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Lizard
11-05-2008, 10:48 AM
Yesterday, I started on a spreadsheet which would give Fair Dividend Rate and Comparative Value tax calculations for holdings which come under the FIF tax regime...

I started with my simplest portfolio, but after realising how much data I would still need to enter and my table had grown to about 30 columns and 50 rows... I decided that maybe it would be simplest to just pay on FDR - particularly for the non-trading portfolio which doesn't have any quick sales.

Maybe I am making it too complicated. Just wondering how everyone else is getting along?

Lizard
11-05-2008, 02:39 PM
Okay, well I've just completed the first portfolio (FIF regime tax only so far - the rest should be easier). The portfolio held 11 non-exempt shares through the entire year, made 13 transactions and no quick sales.

In order to get enough data to calculate taxable income under both the comparative value and fair dividend rate methods, I needed to find and enter an estimated 310 pieces of data including all quantities, values, dates, exchange rates and dividends.

Was it worth it? Hmm.

OldRider
11-05-2008, 07:40 PM
Lizard:
I have qualms myself about what will be necessary to complete this years tax return, the thought of coping myself didn't seem to be a good idea, as you seem to have
illustrated. What the accountant's fees might be to do the job for me, with Pie's, Australian shares in and out of indexes, plus British Investment trusts I shudder to think,
but am prepared for a doubling, perhaps tripling or more.

Small wonder that our productivity as a nation declines year by year, if this small area is the norm across the business world. I had thought in retirement life was going to be simpler,

Snapper
11-05-2008, 08:17 PM
Why don't you just use the FIF calculator on the IRD website? Go to http://www.ird.govt.nz/calculators/keyword/incometax/ and click on Foreign Investment Fund Calculator.

Snoopy
11-05-2008, 09:12 PM
Why don't you just use the FIF calculator on the IRD website? Go to http://www.ird.govt.nz/calculators/keyword/incometax/ and click on Foreign Investment Fund Calculator.

I was going to mention that Snapper. However, have you actually used the IRD calculator?

I threw a few numbers into it last week. Unfortunately I couldn't see anywhere to put in my dividend information. Under the FIF regime 'comparative value' method you are meant to treat capital appreciation/depreciation and dividends in the same breath so that you can calculate your 'total return' for the year. Dividends are not taxed separately under the FIF regime.

With no way of inputting dividend information, this calculator is going to give taxpayers the wrong 'deemed income' information. Returns compiled using the IRD calculator may well be in breach of the Income Tax Act 2006 amendments. It seems to me utterly unbelievable that the IRDs own website could be so badly misleading. I left the IRD website last week thinking *I* must have got it wrong. I am hoping that someone on this website can prove me to be the fool. But don't take my word for it. Take a look at for yourselves and see what you think.

SNOOPY

Lizard
11-05-2008, 10:18 PM
I have tried using the IRD calculator - the same information still has to be input, but it is much slower to enter in this format and can't go back and make corrections easily or see what has gone in while in process.

Dividends can be entered, but from memory you have to put them in as another transaction and select from transaction type.

Unfortunately the web-site adds no value over and above a correctly built spreadsheet. It would be useful if it drew down data from a database such as exchange rates, dividends and closing prices for shares held the entire year. As it stood when I looked, it couldn't even identify if you put in an exempt share code.

In the end, creating the spreadsheet will mean I can use it to log transactions as they occur during the year and avoid the crunch at year end.

Also, I'm not sure what happens to your IRD calcs if the power or internet goes down during process - it would probably take most people a few hours to locate and enter all data.

The trouble with relying on the accountant is that they are really going to be reliant on you to provide most of the info anyway (barring perhaps exchange rates).

If anybody who is Excel capable wants a non-guaranteed copy of my spreadsheet as a starting point for their own spreadsheet, then feel free to PM me with an e-mail address. Be patient though. It might take a few days to double check and produce a "template" version (i.e. without all my data!).

Snapper
11-05-2008, 10:23 PM
I was going to mention that Snapper. However, have you actually used the IRD calculator?

I threw a few numbers into it last week. Unfortunately I couldn't see anywhere to put in my dividend information. Under the FIF regime 'comparative value' method you are meant to treat capital appreciation/depreciation and dividends in the same breath so that you can calculate your 'total return' for the year. Dividends are not taxed separately under the FIF regime.

With no way of inputting dividend information, this calculator is going to give taxpayers the wrong 'deemed income' information. Returns compiled using the IRD calculator may well be in breach of the Income Tax Act 2006 amendments. It seems to me utterly unbelievable that the IRDs own website could be so badly misleading. I left the IRD website last week thinking *I* must have got it wrong. I am hoping that someone on this website can prove me to be the fool. But don't take my word for it. Take a look at for yourselves and see what you think.

SNOOPY

No, I haven't used it yet. I just assumed that since it was on the IRD website it would be OK. Silly me!

Lizard
12-05-2008, 06:31 AM
I am hoping that someone on this website can prove me to be the fool. But don't take my word for it. Take a look at for yourselves and see what you think.

Hi Snoopy,

Just checked again. Dividends are there. However, you have to allow 1 transaction for every dividend received when the calculator asks you how many transactions. If you don't allow any, then you won't see the toolbar you need to enter them.

After you've entered the transaction number, then you need to select "gross dividend" from the drop down menu under transaction type.

(You aren't a fool though - it's not very obvious is it? Especially for people that don't make many transactions!)

Cheers, Liz

Snoopy
12-05-2008, 10:13 AM
Hi Snoopy,

Just checked again. Dividends are there. However, you have to allow 1 transaction for every dividend received when the calculator asks you how many transactions. If you don't allow any, then you won't see the toolbar you need to enter them.

After you've entered the transaction number, then you need to select "gross dividend" from the drop down menu under transaction type.

(You aren't a fool though - it's not very obvious is it? Especially for people that don't make many transactions!)

Cheers, Liz

OK, thanks Lizard. I am quite happy to be proved the fool this time. I certainly never saw that drop down menu. Because I didn't do any buying or selling during the year I just assumed I had done no transactions- silly me! I am still have difficulty getting my head around just doing nothing and receiving a dividend as equivalent to 'making a transaction'. This mixing up of the dividend account and capital account has yet to be hard wired into my brain.

I had intended to avoid this whole FIF thing and sell down my overseas positions to under the threshhold. I did get around top selling down much of the dross, and to that end I have Cullen and Dunne to thank. However, I failed to get my total holdings under the threshold by the due date (it's a long story). Then faced with being subject to the Cullen Dunne tax I suddenly thought: "What am I doing letting these two guys dictate my global investment policy."

I had been subject to the old FIF regime anyway, so it wasn't a huge leap of culture for me to have to dovetail inside the new one.

SNOOPY

777
15-05-2008, 07:46 AM
I see that the guide that arrived with my IR3 does not give much assistance in what is to be included as FDR liable income. Still it is better than the guide that arrived with my Trust return which was a repeat of last years and therefore out of date.

Has anyone worked out how they will handle a Macquarrie CMT account. Macquarrie sent out a letter saying it would be FDR liable for 2007/2008 but not for 2008/2009. However if you look at the IRD website (TIB's), they say that the exemption applies for the 2007/2008 year.

If anyone has Titan Trusts out there, are you going to include them or rely on the ruling the IRD gave them when they were established?

Snoopy
15-05-2008, 09:53 AM
Has anyone worked out how they will handle a Macquarrie CMT account. Macquarrie sent out a letter saying it would be FDR liable for 2007/2008 but not for 2008/2009. However if you look at the IRD website (TIB's), they say that the exemption applies for the 2007/2008 year.


I suspect MacQuarrie had not caught up with the Commissioner of Inland Revenue's latest determinations at the time their letter was sent to you.

If you look at the April 2008 TIB on page 111 you will see that one of the exemptions to Australian unit trusts coming under the FIF regime include unit trusts that distribute over 70% of their income and use a RWT proxy. That should cover the Macquarrie CMT account.

If you want 'more specific' look at IRD determination FDR2008/2 issued on 8th February 2008. That specifically states that for the MacQuarrie Cash Trust, the FIF regime is *not* to be used.

SNOOPY

777
15-05-2008, 01:08 PM
Thanks Snoopy. That is how I read it but I am sure a lot of people will rely on Maquarrie's interpretation.

Snoopy
15-05-2008, 03:36 PM
Thanks Snoopy. That is how I read it but I am sure a lot of people will rely on Maquarrie's interpretation.

I am sure a lot of people will try to follow Maquarrie's interpretation, *until* they find out what it means! Every transaction has to be processed with an appropriate exchange rate all the way through the year. With some people using their Maquarrie account as a defacto Australian bank account and putting through several transactions per month it would be a logistical nightmare to process! Of course that is exactly what the Commissioner of Inland Revenue discovered, and that is one reason why he made a ruling to exempt the Macquarrie cash trust from the FIF regime.

The fact that the Macquarrie CMT fell into the FIF hole was an obvious (with the benefit of hindsight) mistake. It is clearly not the kind defacto overseas sharemarket investment that the FIF regime was designed to catch. I know that Macquarrie is Australian based. But given the number of New Zealand account holders I would have thought that a letter to NZ based Macquarrie CMT holders explaining to them that it was *not* part of the FIF regime would be in order. Macquarrie are not alone in falling short in their advice.

I have a BT Hi Yield account (very similar to the Macquarrie CMT) in Australia and I received a note to say that I should do my own internet search on the IRD website or contact my tax adviser to see whether I was 'caught' by the FIF regime. Of course when I found out that the BT Hi Yield Trust was an FIF exempt investment I was both pleased and unpleased. Pleased that I didn't have to grind through a mountain of paperwork to satisfy IRD requirements. But very unpleased that BT had not sent me a letter saying it was exempt, as in this instance it is exempt for *all* New Zealand taxpayers, regardless of circumstances.

When I rang BT to give them an ear bashing over this laziness, all they could say was

"Well, yeah we should have done that."

I wonder if Macquarrie or BT will update their advice to NZ based account holders? In my opinion they should.

SNOOPY

Steve
15-05-2008, 04:36 PM
This could turn out to be a good little earner for any tax accountants out there... ;)

Lizard
18-05-2008, 08:38 AM
I sent out the spreadsheet on Friday to those who PM'd me for it. Please let me know if you didn't receive it or had difficulty with the file format. :)

Jay
19-05-2008, 07:22 AM
Thanks Lizard
Received and no problems, I think I have it sorted now for the current (and last year),
thanks to your notes and spreadsheet.

voltage
20-05-2008, 06:18 PM
getting info ready for ird on shareholding. What a nightmare this is. Anyone has simple info on this. if I am under 50000 on overseas I pat tax on dividends but if I am over 50000 and in the last year lost money I pay no tax. Some aussie shares pay over 5% dividend and if not in an index my tax is limited to 5%

voltage
20-05-2008, 06:19 PM
can i use franking credits?

Steve
20-05-2008, 06:22 PM
can i use franking credits?

My understanding is that the answer is still NO!

Jessie
21-05-2008, 08:35 PM
I am sure a lot of people will try to follow Maquarrie's interpretation, *until* they find out what it means! Every transaction has to be processed with an appropriate exchange rate all the way through the year. With some people using their Maquarrie account as a defacto Australian bank account and putting through several transactions per month it would be a logistical nightmare to process! Of course that is exactly what the Commissioner of Inland Revenue discovered, and that is one reason why he made a ruling to exempt the Macquarrie cash trust from the FIF regime.

