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pickle_master
28-03-2007, 10:30 AM
Hi all,

I am still relatively new at investing and have a hoping some of you might be able to help.

I have pretty much just bought shares and sat on them and only started to sell them last year (my first shares were from the AIA listing many years back).

I have heard that if you have bought shares with the purpose of income (dividends) then you don't need to pay any capital gains tax. However, I am now thinking that I may want to buy and sell shares more often so could I be subject to this?

Should I setup a company - Is that the best structure?

Sorry, nearly forgot - I live in NZ

Thanks very much
PM

duncan macgregor
28-03-2007, 11:51 AM
You can run two seperate accounts in your own name, one investing and one trading. Write it all out prior to the event what you intend doing. To make it easier to follow run it from different bank accounts, and brokerages. The IRD only want honesty, dont mix it up keep both accounts completely seperate. It is easier to form a company to trade, but no requirement to do so. macdunk

shane_m
28-03-2007, 12:08 PM
mate but can you have two HIN's?

pickle_master
28-03-2007, 03:09 PM
Thanks Macdunk.

So what tax will i have to pay on profits?

thanks
PM

russki
28-03-2007, 03:50 PM
Could you also set up an LAQC to own the shares and then claim any interest on borrowings against your income? Same way as property investors do? Only really helps if you're borrowing
to invest

pickle_master
29-03-2007, 06:42 PM
Hi Russki

I wasn't really looking at borrowing (though I will probably start looking into CFDs at some stage).

Is anyone able to let me know what tax I need to pay if I was trading?

Thanks
PM

CJ
29-03-2007, 11:13 PM
quote:Originally posted by pickle_master

Is anyone able to let me know what tax I need to pay if I was trading?You pay tax on the gain (disposal price - purchase price) at your marginal tax rate. This is simplistic so any dividends/costs etc will need to be taken into account. If in a company, tax rate will be 33% and it will be more difficult to get access to the money when you need it (not imposible but there will be paperwork involves as opposed to just transfering funds from your trading account to your chq account.

Ruski - No reason to set up a LAQC just to borrow. Why not borrow in your own name? Property owners use LAQC for different reasons if this is what you are thinking.

rev
30-03-2007, 07:27 PM
Hello. If I were to form a company for the sole purpose of doing more trading than investing, could I use the Share Transfer policy to gift or move the shares I have at present into a company title from an individual without attracting unwanted attention from 'the man'.

I've only recently started investing, took plenty of advice from this site and then applied a bit of my own research, again stuff I'd learn't from here, crossed my thumbs and waited and watched a modest investment grow, now I'm at the point that I'd like to continue with this exciting new hobby and try to ease back on the hours from a real job.

Hope I haven't deviated from the original thread too much. Any advice appreciated.

Cheers.

CJ
30-03-2007, 08:17 PM
YOu can use the share transfer form so you dont attact brokerage costs.

If you gift it, gift duty will be payable. If you sell at market value, no issues but you will need to pass consideration at some point in time.

Why are you worried about attracting attention. If you are going to be trading in a company, I assume you will be paying tax anyway?

I still dont know why you are setting up a company. Why not just have two brokerage accounts and bank accounts. As long as you keep them sepatate (as you would still have to do with a company) there will be no issues.

If you were transfering to a trust (or company owned by trust) taht would be different.

What is the benefit of establishing a company other than bragging rights - "I own my own investment company"

rev
31-03-2007, 07:18 AM
Cheers CJ.
Wasn't aware that it's possible to have two seperate accounts in the way you mention. I fully expect and intend to pay my share of tax, but for some reason I thought I'd be taxed on the highest rate for all income. I can see better profit from more short to medium term trades and paying tax, than I'd see with a few longer term tax free investments. It's clear I need to do more research. Of to the library today.
Also, at what point do profits from ASX listed shares get taxed, when I sell them, or is it up to me to put it in the tax return?
Thanks.

pickle_master
31-03-2007, 07:43 AM
quote:Originally posted by broke

Do you have a student loan pickle_master?


Hi Broke

No I don't have a student loan.

CJ - Thanks for your help

Thanks
PM

Jessie
31-03-2007, 04:39 PM
quote:Originally posted by duncan macgregor

You can run two seperate accounts in your own name, one investing and one trading. Write it all out prior to the event what you intend doing. To make it easier to follow run it from different bank accounts, and brokerages. The IRD only want honesty, dont mix it up keep both accounts completely seperate. It is easier to form a company to trade, but no requirement to do so. macdunk


When does investing become trading? Suppose I have $200K in 20 shares with buy-and-hold intentions, but replace on average 4 or 5 every year (eg, because a company's situation has changed or it has become over-priced), am I a trader?

