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theArtfuldodger
21-09-2009, 10:48 AM
Hey guys!

I'm quite possibly the biggest noob on this forum so please, bear with me.

I'm only a second year accounting student (19yo) and my studies have got me interested in the sharemarket and investment (I knew very little about any of this stuff until a year or so ago). I have very little capital (I'm working on this), so I'm using this time to get into some theory, literature etc on these topics. So far it has proved very exciting!

I've trawled through the information on this forum (all extremely helpful, this forum is great!) to find information on the various taxes (IRD site = impossible to decipher) and this is my summary:

Capital gains:

- As a trader (short-term profit orientated) = capital gains are taxed (on realization);
- As an investor (long-term) = no capital gains tax;

Dividends:

- Are taxed (what rate in NZ?) depending on imputation (not 100% sure how this works?).

General:

- Until my income exceeds 70k, I am better off trading as an individual, rather than using a company structure because of the lower tax rate for individuals (until this threshold is breached) and unrealized capital gains do not have to be disclosed/taxed.

Questions:

- What is the deal with capital gains and FIF's?
(also - MEGA NOOB QUESTION - I take it a FIF is simply a fund used for the purpose of investing offshore?)

- Can brokerage fees be used to offset tax liability (in the case of trading)?

- Are company set-up costs, buying equipment (I'm talking stationary here) all tax deductible? (because my capital base is so small and brokerage fees so high (relatively), I'm afraid of any profits being wiped out, so I want to claim as much as possible).

- If I borrow (not substantially), the interest I am charged is tax-deducitble?

- Is this general summary correct?

I'm planning on building up some capital these summer holidays (small amount, ~6k) and spending my free time researching viable investment opportunities and paper trading before beginning trading next financial year.

Thanks! Feel free to destroy any noobish misunderstandings! :D

Also, as a side issue, could someone please briefly explain each of the following technical analysis measures:

- RSI
- Bollinger bands
- Stochastics
- The significance of volume

And...

- Are standard deviation channels really than useful? Do the assumptions in statistics hold true (95% of all values within 1.96 s.d., 90% withing 1.645 etc)? Surely they don't (line of best fit is not the average)?

Thanks (sorry if this is a huge pain in the ass).

shasta
21-09-2009, 11:42 AM
Hey guys!

I'm quite possibly the biggest noob on this forum so please, bear with me.

I'm only a second year accounting student (19yo) and my studies have got me interested in the sharemarket and investment (I knew very little about any of this stuff until a year or so ago). I have very little capital (I'm working on this), so I'm using this time to get into some theory, literature etc on these topics. So far it has proved very exciting!

I've trawled through the information on this forum (all extremely helpful, this forum is great!) to find information on the various taxes (IRD site = impossible to decipher) and this is my summary:

Capital gains:

- As a trader (short-term profit orientated) = no capital gains tax;
- As an investor (long-term) = capital gains are taxed (when realized).

Dividends:

- Are taxed (what rate in NZ?) depending on imputation (not 100% sure how this works?). Imputation credits on dividends are taxed at the company rate of 30%, your own marginal tax rate will determine if you have any further tax liabilities

General:

- Until my income exceeds 70k, I am better off trading as an individual, rather than using a company structure because of the lower tax rate for individuals (until this threshold is breached) and unrealized capital gains do not have to be disclosed/taxed. Correct.
$70k is the 38% tax threshold, the company tax rate is 30%, which equates to roughly $39k for an individual
Questions:

- What is the deal with capital gains and FIF's?
(also - MEGA NOOB QUESTION - I take it a FIF is simply a fund used for the purpose of investing offshore?) FIF referes to investments outside the 7 (or 8 now?) countires with double tax agreements. You might want to search the threads in this section for the links provided to others.

- Can brokerage fees be used to offset tax liability (in the case of trading)? Yes

- Are company set-up costs, buying equipment (I'm talking stationary here) all tax deductible? (because my capital base is so small and brokerage fees so high (relatively), I'm afraid of any profits being wiped out, so I want to claim as much as possible). Yes, but i wouldn't go the company way just yet. Don't complicate things until you really do know what you're doing. Remember the 33% tax rate kicks in at 40k, a company pays 30% from the first $1!