The fact that the Macquarrie CMT fell into the FIF hole was an obvious (with the benefit of hindsight) mistake. It is clearly not the kind defacto overseas sharemarket investment that the FIF regime was designed to catch. I know that Macquarrie is Australian based. But given the number of New Zealand account holders I would have thought that a letter to NZ based Macquarrie CMT holders explaining to them that it was *not* part of the FIF regime would be in order. Macquarrie are not alone in falling short in their advice.

I have a BT Hi Yield account (very similar to the Macquarrie CMT) in Australia and I received a note to say that I should do my own internet search on the IRD website or contact my tax adviser to see whether I was 'caught' by the FIF regime. Of course when I found out that the BT Hi Yield Trust was an FIF exempt investment I was both pleased and unpleased. Pleased that I didn't have to grind through a mountain of paperwork to satisfy IRD requirements. But very unpleased that BT had not sent me a letter saying it was exempt, as in this instance it is exempt for *all* New Zealand taxpayers, regardless of circumstances.

When I rang BT to give them an ear bashing over this laziness, all they could say was

"Well, yeah we should have done that."

I wonder if Macquarrie or BT will update their advice to NZ based account holders? In my opinion they should.

SNOOPY
Isn't the reverse true in this case? If the Macquarie CMT was included under the FIF scheme as originally seemed the case, it is easy to calculate the tax owing - just multiply the balance at 1 April by 5% and multiply by you tax rate (except when total income from overseas investments is less than 5% when you must calculate actual income). Under the IRD ruling to exempt it from FIF, initial and final balance and all transactions must be converted into NZ dollars and any increase in value must be taxed. Is this true? If so, this is a bit more of a nightmare to calculate than the FIF system.

Snoopy
22-05-2008, 09:48 AM
If the Macquarie CMT was included under the FIF scheme as originally seemed the case, it is easy to calculate the tax owing - just multiply the balance at 1 April by 5% and multiply by you tax rate (except when total income from overseas investments is less than 5% when you must calculate actual income).


Jessie, the FIF regime has two principal options under which your income may be calculated, for listed investments. These are the fair dividend rate (FDR) and the comparative value method (CV). You can switch between one or the other between income years. However, for any particular income year you must choose one or the other method which must apply over *all* of your FIF investments. The method you have outlined (5% of opening balance times your marginal tax rate) would be the FDR tax assessment.

You are correct in saying that the FDR way of doing things is easier than the CV method. However it isn't quite as straightforward as you make out. You still have to work out the tax paid from interest withheld each month. That's because the tax paid can be offset against the deemed FDR tax assessment. In this particular year (31st March 2007 to 31st March 2008) there has been quite a drop in the NZD:AUD exchange rate of some 10%. Under the CV method this exchange rate gain is counted as 'deemed income'. 10% of the opening balance is clearly greater than the actual gross interest you would have received (unless you put in a large deposit into your CMT after 1st April). That means if your CMT balance was roughly the same between years start and years end, then you would be a fool to use the CV method when the FDR method will give you a lower tax bill. In this instance, if the Macquarie CMT was your *only* FIF qualifying investment I think your point that the FDR is relatively easy to calculate is valid Jessie.

However, the FIF regime applies to *all* of your FIF qualifying investments *collectively as though they were a single investment*. So it may be obvious (in this rare case where the cumulative exchange rate gain is greater at all times than the instantaneous gross interest received) the FDR rate is the way to go for the Macquarie CMT investment in FY2008. But that does not mean you should not use the CV method for FY2008, because that depends on what other FIF investments you have. So in general you would have had to do the CV calculation as well, even on the Macquarie CMT this year, if it had not been exempted..



Under the IRD ruling to exempt it from FIF, initial and final balance and all transactions must be converted into NZ dollars and any increase in value must be taxed. Is this true? If so, this is a bit more of a nightmare to calculate than the FIF system.


If the Macquarie CMT is exempted, and it has been, you only need to declare your interest payments and claim back any withholding tax paid, exactly the same as in previous years. You still have to do the exchange rate conversion on your interest payments. But there is no requirement to include any adjustment to the capital value. The method you are describing Jessie:

"initial and final balance and all transactions must be converted into NZ dollars and any increase in value must be taxed."

is part of the CV method of the FIF regime. It does *not* apply to the Macquarie CMT or any other exempt investment.

SNOOPY

Jessie
22-05-2008, 03:19 PM
SNOOPY, thanks for your detailed reply. I have a Macquarie CMT account so am particularly interested in this matter. I also have more than $50,000 (purchase price) of other overseas investments. Given the poor general performance over the last year, I have an overall negative return across all these investments. Therefore, under the CV method I pay zero tax this year. According to the letter sent recently by Macquarie, the CMT is exempt from the FIF in FY2009 and can be exempt also in FY2008 if desired. Clearly it is in my interests to include it in the FIF this year and pay zero tax. Do you agree with this?

A couple more questions:

1. As noted above, CV is zero this year. But can I deduct withholding taxes from FIF investments from my other income?

2. You say that in future Macquarie CMT will be exempted, and "you only need to declare your interest payments and claim back any withholding tax paid, exactly the same as in previous years." However, I recently read a comment from some sharebroker's newsletter (I can't remember exactly where) that foreign currency accounts have actually always been taxed on exchange rate gains or losses (ie, as in the CV method), but that 90% of tax payers have always ignored this requirement. Is this true?

Deev8
22-05-2008, 06:07 PM
As noted above, CV is zero this year. But can I deduct withholding taxes from FIF investments from my other income?

This year's IR3 and IR3 Guide are quite confusing on this point. The guide says:

After you’ve converted the amounts to New Zealand dollars, add up the overseas tax paid and print the total in Box 17A (Total Overseas Tax Paid).

Based on that you would expect the foreign tax that you have paid to be used as a credit against tax due on your other income. However the guide also says:

... the foreign tax deducted from the dividend can be claimed as a credit against the tax payable on the calculated FIF income

and

If you paid tax overseas you can claim it as a credit against your tax. The amount of credit you receive is the lesser of the actual amount of tax paid on the overseas income or the amount of tax you would pay in New Zealand on the same amount of income.

The first statement is saying that the foreign tax that you have paid can only be used to reduce the tax payable on your calculated FIF income, it can't be used to reduce the tax payable on your income arising within New Zealand. Using the CV method the majority will find that their calculated FIF income is zero, so the amount of credit you can claim for the foreign tax that you have paid is also zero.

The second statement seems to confirm that. If the calculated FIF income is zero, then the amount of tax you would pay in New Zealand on the same amount of income would be zero and the amount of credit you can claim for the foreign tax that you have paid is also zero.

If this is the case, then you should actually enter zero in Box 17A of the IR3 rather than the total of overseas tax paid. However it would be good to see something from the IRD to confirm that is the case.

shasta
22-05-2008, 06:35 PM
This year's IR3 and IR3 Guide are quite confusing on this point. The guide says:

After you’ve converted the amounts to New Zealand dollars, add up the overseas tax paid and print the total in Box 17A (Total Overseas Tax Paid).

Based on that you would expect the foreign tax that you have paid to be used as a credit against tax due on your other income. However the guide also says:

... the foreign tax deducted from the dividend can be claimed as a credit against the tax payable on the calculated FIF income

and

If you paid tax overseas you can claim it as a credit against your tax. The amount of credit you receive is the lesser of the actual amount of tax paid on the overseas income or the amount of tax you would pay in New Zealand on the same amount of income.

The first statement is saying that the foreign tax that you have paid can only be used to reduce the tax payable on your calculated FIF income, it can't be used to reduce the tax payable on your income arising within New Zealand. Using the CV method the majority will find that their calculated FIF income is zero, so the amount of credit you can claim for the foreign tax that you have paid is also zero.

The second statement seems to confirm that. If the calculated FIF income is zero, then the amount of tax you would pay in New Zealand on the same amount of income would be zero and the amount of credit you can claim for the foreign tax that you have paid is also zero.

If this is the case, then you should actually enter zero in Box 17A of the IR3 rather than the total of overseas tax paid. However it would be good to see something from the IRD to confirm that is the case.

Once i've completed my spreadsheet & 2008 tax return, i'll post some more on the inner workings.

This is a mess, & as an Accountant i believe this area needs simplification

It must affect far more people than the Govt intended?

Jessie
22-05-2008, 07:42 PM
Further to my previous comment about macquarie CMT, here is a quote from the March MoneyOnline newsletter htp://moneyonline.co.nz/newsletter/mar08/nlmar08.htm#tax
This indicates that in future, the CMT must be taxed under the CV method, ie, foreign exchange effects on all transactions should be included in the calcuation, not just on interest received.

"Macquarie Cash Management Trust Gets IRD Determination

This fund (MCMT) is quite widely held by New Zealand residents and it is a convenient Aussie dollar denominated transaction facility. It is useful for receiving Australian dividends and other distributions and settling share transactions but it pays a rate of interest above bank call rates.

Inland Revenue have made a determination (8 February) that taxation of this FIF (see inset for jargon) shall not be under the FDR method but investors should use the CV method. We are not convinced that many investors will understand the implications of this change.

Taxation of MCMT prior to introduction of the new FIF rules was simple enough. You paid tax on the distributions (converted to NZ dollars). No tax was payable on gains or losses in the unit price because the IRD treated the investment as a "share". The unit price is fixed at A$1.00 - but of course its value fluctuates in NZ$ terms.

Enter the new FIF rules. MCMT becomes subject to the FDR method of taxation. That is complicated in itself, but it is (was) also subject to "quick sale" calculations. Because most people use this as a transaction account, quick sale tax calculations had the potential to become a nightmare.

Macquarie, with the best of intentions, applied to IRD to remedy this situation and received a determination that the FDR method was not applicable and that investors should use the CV method - exclusively (quick sale rules do not apply). For the tax year ending March 2008, investors can choose either FDR or CV but after that, only the CV method should be applied.

Macquarie have written to all investors and advised them of the change. They also said that investors should apply CV method of taxation to "actual income received and all realised and unrealised currency gains". And went on to say this was comparable to the "taxation of an investment in an Australian bank account".

In our view it is highly unlikely that most investors who actually have an Aussie or any other offshore bank account actually make correct tax calculations.

And this is the problem. We'd wager that most simply pay tax on the interest and return nothing for realised and unrealised currency gains on capital - or any interest re-invested.

Offshore bank accounts or other "debt" securities are known generally as "financial arrangements" and have long been subject to taxation on realised and unrealised gains that result from currency movements. And likewise, any losses have been deductible. These are not new rules. They have been around for a long time and, we suspect, ignored by individual investors.

In short, if you own MCMT, and are not exempt under the FIF de minimis rule, you still have a more complex calculation for MCMT than for previous years.

Note: Investors in MCMT wanting to calculate the total cost of their FIF investments for the purpose of ascertaining whether they are exempt from the FDR rules, (de minimis) should still include MCMT. While MCMT itself is no longer subject to the FDR rules, it is still an FIF."

voltage
22-05-2008, 07:53 PM
this all looks so confusing. Sharebroker says will hold all stocks in trustees account and process all dividends and supply tax summary for end of financial year for .35%. Is this worth it????

Snoopy
22-05-2008, 09:24 PM
SNOOPY, thanks for your detailed reply. I have a Macquarie CMT account so am particularly interested in this matter. I also have more than $50,000 (purchase price) of other overseas investments. Given the poor general performance over the last year, I have an overall negative return across all these investments. Therefore, under the CV method I pay zero tax this year. According to the letter sent recently by Macquarie, the CMT is exempt from the FIF in FY2009 and can be exempt also in FY2008 if desired. Clearly it is in my interests to include it in the FIF this year and pay zero tax. Do you agree with this?


The tax laws are set by the NZ Government, and interpreted by the Inland Revenue Commissioner Jessie. Not Macquarie. What is the date on your letter from Macquarie?