Ricardo
31-03-2007, 05:36 PM
Jessie, if you search this site you'll see the topic has been thrashed out many times, and some quality opinion given.
It's all about "intention", and for your situation as described, in my view you would not be a trader.

pickle_master
31-03-2007, 09:34 PM
quote:Originally posted by CJ


quote:Originally posted by pickle_master

Is anyone able to let me know what tax I need to pay if I was trading?You pay tax on the gain (disposal price - purchase price) at your marginal tax rate. This is simplistic so any dividends/costs etc will need to be taken into account. If in a company, tax rate will be 33% and it will be more difficult to get access to the money when you need it (not imposible but there will be paperwork involves as opposed to just transfering funds from your trading account to your chq account.


Hi CJ
So does that mean that it would be better to use a company if you are above the 33% tax rate?

Thanks again.
PM

limegreen
02-04-2007, 03:53 PM
quote:Originally posted by pickle_master
So does that mean that it would be better to use a company if you are above the 33% tax rate?

Thanks again.
PM


Possibly. It depends whether the extra complexity outweighs the 6% margin. Also, as an accountant recently mentioned to me, if there is a change of govt and tax policy soon, it might also be a lot of effort for relatively little gain.

CJ
02-04-2007, 07:35 PM
quote:Originally posted by limegreen


quote:Originally posted by pickle_master
So does that mean that it would be better to use a company if you are above the 33% tax rate?

Thanks again.
PM


Possibly. It depends whether the extra complexity outweighs the 6% margin. Also, as an accountant recently mentioned to me, if there is a change of govt and tax policy soon, it might also be a lot of effort for relatively little gain.


So you have income in the company that has been taxed at 6% less. what do you do with that surplus cash. You invest it so no issue. But if you actually need to get access to it, you will need to pay a dividend and will therefore be taxed at your marginal rate. This could be years down the track however, in which case you could be unemployed (ie. retired).

Have you considered a trust? More costly to see up but more flexiable in the future for distributing earnings (ie. pay the kids eduation (once over 16) and take advantage of their low marginal tax rate, or make distribution to the housewife/husband to utilise theirs)

pickle_master
02-04-2007, 09:52 PM
Thanks Limegreen and CJ.

CJ:
Thats a good point about still having to pay the marginal rate when you pay dividends...
Its interesting that you mention a trust. When I setup our trust for our property, I enquired with our lawyer about whether it would be wise to have our shares within the trust as well. However it mumbled something about it being difficult and not many people do it...

I wonder how many of us use trusts vs companies vs personal?

Once again thanks for everyones input.
PM

CJ
03-04-2007, 06:28 PM
quote:Originally posted by pickle_master

Thanks Limegreen and CJ.

CJ:
Thats a good point about still having to pay the marginal rate when you pay dividends...
Its interesting that you mention a trust. When I setup our trust for our property, I enquired with our lawyer about whether it would be wise to have our shares within the trust as well. However it mumbled something about it being difficult and not many people do it...

I wonder how many of us use trusts vs companies vs personal?

Once again thanks for everyones input.
PM


A trust would be more difficult for trading as in theory you need to get trustee approval for all actions. For buy and hold it isn't an issue (unless you live across the world and Gibbs only gives you one week to get your Tower shares form back to him - from personal experience).

Not sure if the Trustees can delegate powers to invest (I know they can but not sure how legit it looks it it is delegated to the settlor/trustee/beneficary).

limegreen
04-04-2007, 10:17 PM
quote:Originally posted by CJ
A trust would be more difficult for trading as in theory you need to get trustee approval for all actions. For buy and hold it isn't an issue (unless you live across the world and Gibbs only gives you one week to get your Tower shares form back to him - from personal experience).

Not sure if the Trustees can delegate powers to invest (I know they can but not sure how legit it looks it it is delegated to the settlor/trustee/beneficary).


I think the effective way to delegate power to invest is to have the trust set up a company[B)]

OldRider
26-04-2007, 08:02 AM
I have worked in the past using two ownership structures, a partnership of two trusts, and a company. One for long term investment and one for shorter term more speculative shares, where changes are likely to occur more often.

Reviewings matters recently with my solicitor, he raised the desirability of having an independent trustee for the trusts, and asked if I thought this would be possible - in practice no sane person would accept the position and neither would the solicitors company set up for this purpose. Proposed solution is as mentioned above, a company set up and owned by the trusts run by the present trustees of the trusts, as directors of the company. With this setup the solicitors company would act as an independent trustee for the trusts.

As a side issue, over many years the return from the company has only been round 40% better than the trusts, taking tax into consideration together with extra work and accounting costs, I am presently wondering whether it is worth the effort.