- If I borrow (not substantially), the interest I am charged is tax-deducitble? Yes, if you are trading

- Is this general summary correct?

I'm planning on building up some capital these summer holidays (small amount, ~6k) and spending my free time researching viable investment opportunities and paper trading before beginning trading next financial year. Good idea, get a feel for it & read & learn what you can from others mistakes

Thanks! Feel free to destroy any noobish misunderstandings! :D

Also, as a side issue, could someone please briefly explain each of the following technical analysis measures: I'll let the TA folk help you here, i use FA primarily.

- RSI
- Bollinger bands
- Stochastics
- The significance of volume

And...

- Are standard deviation channels really than useful? Do the assumptions in statistics hold true (95% of all values within 1.96 s.d., 90% withing 1.645 etc)? Surely they don't (line of best fit is not the average)?

Thanks (sorry if this is a huge pain in the ass).

Nope, keep asking questions - welcome to Sharetrader ;)

newbietrader
21-09-2009, 12:02 PM
Capital gains:

- As a trader (short-term profit orientated) = no capital gains tax; :eek::eek:
- As an investor (long-term) = capital gains are taxed (when realized). :eek::eek:

Now I'm confused. I read somewhere in the thread it's the opposite.

shasta
21-09-2009, 12:10 PM
Capital gains:

- As a trader (short-term profit orientated) = no capital gains tax; :eek::eek:
- As an investor (long-term) = capital gains are taxed (when realized). :eek::eek:

Now I'm confused. I read somewhere in the thread it's the opposite.

No, your right - it IS the wrong way around :rolleyes:

Jay
21-09-2009, 12:54 PM
No, your right - it IS the wrong way around :rolleyes:

To be precise it is tax on the income earned- i.e the income is from the increase in capital, but is not a capital gains tax;)

theArtfuldodger
21-09-2009, 01:27 PM
Thanks for the reply Shasta! I've read a lot of your posts on other threads too. Very informative and helpful. Thank you!

To: newbietrader

Hey yeah sorry about that! I had it the wrong way round (I meant the opposite ><). I'm a noob too!

Any TA's provide any assistance on the other Q's?

"Also, as a side issue, could someone please briefly explain each of the following technical analysis measures: I'll let the TA folk help you here, i use FA primarily.

- RSI
- Bollinger bands
- Stochastics
- The significance of volume

And...

- Are standard deviation channels really than useful? Do the assumptions in statistics hold true (95% of all values within 1.96 s.d., 90% withing 1.645 etc)? Surely they don't (line of best fit is not the average)?

Thanks (sorry if this is a huge pain in the ass)."

Thanks friends! =)

shasta
21-09-2009, 02:03 PM
Thanks for the reply Shasta! I've read a lot of your posts on other threads too. Very informative and helpful. Thank you!

To: newbietrader

Hey yeah sorry about that! I had it the wrong way round (I meant the opposite ><). I'm a noob too!

Any TA's provide any assistance on the other Q's?

"Also, as a side issue, could someone please briefly explain each of the following technical analysis measures: I'll let the TA folk help you here, i use FA primarily.

- RSI
- Bollinger bands
- Stochastics
- The significance of volume

And...

- Are standard deviation channels really than useful? Do the assumptions in statistics hold true (95% of all values within 1.96 s.d., 90% withing 1.645 etc)? Surely they don't (line of best fit is not the average)?

Thanks (sorry if this is a huge pain in the ass)."

Thanks friends! =)

No problems ;)

Did you find the links in the Newbie section regarding, FIF & FDR?

I found my old post, heres the link

http://www.sharetrader.co.nz/showthread.php?t=6220

theArtfuldodger
21-09-2009, 05:15 PM
I sure did Shasta, thanks! The link concerning FDR is broken however.

Thanks for all your help!