Have you seen the FDR2008/2 issued on 8th February 2008 by the Commissioner of Inland Revenue? That specifically states that for the Macquarie Cash Trust, the FIF regime is *not* to be used.

I am in a similar position to you with a "BT Hi Yield account", but with an overall loss on my FIF portfolio for FY2007-2008. It would really suit me too, to use CV and wrap the BT Hi Yield account in there. But I can't find any way to legally do it.



A couple more questions:

1. As noted above, CV is zero this year. But can I deduct withholding taxes from FIF investments from my other income?


Ultimately it comes down to what is written in the taxation legislation Jessie. Have a look at the "Taxation (Savings Investment and Miscellaneous Provisions) Act 2006." It is 221 pages long and covers all sorts of stuff. That act in itself is an amendment to the "Income Tax Act 2004" which is even longer.

My answer to your question is: "I don't know."

But I do hope to find out - for my sake!



2. You say that in future Macquarie CMT will be exempted, and "you only need to declare your interest payments and claim back any withholding tax paid, exactly the same as in previous years."


No, I am saying that the Macquarie CMT is not part of the FIF regime - period. Not this year and not next year, despite what Macquarie might have told you.



However, I recently read a comment from some sharebroker's newsletter (I can't remember exactly where) that foreign currency accounts have actually always been taxed on exchange rate gains or losses (ie, as in the CV method), but that 90% of tax payers have always ignored this requirement. Is this true?


I think it was true if you had a foreign bank account that was outside one of the grey list countries it was subject to the old FIF regime. I also think that this might have been an unintentional effect of the old FIF legislation, which might explain why the IRD did not go around following these 'breaches' up.

OTOH, If you are a declared foreign currency trader, then I think that the net change in your foreign currency account would be assessable, both then and now. That's because you would have opened the account with the specific aim of making a profit on foreign currency trades. However, I have had foreign currency accounts in USD and GBP with the National Bank of New Zealand over FY2007-2008, and I am not a currency trader.

This year FY2007-2008, as usual, the National Bank sent me a tax summary. There was no suggestion in the summary that I had any tax obligations (gains or losses) over and above the interest I had earned on those foreign currency accounts.

If you look at the April 2008 IRD Tax Information Bulletin on page 111 you will see that one of the exemptions to Australian unit trusts coming under the FIF regime include unit trusts that distribute over 70% of their income and use a RWT proxy. Granted this covers only Australian unit trusts. But the thinking behind it is that an investment that distributes 70% plus of its income to the unitholders and pays tax at source is not some kind of income sheltering tax dodge. In summary, I can't see the IRD going after legitimate overseas bank accounts from a 'capital gains' perspective, old FIF regime or new FIF regime.

SNOOPY

Snoopy
22-05-2008, 09:46 PM
The tax laws are set by the NZ Government, and interpreted by the Inland Revenue Commissioner Jessie. Not Macquarie. What is the date on your letter from Macquarie?


Ah so it was a newsletter from 'moneyonline', not Macquarie itself? But it was dated March which was after the FDR2008/2 had come out.



Have you seen the FDR2008/2 issued on 8th February 2008 by the Commissioner of Inland Revenue? That specifically states that for the Macquarie Cash Trust, the FIF regime is *not* to be used.


... or did it say that the FDR calculation is not to be used? It is getting too late. I shall go to the IRD website tomorrow and look it up again to see what the real story is.

SNOOPY

Lizard
23-05-2008, 08:07 AM
I finally received my IR3 form in the mail yesterday and was dismayed to find that if I held foreign shares, I "may be required to complete a disclosure form for interests in a foreign company" and that I needed to call 0800 377 774 to get the appropriate disclosure form. No name or number was given for the form and I could not find such a form on their web-site.

So to spare anyone else 20 minutes of listening to random, unsolicited tax advice, nodding off to dreary music and confusing the IRD call centre staff, I can pass on the answer I eventually received - that is that the form should be available on the web-site in late May (i.e. any day now) and will be called "IR477". If and when I am able to locate this form and determine its purpose, I will post a link here!

I am rather worried that they may expect one form per interest held or traded - especially since the IR3 has space for up to 3 digits in recording the number of disclosure forms attached! Let's hope that nightmare scenario doesn't constitute reality.

kura
23-05-2008, 09:21 AM
I finally received my IR3 form in the mail yesterday and was dismayed to find that if I held foreign shares, I "may be required to complete a disclosure form for interests in a foreign company" and that I needed to call 0800 377 774 to get the appropriate disclosure form. No name or number was given for the form and I could not find such a form on their web-site.

So to spare anyone else 20 minutes of listening to random, unsolicited tax advice, nodding off to dreary music and confusing the IRD call centre staff, I can pass on the answer I eventually received - that is that the form should be available on the web-site in late May (i.e. any day now) and will be called "IR477". If and when I am able to locate this form and determine its purpose, I will post a link here!

I am rather worried that they may expect one form per interest held or traded - especially since the IR3 has space for up to 3 digits in recording the number of disclosure forms attached! Let's hope that nightmare scenario doesn't constitute reality.

I operate my trading through a company (Got IR4 early April) and in my accounting records I had split my trading between "normal" and FDR share transactions, so I had the numbers readily available to plug into the tax return.

I was unsure if I needed to complete a disclosure form, or what type of form (looked up IRD website) so I went through the phoning excercise, and like Lizard, waited for about 20 minutes, and after explaining my question (and IRD staff talking to their technical people) I was told they would get someone from their "smarter than us" division to call me back.

When IRD got back to me, they said there was no appropriate form, and just put in the IR4 return, and don't complete any disclosure form, so that's exactly what I did, I included FDR income in the tax return, and didn't make any additional disclosures.

Since then assessment was issued, and the companies 2008 tax refund is in the bank (Paid too much provisional tax) :)

PS: I like this FDR tax, as I end up paying far less tax on my "speccy" ASX shares ! Thank you Dr Cullen et al.

777
23-05-2008, 09:35 AM
With regards to the Macquarrie CMT account, Macquarrie did send a letter out that says FDR or CV could be used for the 2007-2008 year but that only CV is to be used for future years.

Moneyline have also followed this line of thinking.

Have done the numbers using both methods and it is advantageous (in my case, anyway) to use FDR.

Jessie
23-05-2008, 12:20 PM
My Macquarie CMT had a balance of $20,000 on April1 2007. It earned $1,500 interest and had $3,000 foreign exchange gains. Other overseas investments totalled $90,000 (excluding Australian exempt shares and GPG). These investments suffered net losses of $8,000.

Therefore using the FDR method I would pay tax on 5% of $110,000, ie, $5,500.

Using the CV method, as 4,500-8,000 is less than zero, I pay no tax. I will therefore use the CV method.

As I understand it (probably incorrectly), if this had happened in FY2009, I could still apply the CV method to my other overseas investments paying zero tax, but would have to treat Macquarie CMT separately from other investments, applying the CV method, and therefore paying tax on $4,500. But perhaps I don't have to keep it separate from other investments - this is unclear to me. And according to SNOOPY, in both FY2008 & FY2009, Macquarie CMT is excluded completely from FIF, and I should pay tax on interest only, ie $1,500.

All a bit confusing, but my final decision is to pay no tax.

Snoopy
23-05-2008, 01:13 PM
With regards to the Macquarie CMT account, Macquarie did send a letter out that says FDR or CV could be used for the 2007-2008 year but that only CV is to be used for future years.

Moneyline have also followed this line of thinking.


Moneyline parroting a letter from Macquarrie does not make that letter more valid. However, in this instance after rereading my IRD references I do agree with what Macquarie are saying (with the caveat that they have not given investors the full story).

Here is why.

From the March 2008 IRD Tax Information Bulletin: An extract from the discussion about FDR2008/2 the Macquarie CMT "that does not form part of the determination".

--------

"However, I consider it is not appropriate for New Zealand resident investors to use the fair dividend rate method. Due to the nature of the overall arrangement (as described to me by the applicant) , application of the FDR method would impose unnecessarily high compliance costs on New Zealand investors each of whom would be required to perform a substantial number of quick sale calculations and associated foreign exchange calculations every time they withdrew funds from the non-resident issuer during the year."

Determination applies for 2007-2008 and subsequent income years.

David Carrigan, Policy Manager, Inland Revenue, dated 8th February 2008

--------

When I first read that I in my own mind substituted FIF for FDR and assumed the FIF regime did not apply to the Macquarie CMT. But it seems I was wrong. The Macquarie CMT is subject to the FIF regime and because the FDR option has been ruled out, that means you have to use CV.

Can you see why I made my mistake though? Carrigan's explanation is quite correct about all those extra calculations under the FDR method and the 'quick sale' rules. But what Carrigan doesn't mention is that if you use the CV method you *also* have to account for inflows and outflows from your account during the year at the appropriate exchange rate. Applying CV to an account like this is exactly as labour intensive as applying FDR with the quick sale rules. So the reason for specifying CV by default is IMO mad, because you still have to do all the 'unnecessarily high compliance cost' paperwork anyway! Perversely Carrigan's reasoning *does* make sense if you substitute FIF for FDR.

We can't undo Carrigan's ruling. But judging from Carrigan's written reasoning, it looks like he didn't understand what he was doing when he made it! Notice though that the above ruling *does* apply to the FY2007-2008 year.

Now if we go to page 113 of the April 2008 IRD "Tax Information Bulletin"

--------

"Determinations may be made for the income years specified by the commissioner in the determination. However a determination does not apply for a person and income year beginning before the date of the determination, unless the person chooses that the determination apply for that income year. This election would typically be evidenced by the investor completing their income tax return for the relevant year in accordance with the determination."

--------

So that is why Macquarie say that CMT investors have a choice. Despite the determination specifically outlawing FDR for the 2007-2008 income year, this determination was only made on 8th February 2008. Because the 2007-2008 income year began before that on 1st April 2007, CMT holders can agree whether to abide by it or not.

So sorry Macquarie CMT holders. I got it wrong and your head office got it right after all.

SNOOPY

discl: not a Macquarie unit holder

Deev8
23-05-2008, 01:32 PM
I finally received my IR3 form in the mail yesterday and was dismayed to find that if I held foreign shares, I "may be required to complete a disclosure form for interests in a foreign company" and that I needed to call 0800 377 774 to get the appropriate disclosure form ... to spare anyone else 20 minutes of listening to random, unsolicited tax advice, nodding off to dreary music and confusing the IRD call centre staff, I can pass on the answer I eventually received - that is that the form should be available on the web-site in late May (i.e. any day now) and will be called "IR477".

That's useful information. When I went through the same process with the IRD Call Centre I was finally told that the form required was IR607. Once I downloaded it I realised that it certainly wasn't the form required. If anyone's interested IR607 is a "Foreign trust disclosure" form "to be completed by resident foreign trustees".

I hadn't summoned-up the energy to go through the whole thing again, so I'll take a look at IR477 when it appears.

Deev8
23-05-2008, 01:35 PM
This is a mess, & as an Accountant i believe this area needs simplificationIt certainly needs far greater clarity.

Snoopy
23-05-2008, 01:58 PM
However, in this instance after rereading my IRD references I do agree with what Macquarie are saying (with the caveat that they have not given investors the full story).

So sorry Macquarie CMT holders. I got it wrong and your head office got it right after all.

