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Originally Posted by alistar_mid
I am asking because I know a lot of people would have companies of family trusts which would do a lot of share trading, but in a lot of cases these entities don't pay capital gains tax. It is a gray area with the IRD, so its kind of at what point is it "yes you are actively trading" and need to pay capital gains tax, .
I think you need to change the terminology. There is no capital gains tax in NZ for shares. if you were to be taxed on gains from shares then I think it is "trading profits" you are going to be taxed on. So if you are "actively trading" then you will have to pay "income" tax on the gains made and deducting the losses of course.
Whether it is a company doing the "trading" or a individual or a trust is a moot point.
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Member
Originally Posted by blackcap
I think you need to change the terminology. There is no capital gains tax in NZ for shares. if you were to be taxed on gains from shares then I think it is "trading profits" you are going to be taxed on. So if you are "actively trading" then you will have to pay "income" tax on the gains made and deducting the losses of course.
Whether it is a company doing the "trading" or a individual or a trust is a moot point.
hmm so it comes down to the definition of actively trading?
The reason is I am looking up to set up a private investment fund, I have enough interest and would be able to start the fund off in the 6 figure mark. The only problem is what entity to set it up in. I originally thought a company / trust would not work because of capital gains tax, but seeing as the definition of what is actively trading is very grey, and the threshold for what constitutes actively trading is probably far in excess of the number of trades I would be making, I now think a company is the way to go.
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Originally Posted by alistar_mid
hmm so it comes down to the definition of actively trading?
The reason is I am looking up to set up a private investment fund, I have enough interest and would be able to start the fund off in the 6 figure mark. The only problem is what entity to set it up in. I originally thought a company / trust would not work because of capital gains tax, but seeing as the definition of what is actively trading is very grey, and the threshold for what constitutes actively trading is probably far in excess of the number of trades I would be making, I now think a company is the way to go.
Enough interest. Is that using other people as investors with you and you making all the investing decisions?
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Originally Posted by unhuman
Whether the share sale is taxable or not is a different question and depends on many different factors. But ultimately if there is taxable income in the company, when the shareholder withdraws funds they will need to pay a salary or dividend. The dividend will have IC's attached thus 5% RWT will be payable bringing the ultimate tax rate to 33%, or a salary which will reduce the income in the company, while increasing the tax paid by the shareholder.
Hold up. If the Company is not actively trading, then it is not paying tax on those capital gains. When you come to distribute those capital gains, you will have no IC's so any distribution will be fully taxed - not ideal (assuming you dont have IC's from other taxed activities). The only way to get untaxed gains out tax free is to liquidate the company.
In the good old days of qualifying companies, this wasn't an issue (note. from memory, legacy QC can still do this).
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^ Correct, but my interpretation when applied to a situation if a company was not actively trading then capital gains on sales during the life of the company would presumably be rare as they would be holding the shares long term.
If there were sales then one would think that the gains would be reinvested in other shares etc rather than withdrawn to the shareholders, provided all shares weren't being sold and withdrawn. In which case preparing a capital dividend on liquidation wouldn't be an issue as the company would no longer have any purpose.
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Originally Posted by 777
Enough interest. Is that using other people as investors with you and you making all the investing decisions?
Yep, still sorting through the legalities of setting it up, but it would be me making all the investment decisions. It won't just be shares I plan to have some in Harmoney, in some snowball effect stuff etc
It came about as i now make more income off investing than my 9-5, alot my friends are aware of it but don't have the time / effort to get started in investing, nor the patience for the admin. So this idea came about to help them out, to do more of what i like doing. Not taking any fees either.
Nothing finalised yet. still need to sort out how to protect both parties.
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Interesting. Sort of a share club with a difference. Best of luck and I hope you don't lose any friends.
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Originally Posted by unhuman
If there were sales then one would think that the gains would be reinvested in other shares etc rather than withdrawn to the shareholders, provided all shares weren't being sold and withdrawn. In which case preparing a capital dividend on liquidation wouldn't be an issue as the company would no longer have any purpose.
So you have created a successful investing company and you want some cash out to enjoy, but you have to liquidate the whole thing to do it tax free? That might be true but I expect at some stage, you may want to take only part of the cash out and it will be trapped, due to tax inefficiency.
Originally Posted by alistar_mid
Yep, still sorting through the legalities of setting it up, but it would be me making all the investment decisions. It won't just be shares I plan to have some in Harmoney, in some snowball effect stuff etc
It came about as i now make more income off investing than my 9-5, alot my friends are aware of it but don't have the time / effort to get started in investing, nor the patience for the admin. So this idea came about to help them out, to do more of what i like doing. Not taking any fees either.
Nothing finalised yet. still need to sort out how to protect both parties.
Investing money on behalf of others. Have you check the legal requirements of this? Pretty sure there are a whole lot of rules to stop you being the next David Ross/Hubbard/Bernie Maddoff (not that they helped in those situations).
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Member
Originally Posted by Harvey Specter
Investing money on behalf of others. Have you check the legal requirements of this? Pretty sure there are a whole lot of rules to stop you being the next David Ross/Hubbard/Bernie Maddoff (not that they helped in those situations).
currently doing this (checking the legal requirements).
and at the moment its only open to very close friends (who known me 20+ years, know where I live etc lol) and part of how its going to work is with total transparency with the ability for investors to cash out at any time.
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Originally Posted by alistar_mid
currently doing this (checking the legal requirements).
and at the moment its only open to very close friends (who known me 20+ years, know where I live etc lol) and part of how its going to work is with total transparency with the ability for investors to cash out at any time.
Great way to lose friends , go into business with them . Cash out at any time..... going to get ugly after a GFC type event - "You can checkout anytime you like but you can never leave "
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