Tax free on NZ shares

[FIsaver]

So as I understand, New Zealand and Australian shares don't have capital gains or market movement tax. However income or dividends payed, you do have to pay tax on at your PIE rate.

When you use a reinvestment plan and get more shares - does this mean that you don't have to pay tax? (buy and hold >18 months) before sale and then it's just a broker fee.

Does this count for ETF's too?

Overseas shares get taxed at 5% of the total market value, regardless of an up or down movement. Over 10 years of a buy and hold investor this is a pretty big difference.

Example:
- 100k initial investment
- 10 years
- 10%pa return reinvested (S&P500 historic return before inflation)
- overseas taxed at 5%pa

NZ = $270,704
Overseas = $162,081

If this is a 59.87% total
difference after 10 years that averages out to 16.70% per year. Does this mean that overseas shares would need to beat our New Zealand shares by at least 16.70% for it to be 'worth' the same?

[blackcap]

So as I understand, New Zealand and Australian shares don't have capital gains or market movement tax. However income or dividends payed, you do have to pay tax on at your PIE rate.

When you use a reinvestment plan and get more shares - does this mean that you don't have to pay tax? (buy and hold >18 months) before sale and then it's just a broker fee.

Does this count for ETF's too?

Overseas shares get taxed at 5% of the total market value, regardless of an up or down movement. Over 10 years of a buy and hold investor this is a pretty big difference.

Example:
- 100k initial investment
- 10 years
- 10%pa return reinvested (S&P500 historic return before inflation)
- overseas taxed at 5%pa

NZ = $270,704
Overseas = $162,081

If this is a 59.87% total
difference after 10 years that averages out to 16.70% per year. Does this mean that overseas shares would need to beat our New Zealand shares by at least 16.70% for it to be 'worth' the same?




I would suggest you talk to an accountant. Just with the overseas shares example. Your NZ shares the dividends are taxed, whilst the overseas ones they are not (as they are included in the 5% thingee although this explanation is too simplistic. there are other options than just the 5% thing too, if you elect to be taxed on capital gains then the 5% does not apply.)

Also your reinvestment scenario does not make any sense to me. What has the 18 months or greater got to do with anything?

But there are others on this forum who are more knowledgeable than me on this but most will suggest you see an accountant as some of these laws are rather murky, open for interpretation and can be challenged.

[unhuman]

Accountant here. You are confusing about 5 different forms of tax.

As above, I would recommend that you consult your own accountant.

[huxley]

"When you use a reinvestment plan and get more shares - does this mean that you don't have to pay tax? (buy and hold >18 months) before sale and then it's just a broker fee"

You still have to pay tax on your dividend income regardless if you take cash or reinvest through a DRP. Its unclear to me if you're referring to a pie fund or an individual holding though..

Probably a good idea to get some personal tax advice...:)

[777]

NZ Shares.

All distributions/dividends are taxable. Some are fully taxed at PIE rate of 28c if they qualify as a PIE. These do not need to be included in your tax return as that is your final liability. The majority of dividends are taxed at 33c which is made up with imputation credits ( maximum of 28c) and resident withholding tax (min 5c). If you are on a lower marginal rate then you can expect a refund when doing your annual tax return.

Foreign shares are a bit more complicated and by your posting I would suggest you need to get more professional advice as has been suggested. FDR and $50,000 minimum etc can be searched in the IRD site for your education.


You also need to know the difference between investing in shares and trading in shares. Like other posters have noted, your statement of 18 months has no relevance to anything.

[Harvey Specter]

You still have to pay tax on your dividend income regardless if you take cash or reinvest through a DRP. Its unclear to me if you're referring to a pie fund or an individual holding though..All NZ dividends are tax paid (due to imputation credits attached and withholding tax withheld), even if it is a DRP. If its a DRP, only the net amount is re-invested.

[FIsaver]

right to the point :-) guess I better leave it to the experts

[huxley]

All NZ dividends are tax paid (due to imputation credits attached and withholding tax withheld), even if it is a DRP. If its a DRP, only the net amount is re-invested.

Good point! I overlooked this since I usually only encounter this through my ANZ shares.