-05-2015 at 06:28 PM.
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  6. #6
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    To add to this discussion, calculation of "cost" should be on a LIFO (last in first out) basis. Only use FIFO if LIFO or average cost is not feasible.

  7. #7
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    How are ASX listed ETFs treated?

  8. #8
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    Quote Originally Posted by iced View Post
    How are ASX listed ETFs treated?
    That is a question I am also very interested in...

  9. #9
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    Quote Originally Posted by drew View Post
    To add to this discussion, calculation of "cost" should be on a LIFO (last in first out) basis. Only use FIFO if LIFO or average cost is not feasible.
    Based on EX68(2) of the Income Tax Act, I thought cost should be calculated using FIFO unless you can specific identity the cost, or the quick sale rules apply (quick sale rules use LIFO).

  10. #10
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    Quote Originally Posted by iced View Post
    How are ASX listed ETFs treated?
    IRD keep a list: http://www.ird.govt.nz/calculators/t...tion-2015.html
    It excludes LICs, are the ETFs you're interested in a LIC?

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