SNOOPY

discl: not a Macquarie unit holder


Despite my apology I do not consider Macquarie is off the hook entirely. There is a third option which Macquarie did not tell you CMT holders about. That's because the third option was only announced in the April 2008 IRD TIB publication, under the larger heading 'Remedial Amendments', beginning on or after 1st April 2007. These amendments came out *after* the March letter that Macquarie sent to you all. I refer to a paragraph on page 111 which I will now quote:

---------

Australian Unit Trusts Exemption

Section EX 33D of the Income Tax Act 2004 and section EX 32 of the Income Tax Act 2007 provide that investments in certain types of Australian unit trusts are exempt from the foreign investment fund rules.

<snip>

The exemption has also been expanded to include investments in Australian unit trusts that distribute at least 70 percent of their income and use an RWT proxy. This minimum distribution requirement addresses policy concern that these investment vehicles could be used to defer New Zealand tax.

----------

That exemption would certainly cover the Macquarie CMT. However, because it was not gazetted until April 2008, my reading between the lines is that it won't become absolutely binding until the April 2009- March 2010 tax year. By my reading of the rules, Macquarie CMT holders have the following choices.

2007-2008 Tax Year: EITHER declare your Macquarie CMT exempt from the FIF regime. (that means paying tax only on your interest)
OR Use the FIF regime and use either FDR or CV to pay your tax.

2008-2009 Tax Year: EITHER declare your Macquarie CMT exempt from the FIF regime. (that means paying tax only on your interest)
OR Use the FIF regime CV method only to pay your tax.

2009-2010 Tax Year: Macquarie CMT is now exempt from the FIF regime. (that means paying tax only on your interest).

There is one more thing that Macquarie didn't mention. The IRD doesn't allow you to use both the FDR method and the CV method in one year. So before you choose which tax paying method you want to use for your Macquarie CMT, make sure that the method you choose minimises your tax *across your entire FIF portfolio*. What is good for Macquarie CMT on its own, might not be good for for all of your investments taken together.

SNOOPY

777
23-05-2008, 02:03 PM
Snoopy, a very well written contribution. Thank you. The whole thing is a can of worms. I am sitting here using the IRD calculator doing various scenarios to minimize the amount I have to pay. The calculator is frustrating at times. It packs up occasionally and all entries have to be re entered. Still I'll get there.

To those of you who got in contact with the IRD, congratulations. After about 40 mins I ended up on an answer phone. Gave them my opinion of the whole department and in particular the whole FIF situation. I had just had the tax guide with my trust delivered with no information on the new system. All a reprint of last years. Totally unacceptable.

I am a bit reluctant to file early as I think there may be more adjustments to the whole thing before long. My guess is the big accounting firms are having the same difficulty as us understanding it and are in continual contact with the IRD about it. Combined with very few in the department also understanding it must get some action.

Snoopy
23-05-2008, 02:12 PM
My Macquarie CMT had a balance of $20,000 on April1 2007. It earned $1,500 interest and had $3,000 foreign exchange gains. Other overseas investments totalled $90,000 (excluding Australian exempt shares and GPG). These investments suffered net losses of $8,000.

Therefore using the FDR method I would pay tax on 5&#37; of $110,000, ie, $5,500.


Yes but just to make it quite clear, the tax you pay would be your marginal tax rate times $5,000. Not $5,000.



Using the CV method, as 4,500-8,000 is less than zero, I pay no tax. I will therefore use the CV method.


For you, that is a good decision. The CV method is the way to go.



As I understand it (probably incorrectly), if this had happened in FY2009, I could still apply the CV method to my other overseas investments paying zero tax, but would have to treat Macquarie CMT separately from other investments, applying the CV method, and therefore paying tax on $4,500. But perhaps I don't have to keep it separate from other investments - this is unclear to me.


No you can't and won't be able to ring fence one FIF investment from any others. The whole lot must be considered together as one tax paying sub-entity.



And according to SNOOPY, in both FY2008 & FY2009, Macquarie CMT is excluded completely from FIF, and I should pay tax on interest only, ie $1,500.


Don't believe me, go and look up the references I quoted and read it first hand for yourself! If you fill in your tax return and tell the IRD that 'Snoopy told you to do it that way' it will cut no ice with the IRD. You probably saw that I have revised my opinion as to what the correct rules are for paying tax on that Macquarie CMT now:

2007-2008 Tax Year: EITHER declare your Macquarie CMT exempt from the FIF regime. (that means paying tax only on your interest)
OR Use the FIF regime and use either FDR or CV to pay your tax.

2008-2009 Tax Year: EITHER declare your Macquarie CMT exempt from the FIF regime. (that means paying tax only on your interest)
OR Use the FIF regime CV method only to pay your tax.

2009-2010 Tax Year: Macquarie CMT is now exempt from the FIF regime. (that means paying tax only on your interest).

SNOOPY

Snoopy
23-05-2008, 03:40 PM
1. As noted, CV is zero this year. But can I deduct withholding taxes from FIF investments from my other income?


From the IRDs 'Agent's Answers' Issue 94, September 2007. Look for the heading:

"Recent Changes to the FIF Rules You need to consider."

There are various bullet points listed and number five is:

"The removal of FIF loss ring fencing, except for loss calculated under the branch equivalent method."

Given that we aren't using the branch equivalent method, what do you make of that?

SNOOPY

Jessie
23-05-2008, 09:06 PM
Thanks for your detailed explanations and research Snoopy. I think I now understand the status of Macquarie CMT under FIF. I still am unclear whether I can claim withholding tax against other income. Hopefully this will soon be clarified. There must be tens of thousands of taxpayers puzzling over these issues at present, or maybe they are just ignoring the new rules.

Jessie
24-05-2008, 09:03 AM
Moneyline parroting a letter from Macquarrie does not make that letter more valid. However, in this instance after rereading my IRD references I do agree with what Macquarie are saying (with the caveat that they have not given investors the full story).

Here is why.

From the March 2008 IRD Tax Information Bulletin: An extract from the discussion about FDR2008/2 the Macquarie CMT "that does not form part of the determination".

--------

"However, I consider it is not appropriate for New Zealand resident investors to use the fair dividend rate method. Due to the nature of the overall arrangement (as described to me by the applicant) , application of the FDR method would impose unnecessarily high compliance costs on New Zealand investors each of whom would be required to perform a substantial number of quick sale calculations and associated foreign exchange calculations every time they withdrew funds from the non-resident issuer during the year."

Determination applies for 2007-2008 and subsequent income years.

David Carrigan, Policy Manager, Inland Revenue, dated 8th February 2008

--------

When I first read that I in my own mind substituted FIF for FDR and assumed the FIF regime did not apply to the Macquarie CMT. But it seems I was wrong. The Macquarie CMT is subject to the FIF regime and because the FDR option has been ruled out, that means you have to use CV.

Can you see why I made my mistake though? Carrigan's explanation is quite correct about all those extra calculations under the FDR method and the 'quick sale' rules. But what Carrigan doesn't mention is that if you use the CV method you *also* have to account for inflows and outflows from your account during the year at the appropriate exchange rate. Applying CV to an account like this is exactly as labour intensive as applying FDR with the quick sale rules. So the reason for specifying CV by default is IMO mad, because you still have to do all the 'unnecessarily high compliance cost' paperwork anyway! Perversely Carrigan's reasoning *does* make sense if you substitute FIF for FDR.

We can't undo Carrigan's ruling. But judging from Carrigan's written reasoning, it looks like he didn't understand what he was doing when he made it! Notice though that the above ruling *does* apply to the FY2007-2008 year.

Now if we go to page 113 of the April 2008 IRD "Tax Information Bulletin"

--------

"Determinations may be made for the income years specified by the commissioner in the determination. However a determination does not apply for a person and income year beginning before the date of the determination, unless the person chooses that the determination apply for that income year. This election would typically be evidenced by the investor completing their income tax return for the relevant year in accordance with the determination."

--------

So that is why Macquarie say that CMT investors have a choice. Despite the determination specifically outlawing FDR for the 2007-2008 income year, this determination was only made on 8th February 2008. Because the 2007-2008 income year began before that on 1st April 2007, CMT holders can agree whether to abide by it or not.

So sorry Macquarie CMT holders. I got it wrong and your head office got it right after all.

SNOOPY

discl: not a Macquarie unit holder
This determination by David Carrigan of IRD not to use the FDR method for Macquarie CMT (Determination FDR 2008/02) which Snoopy has discovered is confusing for two reasons.

1. IRD's reasoning is that FDR would be too complex to apply to this sort of account. However as you say Snoopy, by implication one must use the CV method which is equally complex (except in my case for this year as total income is negative and no tax needs to be calculated).

2. We know that one must choose only a single method (FDR or CV) for all FIF investments. In a normal year, the FDR method would be the best and is generally considered the 'standard' method. But this ruling forces you to use the CV method for CMT, and presumably you will have to apply it to all other FIF investments if you have a CMT account.

Clearly, these sorts of funds should have been excluded from the FIF scheme from the start, and I think it shouldn't have been difficult to foresee these issues.

Snoopy
24-05-2008, 12:09 PM
I still am unclear whether I can claim withholding tax against other income. Hopefully this will soon be clarified.


I am trying to be careful not to jump to conclusions Jessie.

The general procedure with tax rules is that the legislation is the base. This is translated into an 'understandable form' for the explanation booklet that is included in your tax guide. Finally the Commissioner of Inland Revenue has the legislative power to make binding interpretations when the implication of the law is not clear.

As for the IRDs 'Agent's Answers' Issue 94, September 2007, I don't think you will go too far wrong following the advice dished out there. After all, this is supposedly the information that tax specialists use as guidance for how to conduct their own businesses. However 'Agents Answers' does not have the same legal status as an Act of Parliament or a determination by the Inland Revenue Commissioner.

I know for sure that under the old FIF regime, all the tax paid under the FIF rules was ring fenced. That meant that if you made a loss you were not allowed to offset that against your New Zealand and grey list country income for that income year. The loss could however be carried over to the next financial year and offset against future FIF income.
This has now changed. While you don't pay tax on your annual FIF losses, at least as an individual, you do not get to carry those losses over to the following tax year either.

"The removal of FIF loss ring fencing, ..." is specifically referred to in "Agents answers". I haven't located the corresponding legal clauses yet. Until I see what the underlying legislation says I am reluctant to put my own interpretation on this comment which has no legal status in its own right.

Deev8 has previously highlighted on this thread the note on page 21 of the IR3 guide under the heading "Question 17 Overseas Income". This quote in full is as follows:

-----------

Under the new FIF rules, dividends received from overseas companies (except companies covered by the exclusions listed under foreign rights at Question 38) are no longer separately taxable. Generally you would use the new default FIF income calculation method , called fair dividend rate, which does not tax dividends separately. However, the foreign tax deducted from the dividend can be claimed as a credit against the tax payable on the calculated FIF income.

------------

Deev8 then says
"The statement is saying that the foreign tax that you have paid can only be used to reduce the tax payable on your calculated FIF income. It can't be used to reduce the tax payable on your income arising within New Zealand"

I agree that on casual reading that is the interpretation that many people might take. But I don't agree with Deev8's interpretation. 'Generally' the amount of tax deducted from overseas sources will be insufficient to meet your FIF tax obligations in New Zealand. But not always! And for most FIF taxpayers I am picking that the overseas tax deductions made are greater than those required under the FIF regime for FY2007-2008. Thus for the 2007-2008 year many taxpayers will have excess FIF tax credits. If you go with the 'Agents Answers' these losses are no longer ring fenced and so by implication *can* be transferred to offset other income tax liabilities.

Deev8 goes on to quote page 22 of the IR3 guide

--------

Overseas Tax Credits

"If you paid tax overseas you can claim it as a credit against your tax. The amount of credit is the lesser of the actual amount of tax paid on overseas income or the amount of tax you would pay in New Zealand on the same amount of income."

