US treasury Bonds

[Caribbean]

Has anybody got any avenues to explore regarding getting exposure to US treasures >50k cost without being captured by FIF?
As far as I understand foreign bonds are exempt from FIF, however bond fund ETFs such as TLT via hatch or GGOV via
the ASX are not.

Cheers

[SBQ]

From what I recall (and others can correct me), 'interest bearing' incomes from either term deposits or bonds, are taxed at individual income rates. FIF does not apply but the interest you receive from abroad is fully taxable at individual income tax rates. This applies regardless if the interest income is earned in NZ or abroad because the individual is "taxed on a world wide basis"

But why would you want to buy US T-Bills when NZ fixed term rates locally have similar yields? It's not like for a US resident, if they buy municipal bonds the interest is tax free. You can be sure IRD is not going to let a loop hole to allow tax free income just because it's earned abroad.

[Caribbean]

Thanks for the reply, I should have been more clear. I understand income will be taxed regardless, I was referring being taxed on the capital appreciation on said bonds.(In this case assuming an increase in value)

[SBQ]

Thanks for the reply, I should have been more clear. I understand income will be taxed regardless, I was referring being taxed on the capital appreciation on said bonds.(In this case assuming an increase in value)

Gov't bonds are usually sold at a discount value and paid 'par value' at maturity. The difference between these 2 values is the interest income. If you don't hold to maturity, then the value of the bond will be less than par value. Either way the difference between the discount and disposed value will be the interest earned.

[Caribbean]

If we are talking short dated bills then yes I more or less agree, However if we are talking long dated bonds/bond funds such as GGOV or TLT (Long dated US treasuries 20year+) which have an effective duration of 17.5. become a lot more sensitive to changes in interest rates and can deviate further from Par value.

A 1% move down (in yield) in the funds underlying long dated treasuries should translate to a roughly 17.5% move up in the funds NAV/your holding.

In this example you have made a 17.5% in capital appreciation, if this was made via a listed bond fund such as TLT/GGOV and cost base was over 50K nzd then you will be captured by FIF but if you were holding a bond/bonds with the same effective duration and made the same theoretical capital appreciation it would not be captured by FIF. Coupons collected along the way are taxed as income regardless.
Anybody feel free to chime in if I am missing anything here.

[smpl]

SBQ: Caribbean is talking about bonds not bills.

Carribean: you can open an account with any of the large brokerage firms which give access to the cash bonds market.