Quote Originally Posted by Snoopy View Post
I agree that in the medium term what you say above is correct, in a general sense.

The NZX has plenty of utility companies that you can invest in that are 'all about dividends'. Not sure of the point you are trying to make with those two sentences.
My point is the over emphasis of dividend payments without consideration of appreciation in share price across pretty much all listed NZX companies. I'm not talking exceptions here but a company like The Warehouse should not have a dividend policy during their expansion stage (once they've built enough red sheds all over NZ, then ok i can see the argument). It's prevalent talk in NZ where when people discuss investments in equities (in any share holding), they put dividend payment as the priority. It's riddled in NZ talk so much that NZ brokerage firms use the same emphasis to their clients.

Making a profit will generate a tax consequence for a company, whether or not that profit is paid out as a dividend. So what you are suggesting is that a company that is making a profit should buy a company that is making a loss to extinguish that profit and the consequent tax liability?
???? Let me clarify to the elementary learner. If a company looks to do expansion, they require capital ($$) to deploy. What are the ways a company can raise $ ? Actually I can't believe i'm questioning this as every finance major (and thus every Financial Adviser) should know the main ways for raising capital. i) Borrowing direct from the bank or from external entities ii) Issuing Junk Bonds iii) Issuing more shares ; common or preferred, and iv) Retained Earnings or Shareholder's Equity. Which one poses the least impact on the state of the company's finances? Ding Ding! it would be the latter, using after tax profits it's retained in equity. But The Warehouse group didn't do that. No no, for decades they dished out a stupid 5 or 6% dividend policy while doing the worse, issuing more common shares. No where did I imply profits to be maintained in a company to buy out a losing company - where did that idea come from?

I get you idea of taking a capital profit in small annual chunks rather than receiving that same money via a regular annual dividend. But the imputation credit system we have in NZ means that such a choice is 'tax neutral' for NZ shareholders. In NZ, there is no tax advantage in behaving as you suggest. In the US, with US investors investing in US companies, I accept your strategy may have merit.
'Dividend Tax Credit' is standard treatment everywhere ; because it's not fair to apply corporate tax rates on the profits of a company, then issues dividends where the shareholders again get taxed at the full marginal tax bracket. I know this... What it seems is, somehow, they've forgot that a capital gain is tax free. Warren Buffet has been very critical about this and will never ever pay a dividend from Berkshire.

I don't class myself as a cheerleader for NZ's financial advisors. But I don't think your criticism here is fair or accurate. You must have asked a very convoluted question to elicit the phone responses you have received. I am sure that if you had gone in to see these advisors in person, then you would have found a much more informed response forthcoming. Having said this, while I would expect NZ Financial Advisors to have a good grasp of NZ tax laws and their consequences, I wouldn't expect them to be able to advise on specific overseas tax issues.
No they don't. The questions I asked regarded around FIF / FDR rules and more specifically, if a wealthy person living in NZ was to inherit $10M from a family member living in N. America, for which the $ is wholly invested in US equities, what would the NZ resident best do with that $ ? It's not even questions like this. Most simply tell me straight out that from a tax point of view, you're better to invest in NZ real estate; after all, the key reason why the NZ gov't has been trying to attack rising house prices with CGT is to address the gross differences between investing in managed style funds or in real estate. BWT, none of the financial advisers informed about using IRD's website but instead, say they know a great 'tax consultant' I can be referred to.

Investing in small high growth start ups is a high risk return game all over the world. Often an 'angel investor' selling down to let in a lot more smaller investors in is the only way small investors can participate in these business ventures. These ventures still remain high risk return though. You can't blame the ownership structure and 'big boys in the know selling out' for every NZ start up company failure.

No it isn't. Contrary to popular belief, you can lose capital by investing in property.
NZ shouldn't even be in this game of speculating small start ups in NZ. Take a look at the investment make up in Scandinavian countries; they're smart enough to figure out that they have no barriers for their citizens to speculate. Notably, investors there (and gov't pensions there) invest directly in US equities - even in small risky startups in the US. Instead in NZ, we have a TAXED coerced decision by Michael Cullen (who brought in FIF) to address this discrepancy by making NZ residents to favor NZ assets.

Let me put it this way. If we were go shopping in a massive supermarket complex and all the shelves are full of choices you can choose to invest in. What % does NZ sit in all those shelves? Maybe 1% at best? So why should people in NZ be limited to choosing their retirement in that 1% of the global market share of assets to choose to invest in?

@Aaron: As long as it is longer term any residential property that is not your own home sold within 5 years of buying it for a profit will be taxable. Bright Line Test.


The Bright Line Test was a joke to begin with when they changed it to 2 years. No one is going to think 5 years is would make any difference. It won't. IRD already has rules in place where if you flip a house, the gains are taxed at income rates. Do it many times over 1 year after another.. expect to be taxed on the capital gain. Planning for retirement doesn't come in 2 or 5 years... the time frame should be over decades, for which this 5 year holding period on a house is of moot interest.