------------

Deev8 then goes on to comment on that statement
"Using the CV method the majority will find that their calculated FIF income is zero, so the amount of credit you can claim for the foreign tax that you have paid is also zero."

"The statement seems to confirm that. If the calculated FIF income is zero, then the amount of tax you would pay in New Zealand on the same amount of income would be zero and the amount of credit you can claim for the foreign tax that you have paid is also zero."

Deev8s comments make sense. But I think he may be reading more 'sense' into the IRD statement than is actually there. This IRD quoted statement has not changed from last years IR3 instructions - it is word for word identical. So it was not written with the new FIF regime in mind. I'm not saying Deev8 is definitely wrong. I am saying there is more than one way to interpret this statement.

IMO this IRD quoted statement is there simply to cover the case where the amount of dividend withholding or capital gains tax deducted at source is greater than your marginal tax threshold. For example, if say 50&#37; tax was deducted from a dividend at source you could not claim all of that tax against tax payable in New Zealand because the highest marginal tax rate payable here is 39%.

SNOOPY

Snoopy
24-05-2008, 12:26 PM
This determination by David Carrigan of IRD not to use the FDR method for Macquarie CMT (Determination FDR 2008/02) which Snoopy has discovered is confusing .

2. We know that one must choose only a single method (FDR or CV) for all FIF investments. In a normal year, the FDR method would be the best and is generally considered the 'standard' method. But this ruling forces you to use the CV method for CMT, and presumably you will have to apply it to all other FIF investments if you have a CMT account.


That is exactly the point Jessie, and you have put it more succinctly than I did. If you become locked into CV thanks to using it for your Aussie cash management trust AND have a good year on the sharemarket THEN you will pay far more tax than Cullen/Dunne intended you to pay when they designed the new FIF regime.



Clearly, these sorts of funds should have been excluded from the FIF scheme from the start, and I think it shouldn't have been difficult to foresee these issues.


Big changes in legislation like this always have unforseen consequences. I don't think you can be too hard on the tax department for not plugging all of the holes in advance.

Nevertheless Jessie, if you look at the April TIB determination I quoted, the Macquarie CMT *has* been excluded from the start (if you so choose it), exactly as you said it should have been. It is only because this FIF exemption is retrospective that you have these other options of FDR and CV for this year, and CV for next year.

SNOOPY

Deev8
24-05-2008, 01:45 PM
Deev8s comments make sense. But I think he may be reading more 'sense' into the IRD statement than is actually there.Quite possibly. The IRD statements on credit for tax paid overseas are anything but clear and consistent.

Jessie
24-05-2008, 07:59 PM
That's useful information. When I went through the same process with the IRD Call Centre I was finally told that the form required was IR607. Once I downloaded it I realised that it certainly wasn't the form required. If anyone's interested IR607 is a "Foreign trust disclosure" form "to be completed by resident foreign trustees".

I hadn't summoned-up the energy to go through the whole thing again, so I'll take a look at IR477 when it appears.
The IR477 form is only required for those with an income interest of 10&#37; or greater in a foreign company.

Lizard
25-05-2008, 07:52 AM
The IR477 form is only required for those with an income interest of 10% or greater in a foreign company.

Thanks for that Jessie! I had a feeling that might be the case, but thought I had better at least attempt to follow the instructions in the IR3. I have decided to just send in my tax return with the print out from my spreadsheet and see what happens.

777
25-05-2008, 08:25 AM
Thanks for that Jessie! I had a feeling that might be the case, but thought I had better at least attempt to follow the instructions in the IR3. I have decided to just send in my tax return with the print out from my spreadsheet and see what happens.


Lizard why send in a printout. Just fill in the final gross income figure and send. Let them approach you if they want to query what you have entered. By including the print out you open yourself to them looking closer at how you calculated it.

Deev8
25-05-2008, 10:15 AM
The IR477 form is only required for those with an income interest of 10% or greater in a foreign company.

So it is!

Of course that means that we still don't know what the appropriate disclosure form is. The IR3 Guide tells us:

If at any time during the 2008 income year you held rights such as shares, units or an entitlement to benefit in any foreign: company, unit trust, superannuation scheme or life insurance policy, you may be required to complete a disclosure form for interests in a foreign company or for foreign investment funds to disclose the interest and/or attribute income. Call 0800 377 774 to get the appropriate disclosure form.

It also says:

The previous grey list exemption has been removed for interests of less than 10%.

Deev8
25-05-2008, 10:17 AM
Thanks for that Jessie! I had a feeling that might be the case, but thought I had better at least attempt to follow the instructions in the IR3. I have decided to just send in my tax return with the print out from my spreadsheet and see what happens.But the issue is how to complete question 38 on the IR3?

Snoopy
25-05-2008, 10:08 PM
Originally Posted by Jessie:
"The IR477 form is only required for those with an income interest of 10&#37; or greater in a foreign company."

So it is!

Of course that means that we still don't know what the appropriate disclosure form is. The IR3 Guide tells us:

If at any time during the 2008 income year you held rights such as shares, units or an entitlement to benefit in any foreign: company, unit trust, superannuation scheme or life insurance policy, you may be required to complete a disclosure form for interests in a foreign company or for foreign investment funds to disclose the interest and/or attribute income. Call 0800 377 774 to get the appropriate disclosure form.


The 'old' FIF regime single company 'comparative value' declaration form was the IR441, if that is any help (I suspect it might not be).

SNOOPY

CJ
26-05-2008, 07:46 AM
So it is!

Of course that means that we still don't know what the appropriate disclosure form is.

My understanding is they haven't released the form yet. Expect an announcement shortly and a form within the month.

kura
26-05-2008, 10:25 AM
But the issue is how to complete question 38 on the IR3?

Easy, Tick "yes" , and write NIL on 38A !


That was what I effectively did for my company, I had overpaid my provisional tax, and was due a refund as soon as I put my tax return in.

Or does IRD expect everyone to delay putting in their tax returns untill they come up with an appropriate disclosure form ?

For a tax that was effective since 01/04/07 it is a pretty poor effort by IRD.


PS: My company also receives non FDR foreign dividends (on which it has to make quarterly returns, and payments of Foreign Dividend Withholding Payments) Has the IRD updated their forms for the June quarter to reflect the reduced company tax rate of 30&#37; ? Nope !

Steve
26-05-2008, 05:35 PM
Easy, Tick "yes" , and write NIL on 38A !


That was what I effectively did for my company, I had overpaid my provisional tax, and was due a refund as soon as I put my tax return in.

Or does IRD expect everyone to delay putting in their tax returns untill they come up with an appropriate disclosure form ?

For a tax that was effective since 01/04/07 it is a pretty poor effort by IRD.


PS: My company also receives non FDR foreign dividends (on which it has to make quarterly returns, and payments of Foreign Dividend Withholding Payments) Has the IRD updated their forms for the June quarter to reflect the reduced company tax rate of 30% ? Nope !

It's a never-ending battle, isn't it Kura?! :)

777
30-05-2008, 07:11 PM
A link that maybe of use for FDR exempted shares.

http://www.sharesight.co.nz/tools/

COLIN
11-06-2008, 05:02 PM
My understanding is they haven't released the form yet. Expect an announcement shortly and a form within the month.

What a nightmare! I rang IRD a few days ago (had to hold on, for ages) only to be eventually told that these forms "are not yet available" and to check again in a few weeks time! Just not good enough.
So, I did my own "forms", as we are leaving for overseas shortly and I can't wait around. And, by using the "Comparative Value" method I discovered I had made an overall net loss on these investments for the year (not surprising) and I then carried "Nil" (you can't claim a net loss) forward to my calculation of other Overseas Income (the exempt stuff , i.e. that still attracts tax on the dividends received). I wrote as full an explanation as possible on the IR3 form.
It took me the best part of a couple of days to prepare my return and my wife's. Am thinking of billing out my time to Michael Cullen.

777
11-06-2008, 05:35 PM
And you a required to file by July 7th!

You would think a simple disclosure form could be designed by a high school student and posted on the website in about 30 minutes. Why it takes the infernal revenue department so long needs investigating.

I am sending my returns in this week and no disclosures attached. Stuff them. We are all criminals in their eyes anyway. Why disappoint them.

Bobby_Fischer
11-06-2008, 07:13 PM
(you can't claim a net loss)

Might pay to check this. I do know that FIF losses carried forward from earlier years can now be offset against ordinary income - the FIF ringfencing rules were repealed with the introduction of the new scheme. I have been sitting on a fat loss for years that I've finally been able to claim - not everything the good Dr does is bad.

Snoopy
11-06-2008, 08:45 PM
Might pay to check this. I do know that FIF losses carried forward from earlier years can now be offset against ordinary income - the FIF ringfencing rules were repealed with the introduction of the new scheme. I have been sitting on a fat loss for years that I've finally been able to claim - not everything the good Dr does is bad.

Bobby, I had 'heard' the same but haven't been able to track down the transitional FIF rules in writing. Do you have a reference?

TIA

Snoopy (also sitting on an old FIF scheme loss)

Bobby_Fischer
12-06-2008, 10:13 AM
Snoopy, I'm relying on the write-up on the new legislation in April 2007 TIB (http://www.ird.govt.nz/resources/file/eb975f03f570e0e/tib-vol19-no3.pdf), specifically these paragraphs on page 40:

Removal of foreign investment fund loss
ring-fencing rules (sections Dn 5, Dn 8,
ie 4 and iG 5)

The previous ring-fencing rules in section DN 8 for
foreign investment fund losses (other than foreign
investment fund losses calculated under the branch
equivalent method) have been repealed.

If a taxpayer has a ring-fenced foreign investment fund
loss from the 006–07 or an earlier income year that has
previously not been used, it will become deductible in
2007–08 as foreign investment fund losses are no longer
ring-fenced (other than those arising under the branch
equivalent method).

Lizard
20-06-2008, 10:05 AM
For the record, IRD accepted my tax return as self-assessed with attached copy of my spreadsheet and covering letter.

I modified the front "summary" sheet from earlier versions to match the data boxes on the tax return which makes more sense.

shasta
20-06-2008, 11:33 AM
For the record, IRD accepted my tax return as self-assessed with attached copy of my spreadsheet and covering letter.

I modified the front "summary" sheet from earlier versions to match the data boxes on the tax return which makes more sense.

Thats what i've always done too, the IRD either accepts it, or hasn't got the resources to investigate it further. (Costs of doing so are prohibitive)

I doubt they know enough to challenge it :D

Steve
21-06-2008, 12:45 PM
From the IRD (to let us know that they are on to it!):

FIF disclosure forms
The online electronic service for the new foreign investment fund (FIF)
disclosure forms - the IR 445, IR 446, IR 447, IR 448 and IR 449 - is
currently under development. This service won't be ready in time for 30
June Portfolio Investment Entity (PIE) IR 853 and 7 July 2008 IR 3 return
filers.

If you need to file by 7 July, please go to www.ird.govt.nz, print out PDFs
of the forms, and file them manually. The PDFs for IR 447, IR 448 and IR
449 will be available by Friday 20th June. A generic spreadsheet will also
be available. While the spreadsheet is designed for PIEs for the IR 445
and IR 446 all investors can use it to meet their disclosure requirements
for the fair dividend rate (FDR), comparative value (CV) and cost
methods.

We expect the electronic service to go live end of August 2008.

Toulouse - Luzern
22-06-2008, 09:22 PM
Hi

My understanding is if you kept within the FIF $50K cost threshhold when you bought several years ago even if the value on 1/4/07 is $150K that you are not liable for 5% on the $150K.