Oh and another q:

I've got this program (a Yahoo! widget - it uses info. provided in relative real-time from Yahoo! Finance) which tracks capital gains on stocks. It allows you to specify your portfolio (purchase price, quanitity) and then tracks you capital gains based on real market movements. My question is thus: how artificial is this in terms of using this program as a means of paper-trading? Am I right in treating the program with the following cavets in mind:

1) The ease of 'cancelling' a stock from the portfolio is pretty artifical considering in a real market there is no guarantee than another trader will be there to accept your sell order (IE - in the real world, losses could potentially be greater because I may have to sell lower to actually sell, as oppose to just hitting 'cancel' and not losing anymore value).

2) I obviously dont have all the mechanics of a broker/brokerage service to navigate etc (I dont know how relevant this is, I have no experience with DIY brokerage services - planning on getting some soon).

3) ... Anything else?

All this said, 'paper trading' would have the same limitations I have identified. I'm not too worried atm, because currently I'm just focusing on getting a feel for the market and learning to identify worthy investments. But is there anything else? Is using this 'widget' (sounds pretty dodgy, but it is accurate) advisable? Just makes things easier.

Thanks.

shasta
21-09-2009, 09:32 PM
I sure did Shasta, thanks! The link concerning FDR is broken however.

Thanks for all your help! :cool:

Oh and another q:

I've got this program (a Yahoo! widget - it uses info. provided in relative real-time from Yahoo! Finance) which tracks capital gains on stocks. It allows you to specify your portfolio (purchase price, quanitity) and then tracks you capital gains based on real market movements. My question is thus: how artificial is this in terms of using this program as a means of paper-trading? Am I right in treating the program with the following cavets in mind: Use it as a guide only, your learning at this stage

1) The ease of 'cancelling' a stock from the portfolio is pretty artifical considering in a real market there is no guarantee than another trader will be there to accept your sell order (IE - in the real world, losses could potentially be greater because I may have to sell lower to actually sell, as oppose to just hitting 'cancel' and not losing anymore value). Even though you are paper trading you are using real time data, as if you were placing a bid into the market. Dont get too hung up on this.

2) I obviously dont have all the mechanics of a broker/brokerage service to navigate etc (I dont know how relevant this is, I have no experience with DIY brokerage services - planning on getting some soon). I was with ASB Securities, they have all the necessary tools to DIY, but there are others, find a broker that offers you exactly what you require, there are plenty of good ones that offer cheap DIY services.

3) ... Anything else? Nope, keep firing the questions thru, we all started somewhere, & there are plenty of respected posters on here that will help.

All this said, 'paper trading' would have the same limitations I have identified. I'm not too worried atm, because currently I'm just focusing on getting a feel for the market and learning to identify worthy investments. But is there anything else? Is using this 'widget' (sounds pretty dodgy, but it is accurate) advisable? Just makes things easier. Just focus on getting comfortable with the way the market works, google & find all the links you need (or ask), when you start off with limited capital, your priority should be capital protection, rather than chasing the next hot spec...

Remember it costs nothing to paper trade, & the research you can do in the meantime & can set you up for later on.

Ie, what sectors are you interested in, do you know any sectors thru your interests, download the free incredible charts software & play with it.

Thanks.

I would encourage you to write down your goals, & what aspects you want in a company you are investing into. By writing down what you want & sticking to it, you can eliminate the emotion out of your decisions.

I've always found this part hard, greed & fear runs rampant in the market!

theArtfuldodger
22-09-2009, 10:55 AM
Thanks Shasta. All your help has been really great. Never fear! My questions will keep flowing!

I was just telling Phaedrus you two should write a book. People would pay damn good money for this advice! =D

Anyway, cheers! =)

theArtfuldodger
22-09-2009, 03:43 PM
Ok, I'm sure I've read a thread discussing this before, but how exactly does the IRD go about determining 'intention'? What kind of trading time-frame would an income/profit orientated 'trader' be buying/selling over? Is there a set standard, or is it determined on a case-by-case basis?

How would each of the following scenarios be classified (all being 'on average')?

