US Shares - Taxation

[jorge_telosa]

Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k? So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares. Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct? But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.

Seems like it is better to be under FIF rather than paying 33%, or am i wrong?

So in my case:
1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?
2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.

[SBQ]

Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k? So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares. Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct? But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.

Seems like it is better to be under FIF rather than paying 33%, or am i wrong?

So in my case:
1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?
2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.

No it would be worse than FIF. Regardless of amount invested, every $1 of gain of profit you make from frequent trading (hyperactive day trades, monthly, weekly, etc) would be subjected to RWT rates. The distinction here is you're 'speculating' with the 'INTENT' to profit and not necessarily the intent for retirement savings. Of course this can be disputed by picking 5 accountants in NZ, and not all will agree. Some will say it's only FIF ; but my guess is siding on the 'intent' aspect. For eg. have a look at NZ's managed funds under PIE and none of them practice the habit of day trading so they can maintain FIF standing. I'm certain that would all change if the fund manager changed their scope to doing ultra short term profits vs long term retirement gains. Then their funds would be subjected to corporate tax rates.

The 'quick sale' calculation ONLY applies under FIF. The key determination why FIF came about is to address overseas emphasis of capital gains vs in NZ, the share emphasis is on paying dividends which results in lower capital gain.

[Snoopy]

Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k?

If you mean 'reached' in the sense of adding up all the dollars you invested, and the total dollars you invested added up to less than $50k then you are correct. The FIF regime is not triggered.

So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares.

You are correct in that you won't be subject to FIF, but your reasoning is wrong. You won't be subject to FIF because you haven't invested more that $NZ50k. The fact that you have bought and sold the shares within the same day is of no consequence.

Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct?

Correct, because the cash you outlaid for the trade was less than $NZ50k. Whatever you sold the shares for is of no consequence as regards the FIF regime..

But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.

As long as your total active investments from all potential FIF sources add up to less than $NZ50k at any one time, then FIF does not apply.

Seems like it is better to be under FIF rather than paying 33%, or am i wrong?

I have extensive personal experience with FIF, but I should add I have always held through a year and therefore never invoked the quick sale provisions myself. But from my reading of that KPMG summary it appears you would benefit from being under FIF if you made -on average- more than 5% on all your trades for the year. Yet you have to remember that FIF does not apply to single trades. You cannot pick and choose what trades you do under FIF and what you don't, and it applies to all trades as 'one transactional collective' for the year. As a day trader, I think it is very unlikely you will be able to average 5% return on all trades. So by far the most likely result is that you will end up paying tax on the actual net profits you make from your trades

So in my case:
1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?

Yes

2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.

If your total purchases are less than $50k there is no quick sale adjustment, because you are not in the FIF scheme.

And don't be mislead my those apparently low FIF tax percentages. If FIF did apply then 5% of your total trade purchase value would be the dollar amount of your income from FIF. If you are in the top tax bracket. Then that income is taxed at 33%, exactly the same income tax rate that you would be taxed at as a non-FIF trader. There is no 'lower income tax rate' for FIF scheme participants.

SNOOPY

[jorge_telosa]

Thank you Snoopy. Spot on answers. Appreciated.