This paragraph from the ird confirms that understanding:

This deemed disposition and reacquisition applies only for transitional purposes and, in particular, it does not set a new cost basis for the purposes of the $50,000 minimum threshold for application of the foreign investment fund rules in sections CQ 5 and DN 6. The original cost basis applies for the purposes of the $50,000 threshold.

Comments anyone.

Thanks



Context:

Transitional rules: values at which offshore interests enter the new rules (section EX 54b)
All investments which become subject for the first time to the new foreign investment fund rules enter the new rules at their market value on the start date of the new tax rules. For most individuals this will be 1 April 2007.

This entry into the new rules at market value is achieved under section EX 54B(2) by a deemed disposition and reacquisition of the interests at their market value on the start date of the new foreign investment fund rules for the investor. This deemed disposition and reacquisition applies only for transitional purposes and, in particular, it does not set a new cost basis for the purposes of the $50,000 minimum threshold for application of the foreign investment fund rules in sections CQ 5 and DN 6. The original cost basis applies for the purposes of the $50,000 threshold.

A person who holds their investments on revenue account, such as a managed fund, and which becomes subject to the new foreign investment fund rules may have a resultant tax liability because of the deemed disposition and reacquisition under section EX 54B(2). This liability can spread over three years beginning with the first year of application of the new foreign investment fund rules. At least one-third of this tax liability must be paid in the first year, half of the balance paid in the second year and the remaining balance paid in the third year (section EX 54B(3)(a)).

A person who has a tax liability because of the deemed disposition and reacquisition under section EX 54B is not liable to pay any penalty or interest for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax if the inaccuracy or shortfall arises because of the deemed disposal (section EX 54B(3)(b)).

Toulouse - Luzern
22-06-2008, 10:39 PM
Hi,

After puzzling away with the IRD web site stuff the answer is:

A NZ$50,000 minimum threshold applies to an individual's investments in foreign companies other than Australian-resident listed companies. If the original cost of these shares totals NZ$50,000 or less, the foreign investment fund rules do not apply to the individual.

The stuff I posted as context covers new investments:
All investments which become subject for the first time to the new foreign investment fund rules enter the new rules at their market value on the start date of the new tax rules. For most individuals this will be 1 April 2007.

777
24-06-2008, 12:38 PM
Disclosure is only required for interests held in FIFs that are foreign companies incorporated in, or FIFs that are not foreign companies
that are tax resident in, countries that we did not hold a Double Tax Agreement (DTA) with on 31 March 2008. A list of the countries
that we hold DTAs with can be found on www.taxpolicy.ird.govt.nz/international/DTA/


By the above copied straight off IR447 it would indicate that no disclosure is required for Australian held investments. This of course does not mean you don't have to conform to the FDR regime, just that you don't have to disclose anything.

Maybe I'm a bit thick..

777
24-06-2008, 03:17 PM
A TIB with updated info from IRD.

http://www.ird.govt.nz/resources/file/ebc5290380db138/tib-vol20no4.pdf

voltage
24-06-2008, 03:43 PM
i purchased some stock a long time ago and my record keeping has not been good especially when a number of purchases made for same company shares.
What would I do in this case? The other way is to workout the value on 30 March 2007. How do I find share values for that date? This way has the disadvantage of pushing me over the thresh hold.

777
24-06-2008, 04:27 PM
i purchased some stock a long time ago and my record keeping has not been good especially when a number of purchases made for same company shares.
What would I do in this case? The other way is to workout the value on 30 March 2007. How do I find share values for that date? This way has the disadvantage of pushing me over the thresh hold.


Firstly you should have done this valuation at the time. You can get the share value from 1/4/07 newspapers at a local library. Remember also that the option at that date was I think 50% of current market value if you did not have records of your purchases. Check this out on the IRD site.

Remember July 7th for filing tax return.

Lizard
20-09-2008, 09:52 AM
My attention has just been brought to what may turn out to be a simpler/cost-effective solution to FIF calculation.

http://www.fifcalculator.co.nz/

Not sure how far along with development they are - might not be a solution for current year, but could save some work in future. I've been told prices suggested were quite reasonable.

Ish
10-02-2009, 07:48 PM
Scanned through the thread and saw some people were having problems but not sure if all of them have been resolved.

I am involved in this area and can help if people need it.

Agreed that it is a reasonably complex area of tax law..

Lizard
27-12-2009, 08:15 AM
I just tried to check up on whether a share was in or out of the ASX All Ords to determine whether I should be allowing for it under FIF or not. Turns out that S&P now require visitors to create a logon (with forgettable password) to view this. The info is only provided in Excel file form and the logon feature doesn't seem to work using Safari browser (or at least my version of).

Have accessed it for now, but guess I'll be back to using Yahoo (http://finance.yahoo.com/q/cp?s=%5EAORD), though the accuracy may be less reliable.

Steve
27-12-2009, 09:56 AM
Most of the larger broking firms [Craigs, Forbar etc] have up-to-date lists of what's in/what's out available...

Lizard
01-04-2010, 09:25 PM
I have just hit a query with the FIF regime. One share I bought during the year moved into the ASX All Ords and therefore moves out of the FIF regime as of 1 April. Although I have not sold the shares, do I need to now treat this as a "quick sale" (due to transfer out of FIF rather than sale) and include it under the FDR method or can I leave it out as I am entitled to do for FIF purchases bought during the year and held? The latter would be something of a small loophole I feel (though of very limited usefulness), so suspect IRD would require the first treatment.

Snoopy
02-04-2010, 10:07 AM
I have just hit a query with the FIF regime. One share I bought during the year moved into the ASX All Ords and therefore moves out of the FIF regime as of 1 April. Although I have not sold the shares, do I need to now treat this as a "quick sale" (due to transfer out of FIF rather than sale) and include it under the FDR method or can I leave it out as I am entitled to do for FIF purchases bought during the year and held? The latter would be something of a small loophole I feel (though of very limited usefulness), so suspect IRD would require the first treatment.

I am somewhat bemused by your phrasing, Lizard, that I have highlighted

"Can I leave it out as I am entitled to do for FIF purchases bought during the year and held?"

I wasn't aware there was an option! If you don't hold a share at the start of the financial year, then it can't come under the FIF regime, can it? Or if I put it another way, because your opening balance is zero, then your deemed return, based on a multiple of that opening balance, must be zero. So there are no tax consequences.

If you buy and sell during the same year on market, then as you correctly identify Lizard, the share is caught under the quick sale provisions of the FIF regime.

Is there a loophole here? Let's have a look at two possible cases.

Case A: If you start:

1/ with an Oz share that is not part of the ASX all ordinaries, and
2/through your shares's capital growth that share gets included in the ASX All Ords for the next tax year then
3/the capital gain during the year immeditaely prior to inclusion in the FIF regime is excluded from any income calculation for the just gone tax year.

Case B: If you start:

1/ with an Oz share that is not part of the ASX all ordinaries, and
2/through a market downturn that share gets included in the ASX All Ords for the next tax year because your share has declined less than the other shares around it, then
3/the capital loss during the year immeditaely prior to inclusion in the FIF regime than you incur is excluded from any offset to your income calculation for the just gone tax year.

You can argue that both cases are 'unfair treatment'. But the 'unfairness' is equally reflected whether you make a real gain or a real loss. So I would argue there is no loophole to exploit.

SNOOPY

Lizard
02-04-2010, 01:33 PM
Snoopy, your answer confuses me - if a share moves into the All Ords, it falls OUT of the FIF regime (not into it) and back under the same treatment as NZ shares. If it had remained in the FIF regime, it would not have formed part of a fair dividend rate calculation for the year in which it was purchased (though it would be included in a comparative value method, but FDR will be the preference for most investors this year I would imagine). However, having moved into the All Ords, it now falls out of the FIF regime. The question is, using the FDR method, do I now have to call it a "quick sale" (even though I didn't sell it) and therefore include it in the total amount to which the FDR is applied.

Another former poster has just directed me to a link (http://legislation.govt.nz/act/public/2007/0097/latest/DLM1515710.html?search=ts_act_income+tax_resel#DLM 1515710) which seems to answer it - and confirms that I now do have to treat it as a quick sale and include it in the FDR calculation. (Something to consider - if you are buying a share outside the All Ords on the 31 March and it moves into the All Ords on the 1 April, you will be assumed to have made 5% on it for tax purposes if you are using FDR).

777
02-04-2010, 02:07 PM
Personally I would just work on treating it as not in the FDR calculation. No one in the IRD would know exactly when a share becomes FDR qualified or unqualified. As long as you have included any income from it somewhere you at least have not tried to hide it. The whole thing is complex and I am sure very few tax payers get it 100% correct as there must be many examples of shares changing in or out of the FIF regime.

Snoopy
02-04-2010, 06:26 PM
No one in the IRD would know exactly when a share becomes FDR qualified or unqualified.


The New Zealand IRD871 document is a complete list of ASX codes showing exactly on what date a particular share is added to or leaves the ASX. IIRC I printed the IRD871 off the web, so *every* IRD employee will potentially know this stuff.



As long as you have included any income from it somewhere you at least have not tried to hide it.


I think the point is that most of these emerging companies are either loss making or retaining what earnings they do have to grow with . If so, they may not be required to have an Ozzie IRD franking account. for such a share there will be no dividend income for the shareholdeer, and therefore no income to hide either. They could quite easily pass under the radar at the shareholder bank account and declared dividend level.

SNOOPY

Snoopy
02-04-2010, 06:56 PM
Snoopy, your answer confuses me - if a share moves into the All Ords, it falls OUT of the FIF regime (not into it) and back under the same treatment as NZ shares. If it had remained in the FIF regime, it would not have formed part of a fair dividend rate calculation for the year in which it was purchased (though it would be included in a comparative value method, but FDR will be the preference for most investors this year I would imagine). However, having moved into the All Ords, it now falls out of the FIF regime. The question is, using the FDR method, do I now have to call it a "quick sale" (even though I didn't sell it) and therefore include it in the total amount to which the FDR is applied.

Another former poster has just directed me to a link (http://legislation.govt.nz/act/public/2007/0097/latest/DLM1515710.html?search=ts_act_income+tax_resel#DLM 1515710) which seems to answer it - and confirms that I now do have to treat it as a quick sale and include it in the FDR calculation. (Something to consider - if you are buying a share outside the All Ords on the 31 March and it moves into the All Ords on the 1 April, you will be assumed to have made 5% on it for tax purposes if you are using FDR).


Yes, you are quite right Liz. I was talking about the shares going into the ASX as though they were going into the FIF regime, when in fact the shares going into the ASX are *leaving* the FIF regime as you point out.

In your first post on this subject you noted the shares you have purchased that have gone into the ASX All Ordinaries were purchased during the year. That means they were not in the FIF regime calculation at the start of the tax year because you did not own them then. They are covered in the 'quick sale' provision of the FIF regime as you point out. But I'm not sure that you are assumed to have made 5% unless you actually do make 5% or more. If you make between 0 and 5% then I thought that you got to declare the actual gain, not 5%. But as you know I don't trade my own shares, so maybe my interpretation of this is wrong?

Of course it is possible that your share goes into the ASX All Ordinaries (drops out of the FIF regime) yet you have still made a loss on your holding because the ASX all ordinaries fell further than your share did (other doing worse was the cause of your share going inot the ASX, not your's doing well). Given that these FIF calculations are done on your collective basket of shares, not the individual shares, I would have thought you could offset this 'quick loss' against other FIF gains (using the comparative value option). Is that how you see it?

SNOOPY

Lizard
02-04-2010, 07:18 PM
But I'm not sure that you are assumed to have made 5% unless you actually do make 5% or more. If you make between 0 and 5% then I thought that you got to declare the actual gain, not 5%. But as you know I don't trade my own shares, so maybe my interpretation of this is wrong?

Of course it is possible that your share goes into the ASX All Ordinaries (drops out of the FIF regime) yet you have still made a loss on your holding because the ASX all ordinaries fell further than your share did (other doing worse was the cause of your share going inot the ASX, not your's doing well). Given that these FIF calculations are done on your collective basket of shares, not the individual shares, I would have thought you could offset this 'quick loss' against other FIF gains (using the comparative value option). Is that how you see it?

SNOOPY

Hi Snoopy,

Under the FIF regime, it doesn't matter whether trading or investing, the treatment is exactly the same. An individual investor chooses between either the FDR method or the comparative value method, but whichever method used has to be applied to all holdings in any given year. An investor who made more than 5% on their overall portfolio of FIF holdings would be better off using the FDR method - so therefore pay against an assumed 5% fair dividend rate, inclusive of those trades on which they made a loss or gained less than 5%.

Under the comparative value method, the situation I mentioned would not matter, but it is only advantageous to use CV in a "bad" year where overall returns were below 5%. Actually, this could well be the first year under which the majority of investors caught by the FIF regime choose to use FDR.

Steve
04-04-2010, 12:42 PM
Actually, this could well be the first year under which the majority of investors caught by the FIF regime choose to use FDR.

And think of the potential windfall of UOMI that the IRD may gain from those Trusts & Companies who have a tax bill as a result of the 5% FDR income. I suspect most would not have considered to pay some voluntary provisional tax to minimise UOMI despite overseas sharemarkets having a stellar year...

voltage
05-04-2010, 06:35 AM
yes we will all be using the FDR method this year since most shares have rebounded. I cannot imagine IRD will be checking calculations, after ringing them they seem very confused about the whole situation of taxing global income.

tobo
05-04-2010, 02:19 PM
The New Zealand IRD871 document is a complete list of ASX codes showing exactly on what date a particular share is added to or leaves the ASX. <snip>
SNOOPY

That document is named "Aus share exemption list"
It actually appears to record arrival/departure to/from AllOrds, but, because of it's name, can we assume that they have checked that the company is Aus resident AND it maintains a franking account and therefore can be relied on?
I'm sure it can be relied on (otherwise what's the point of having the list, which, I am sure, IRD staff also rely on).

The only annoyance is it's not usually made available until several weeks/months after 31 March,
So I have to simply look at the ASX/S&P list in March if I were making a purchase/sale decision that might be impacted by a company's AllOrds arrival or departure

tobo
05-04-2010, 02:47 PM
quote from IRD website:
Example 3
Platinum Asset Management (PTM) was added to the index on 20 March 2008. If you acquired shares in PTM before that date you will not qualify for the FIF exemption. However, if you first acquired shares in PTM after 19 March 2008 you will qualify for the exemption.

If already owned, and then the share becomes an AllOrd = NOT Exempted.
If share becomes an All Ord before you first buy = Exempted

But what is the significance of the word "first" buy?
What if I owned a share, then it becomes an AllOrd during year, and then I sell it later the same year. (As stated above, this gets the quick sale treatment...although I would never have realised based on my reading the IRD).
My question is, suppose the FOLLOWING year after holding zero for a while, I then buy some again. This is not the first time I have had shares in this company, but I would have expected that this is a separate holding is independent of the other one, and that this holding would be exempt because the shares were in the All Ords when I bought it (this time.)

Maybe they are just using the word 'first' in relation to adding to your holding in a company.

Or do they mean once you've held shares in a small cap, and sold out, if you buy back in after it becomes an All Ord, it will still not be exempt for you?

[I know what my opinion/interpretation is, but what makes sense to me is not always what the rules are.]
I imagine this affects traders more than investors, but occaissionally circumstances will see an investor selling out, and some time later investing in the company again, whether because of changed risk perception, or personal cashflow needs.

I'd be grateful if anyone knows this curly one...

----ToBo

Alpine
27-08-2010, 09:30 AM
Scanned through the thread and saw some people were having problems but not sure if all of them have been resolved.

I am involved in this area and can help if people need it.

Agreed that it is a reasonably complex area of tax law..

Hi Ish - I don't know if you can help me or are able. I am sure the answer is simple to those who have been there! Having spent hours looking through the IRD website and looking through this forum I think I have a fairly good grasp of the FIF laws as they apply to me. One thing that I can't get my head around is that I had a Macquarie CMT account in the last financial year (I have an extension of time with my return) and from everything I read it appears that I must use the CV method for all my Australian investments because the IRD has made a determination about using this method for the CMT account. Arguably I could have $10 interest from my CMT account and still be required to use the CV method rather than the FDR method which seems contrary to the intention of the law change. Someone posted here that the Macquarie CMT a/c was now exempt from the FIF laws but from what I can make out they would need to have an RWT proxy - and I don't understand them to have that. Are you able to point me in the right direction? I am sure plenty of others have been in the same situation. Thanks

tobo
20-02-2011, 08:27 AM
I posted a question in April last year.
No-one answered.
At the time I held BOW which subseqently became exempt (through joining All Ords and getting on IRD's list).
I sold BOW and have not later bought any, so did not need the answer to my question to do last years tax return.

This question has come up again on the PEN thread.

It also reminds me of another FIF question. I keep seeing people saying FIF applies to both traders and investors.
I do not see that.
I think traders pay tax on their actual gains (and claim deductions against other income for losses) on the basis that it is business activity with the intention of making profit.
Therefore don't need to get into the mire of clumsy FIF calulations.
[Perhaps it actually amounts to the same thing and i just didn't realise.]

Discl: I have both an investment holding and a trading acc, which I keep COMPLETELY separate.
Both have non-All Ord australian shares.

Aaron
22-02-2022, 11:45 AM
To revisit an old question.

How do traders as quickly as possible calculate their FIF income when trading US shares. With multiple trades per year what is the quickest way to calculate this.

The peak holding method can sometimes throw up quite a different result to the actual gain.

Aaron
22-02-2022, 04:16 PM
For example if you are buying and selling the same companies shares throughout the year the peak holding calculation is a lot less than the actual gain based on the FDR calculations. Or am I doing that wrong.

Effectively you are calculating a profit figure based on the peak number of shares at any one time during the year and ignoring the many profits made during the year as you continue to buy and sell.

This is confirmed by the IRD calculator.

Probably discussed endlessly somewhere else. Very time consuming though so would be interested in ideas to speed the processing up. You need to enter each transaction individually, as an average over the whole year throws up a wrong figure.

SBQ
22-02-2022, 10:01 PM
For example if you are buying and selling the same companies shares throughout the year the peak holding calculation is a lot less than the actual gain based on the FDR calculations. Or am I doing that wrong.

Effectively you are calculating a profit figure based on the peak number of shares at any one time during the year and ignoring the many profits made during the year as you continue to buy and sell.

This is confirmed by the IRD calculator.

Probably discussed endlessly somewhere else. Very time consuming though so would be interested in ideas to speed the processing up. You need to enter each transaction individually, as an average over the whole year throws up a wrong figure.

From my gatherings with different accountants in the past, IRD is not very sticky when it comes to doing FIF around the 'Quick Sale' method, that is trying to be 100% accurate. What really matters is what the starting balance is at April 1st, and what the ending balance is at March 31st in the following year. You can do all the trades you want on the same stock, if it amounts to meaningful gains, then this WILL add to the portfolio balance. Of course one could lose it all in the weeks before end of March (ie Covid crash March 2020).

Aaron
23-02-2022, 07:37 AM
From my gatherings with different accountants in the past, IRD is not very sticky when it comes to doing FIF around the 'Quick Sale' method, that is trying to be 100% accurate. What really matters is what the starting balance is at April 1st, and what the ending balance is at March 31st in the following year. You can do all the trades you want on the same stock, if it amounts to meaningful gains, then this WILL add to the portfolio balance. Of course one could lose it all in the weeks before end of March (ie Covid crash March 2020).

I think your advice might be a bit off. For an investor whose portfolio does not change much that might be sort of right but if you buy and sell a share in the same year you need to complete a "quick sale adjustment" calculation, long term investor or short term trader. Probably what the accountants are saying it is so complicated IRD doesn't have the time to check anyones calculations.

FTG
23-02-2022, 07:56 AM
I think your advice might be a bit off. For an investor whose portfolio does not change much that might be sort of right but if you buy and sell a share in the same year you need to complete a "quick sale adjustment" calculation, long term investor or short term trader. Probably what the accountants are saying it is so complicated IRD doesn't have the time to check anyones calculations.

Aaron; if you are a deliberate and active trader, then there is no requirement under the tax legislation to operate under the FIF regime.
Moreover, I would imagine a (successful) trader would not be highly motivated to elect to do so, especially when the alternative is far simpler, transparent & tidier from a compliance perspective.

Aaron
23-02-2022, 08:59 AM
Aaron; if you are a deliberate and active trader, then there is no requirement under the tax legislation to operate under the FIF regime.
Moreover, I would imagine a (successful) trader would not be highly motivated to elect to do so, especially when the alternative is far simpler, transparent & tidier from a compliance perspective.

Are you sure?

The FIF regime was included in the Income Tax Act which I would have thought meant it overrides the normal calculation of profit for investors and traders alike.

Pretty sure earlier discussions on this site came to the same conclusions.

What is your basis for stating there is no requirement under the tax legislation. If you have a Foreign Investment Fund (which includes shares in foreign companies) the Income Tax Act would appear to have imposed the FIF regime on you when calculating your income on FIFs.

It would be a whole lot easier just taking sales less opening stock and purchases and add closing stock to work out a profit figure but I do not think this would be correct for FIF investments.

Interested to know what your view is based on.

Aaron
23-02-2022, 09:13 AM
Assuming you are using the FDR and the quick sale adjustment. You use "the lesser of the peak holding method amount and the actual gain".

If your actual gain is a loss can you offset this loss against income from other FDR calculations with other companies?

The IRD guide clearly states this OK for the CV method but has no specific examples for the FDR method.

I think I answered my question, if you go to the IRD calculator it provides $0 rather than a loss. Pretty harsh, paying tax on gains but no allowance for losses.

A comprehensive across the board capital gains tax and we can do away with the FIF rules altogether. Maybe TOPs equity tax is our best bet at the next elections.

FTG
23-02-2022, 09:39 AM
Are you sure?

The FIF regime was included in the Income Tax Act which I would have thought meant it overrides the normal calculation of profit for investors and traders alike.

Pretty sure earlier discussions on this site came to the same conclusions.

What is your basis for stating there is no requirement under the tax legislation. If you have a Foreign Investment Fund (which includes shares in foreign companies) the Income Tax Act would appear to have imposed the FIF regime on you when calculating your income on FIFs.

It would be a whole lot easier just taking sales less opening stock and purchases and add closing stock to work out a profit figure but I do not think this would be correct for FIF investments.

Interested to know what your view is based on.


My level of confidence is high Aaron.

But please don't allow that confidence, or for that matter any other supporting or conflicting assertions on this forum, as a basis from which you make decisions on how to arrange your personal tax & financial affairs.

DYOR - diligently!

IMHO I reckon you will find any professional trader is likely to have carved out their "trading activities" into a specific stand-alone entity. The Tax Accounting methodology deployed for that entity type is quite likely to be more nuanced. Especially compared to what is required & deployed by a hobbyist or more "casual" Investor-Trader.

One word that possibly sums up the average kiwi investor-trader's dilemma, whether it be with overseas investment/FIF or domestic investment, is: "Tainting".

Aaron
23-02-2022, 10:04 AM
My level of confidence is high Aaron.

But please don't allow that confidence, or for that matter any other supporting or conflicting assertions on this forum, as a basis from which you make decisions on how to arrange your personal tax & financial affairs.

DYOR - diligently!

IMHO I reckon you will find any professional trader is likely to have carved out their "trading activities" into a specific stand-alone entity. The Tax Accounting methodology deployed for that entity type is quite likely to be more nuanced. Especially compared to what is required & deployed by a hobbyist or more "casual" Investor-Trader.

One word that possibly sums up the average kiwi investor-trader's dilemma, whether it be with overseas investment/FIF or domestic investment, is: "Tainting".

So as not to confuse the issue I understand there is a distinction between a trader and a long term investor.

I am just unsure where you got your information as to why a trader is not subject to the FIF rules.

Where did you do your research and get the information?

Just wanting to know what information is out there to provide you with a high level of confidence. It might instil in me the same level of confidence if I can read it from a number of other sources.

SBQ
23-02-2022, 11:13 AM
So as not to confuse the issue I understand there is a distinction between a trader and a long term investor.

I am just unsure where you got your information as to why a trader is not subject to the FIF rules.

Where did you do your research and get the information?

Just wanting to know what information is out there to provide you with a high level of confidence. It might instil in me the same level of confidence if I can read it from a number of other sources.

I can't express enough how confusing IRD has made with foreign investments under FIF. There are so many exceptions. For eg. PIE funds, regardless of being active or passive index managed, still pay tax at the investor's RWT income tax rate up to a maximum of 28%. You have active managed funds that trade frequently on a daily basis, but still report gains to IRD and pay tax at the RWT rates. Then you have investing portals like Sharesie and Hatch, where investors are bound by FIF. It's all very confusing and there's little transparency involved. Those that are under Kiwi Saver schemes have a tax liability every year on the paper gains (if under FIF or not). While those with a total of less than $50K invested, do not have to report their gains or deal with FIF. But the minute they invest in a managed fund, regardless of amount, they have a tax liability.

There is simply no straight level of confidence when it comes to taxation here in NZ. Hence why my accountant informs me that you can go to IRD and ask all these questions about FIF (especially in the area of derivative options trades) and they will most likely come back clueless ; citing "go see an accountant". My accountant says the bottom line is simple. When you file to IRD using a reputable accounting firm, you are least likely to be questioned on your tax return. The rules around FIF are complex the say the least. Quick sales adjustment, comparative rate, FDR, all are designed so the accountant can charge more money in determining the best outcome (as it's you the tax filer has to pay for their time to make those extra calculations to see which is the lowest tax liability from year to year). It's inefficient compared to Aus or Canada where they base capital gains tax on actual sale of the assets (not paper gains).

The crux of the issue as i've mentioned before, the avg person living in N. American in a pension / savings investment plan will have MORE wealth than the same person living in NZ investing into the SAME assets (but under a NZ style scheme). The difference is purely based on taxation planning (for which in NZ there's none of that). Kiwi Saver plans are taxed year after year with the intention that at retirement, those funds are withdrawn tax free. In Canada, 'tax free compounding growth' applies and at retirement, it's up to the individual to decide 'how much' they want to sell in their retirement fund - and elect what taxable income they desire. Most pensioners have no other source of income so making disbursements out of their retirement fund is tax effective by keeping them in a low tax bracket.

Don't believe how punitive FIF is ? Consider what Jack Bogle has said in terms of robbing compound gains (referring specifically to high management fees charges by funds); this is no different than IRD charging the 5% FDR year after year but no credit on the years of loss, so on the rebound, FIF taxes it again (which is probably more punitive than what Mr Bogle is getting at).

https://www.theglobeandmail.com/globe-investor/the-tyranny-of-fees-how-costs-kill-investment-returns/article11578254/


Frontline interviewed index fund pioneer John Bogle, who compared the performance of two hypothetical equity portfolios – one earning 7 per cent, and the other earning 5 per cent (7 per cent less 2 per cent in fees).

Two per cent may not seem like much in any given year. But over a long time period, the impact is enormous: Assuming a 50-year horizon, the second portfolio would have lost 63 per cent of its potential returns to fees, Mr. Bogle said.

"What happens in the fund business is that the magic of compounding returns is overwhelmed by the tyranny of compounding costs. It's a mathematical fact," he explained.

Aaron
24-02-2022, 12:03 PM
Just wanting to know what information is out there to provide you with a high level of confidence. It might instil in me the same level of confidence if I can read it from a number of other sources.

FTG have you gone back to being a quiet observer? Genuinely wanting to know what information you have that gives you a high level of confidence.
I suspect people can do whatever they like as very few people in IRD will be able/want to check and if you are calculating profit in a manner that makes sense such as sales-purchases-opening stock+closing stock then it is hard to see IRD being too upset about it.
But if you wanted to be pedantic you would have to go to the legislation. It might raise issues in a downturn as FIF losses can't be offset against other income. IRD might take an interest if trading losses were offsetting other income.

FTG
25-02-2022, 07:12 PM
FTG have you gone back to being a quiet observer? Genuinely wanting to know what information you have that gives you a high level of confidence.

LOL. I have been head down, earning my way Aaron, being productive, and providing financial support (via various taxes) for the ~50% of kiwi's who continuously suckle on the government's teats. Like many on ST, I'm busy trying to help keep the country away from being categorised as a Banana Republic at some point!

It seems SBQ has made a good attempt to answer some of your questions and point you in the same direction that I already have. Let's face it, we don't have any real appreciation of your financial situation & set-up, and you certainly don't have any on mine. Appropriate tax structuring for one taxpayer might not be appropriate for another, and vice-versa. Respectfully, I don't think I can effectively add any detailed tax advice/comment/value to you, via this forum.

However to summarise some key takeaways for you...

- Most agree, accountants included, that everything FIF related is a large dog's breakfast.
- I'm not encouraging or condoning tax EVASION.
- However encourage & support taxpayers structuring their tax affairs in a way to avoid unnecessarily paying too much tax.
- Tax law can be complicated & contradictory in interpretation. Yes, there is the Black & White. But, there are also a few shades of Grey.
- The IRD continues to vastly improve their technology stack, especially with the utilisation of AI/Algo's. Additionally, the amount of tax activity reporting required from financial institutions (domestic & foreign) continues to increase. Inter-agency, interjurisdictional .
- As a result, if a tax entity (including an individual) purposely, negligently or ignorantly evades paying tax it is now quite possibly just a matter of time before you will receive the "knock on the door". Especially if you are a "bigger" Fish!
- When attempting to interpret & understand tax law, just as in when determining whether to directly invest in a particular company or not, DYOR - Diligently. Crap research & study, likely leads to crap outcomes.
- If your overseas financial assets are well in excess of $50K, then a few dollars invested in receiving sage advice from a tax accountant or similar, can be very worthwhile.
- Keep in mind that advisor will ideally need total visibility of your financial situation. Including but not limited to; how you have structured your affairs and what your past, present & future financial actions & intentions are. As in are you Investing, Trading etc.

Trust that helps!
FTG

Aaron
27-02-2022, 08:18 AM
FTG appreciate the reply, I still think the FIF regime would override normal ways to measure profits when it comes to trading in overseas shares though, as I do not have anything specific to counter that view.

Although that said I imagine for a smaller trader your methods for calculating profit are unlikely to be looked at by IRD.

I don't suppose anyone on ST has had any personal experience with the FIF rules and IRD??

777
27-02-2022, 09:44 AM
Not an authority but believe trading is trading and profit calculated accordingly. FIF relates to investing.

Aaron
28-02-2022, 08:00 AM
Not an authority but believe trading is trading and profit calculated accordingly. FIF relates to investing.

My question is not about the distinction between trading and long term investing and how profit would normally be calculated depending on where you fit.

The question is whether a share trader in NZ, trading shares on the US stock exchanges would account for profits per the FIF rules or whether they could calculate profit as a trader in NZ shares would normally calculate profit. (i.e. sales les purchases less opening stock plus closing stock)

I would contend that the definition of a FIF per the income tax act is
EX 28Meaning of FIF is any of the following (a) a foreign company:

That means the FIF rules would override normal profit calculations. FTG is confident this is not correct but cannot point to a piece of legislation or discussion paper to back this up. I would contend that this is the case but because the FIF rules can be very time consuming and if you are calculating profit in a reasonable way IRD is not likely to challenge you.

777
28-02-2022, 08:22 AM
My answer was that the FIF would not apply to trading. I also said I was no authority but that is how I would handle it.

SBQ
28-02-2022, 09:47 AM
My question is not about the distinction between trading and long term investing and how profit would normally be calculated depending on where you fit.

The question is whether a share trader in NZ, trading shares on the US stock exchanges would account for profits per the FIF rules or whether they could calculate profit as a trader in NZ shares would normally calculate profit. (i.e. sales les purchases less opening stock plus closing stock)

I would contend that the definition of a FIF per the income tax act is
EX 28Meaning of FIF is any of the following (a) a foreign company:

That means the FIF rules would override normal profit calculations. FTG is confident this is not correct but cannot point to a piece of legislation or discussion paper to back this up. I would contend that this is the case but because the FIF rules can be very time consuming and if you are calculating profit in a reasonable way IRD is not likely to challenge you.

From my recent discussions with my accountant over the past few years, the answer is yes once you trade foreign shares listed in overseas stock exchange (with some exception to FIF-exempt ASX listings). It does not matter if you trade infrequently or day trading, the rule is black and white under FIF (which states 'overseas' being foreign share ownership). This is how Kiwi Saver funds are taxed, likewise with PIE funds too (with the differentiation having a max cap RWT rate of 28% on the taxable FIF income).

Also FIF does have a 'normal profit calculation' called the Comparative Value method (which is basically a tax on the capital gain). If it can be shown the capital gain is less than 5% (which the FDR is set at), then the CV would be used. Likewise there is no sense using the CV method in an exceptional year where the capital gain is far more than 5% of the portfolio. The FDR method maxes out at 5%, and any excess return is carried on to the next year (if the gains remain). But as I mentioned before, FIF taxes paper gains and with FDR, you are multiplying a tax on the capital year after year (as how any management fee structure does, and strongly erodes future compound returns).

My accountant also implied that the complexities of FIF is so severe to the person that day trades, that IRD rarely ever questions these tax returns because they themselves don't know how to make a reassessment (it's very time consuming to audit 1000s of trades a year for a very busy day trader and even if there was an error, the auditor would spend hours or days just to find a needle in a haystack error).

Fortunately none of my share holdings are held under a 'NZ resident' status brokerage account.

Aaron
28-02-2022, 11:49 AM
Fortunately none of my share holdings are held under a 'NZ resident' status brokerage account.

Sounds like agreement with my view, thanks.

Your last statement is interesting. If you live in NZ how do you get a "non-NZ resident" brokerage account?

SBQ
28-02-2022, 12:31 PM
Sounds like agreement with my view, thanks.

Your last statement is interesting. If you live in NZ how do you get a "non-NZ resident" brokerage account?

My father lives in Canada, brokerage account is in JWROS status so until the day he dies, fat chance IRD will touch the account. Besides, my broker does not abide to NZ's FMA regulations and will not divulge that info like other 'weak handed' brokers do. We worked out that it's far better for the compounded growth of the portfolio to pay a CGT in Canada's rules than under FIF in NZ (hence my previous posts that Cdn resident investors get more at retirement than NZ KS investors do when investing in the same asset like a Vanguard VOO ETF. Tax matters and every financial advisor should be well versed in advising all their clients about it. Sadly this is not the case in NZ.