I. Someone who buy/sells over a day? (this one's obvious - a trader for sure)

II. Someone who buys/sells over a week?

III. Over a month? (are we getting into 'investor' territory here? Or could this person still scrape by as a 'trader'?)

IV. 3 or 6 months

V. 1 Year? (I'm guessing an this individual would be unarguably an 'investor').

Stinks who something as subjective as 'intention' is assessed so objectively. Anyway, how else they gonna do it I suppose... Oh and all this is obviously for tax purposes =D

Thanks.

EDIT: I want to be trading enough to be a 'trader' (tax benefits), but not so much that I do anything stupid/risky, being as inexperienced as I am.

Another noob q: could I use the expenses incurred in 'trading' (brokerage, stationary etc) to offset the tax liability on TOTAL income i.e. - income from other sources (other than shares) too? Or can expenses only apply to the income that was earned while incurring them?

Also, are losses on trades tax-deductible?

Thanks.

Ham001
28-09-2009, 10:04 PM
The best advice I got was to keep things separate. Keep trading activities well away from long-term investments. Yes as belgarion has mentioned above, with recorded intentions you can create an audit trail to clarify. However at the very minimum I would personally use 2 separate broker accounts (if trading in my own name), 1 for trading and 1 for long-term investments.

The trading expenses paid in the entity (whether it be yourself personally, Trust or a company etc ) that is actively trading with the intention of creating taxable income can claim related expenses paid in the normal course of business as tax deductible expenses (eg. Internet connection, interest, brokerage, FX gains/losses etc).

But as with everything tax related, you can't rely on posts in a sharetrader forum. The FIF & PIE rules are extremely complex and quite simple the best advice you can get is to seek a professional opinion.

Cheers,
Hamish

axion
01-10-2009, 09:31 PM
"Yes, but i wouldn't go the company way just yet. Don't complicate things until you really do know what you're doing. Remember the 33% tax rate kicks in at 40k, a company pays 30% from the first $1!"

Couldn't you just withdraw all profit as a salary and then you'd have 0 profit in the company and then just be taxed at your personal rate?

shasta
01-10-2009, 09:37 PM
"Yes, but i wouldn't go the company way just yet. Don't complicate things until you really do know what you're doing. Remember the 33% tax rate kicks in at 40k, a company pays 30% from the first $1!"

Couldn't you just withdraw all profit as a salary and then you'd have 0 profit in the company and then just be taxed at your personal rate?


Assuming the personal marginal tax rate results in less tax being paid, then yes you could do that.

Alot of work filing company tax/annual returns, company resolutions though etc

There's also the issue of getting benefit form any tax credits the company receives, ie from dividends

I was merely pointing out, when you start out, tax friendly structures should be the last consideration, not the first few!

axion
02-10-2009, 12:41 AM
Ah yeah for sure, just wanted to see if that was something you could do as I had it in my mind.

impacman
08-10-2009, 08:06 PM
The definition of "intention" is the rub!

What I do is use an 'investment diary' that I treat very much like an old paper ledger. The old paper ledger didn't allow you to cook the books after the event as each line had to be sequential and each day ruled off and signed in blood. I write down why I buying something in very clear terms, stating my intentions and reasons. I always intend to hold (unless I'm buying through my trading account for which I don't have an investment diary) but only if the company meets my investment expectatiopns. If they don't - they're gone. For example, I hold XRO and the entry in my diary says hold for at least two years and particpate in capital raisings but sell if (and theres a list of factors that would show only a fool would hang-on).

On a number of occasions where I got a "please explain" requests my diary has been accepted.Note a tax expert (or tax assessor) so I don't know whether I was just lucky or whether the diary is an acceptable declaration of intent.


Hi Belg, I have taken to doing as you suggest in terms of a diary (in fact it was the wise Lawso who put me onto it over a very nice Montieths at an Auckland ST meeting). The only difference is that I have recorded mine on an excel spreadsheet. Not sure whether this is detremental compared to the "no fudging it" aspect of hard copy as you describe. All my shares are in Trust and the intent is genuinely LT investment (other than if it turns non sensical to hold). I have also talked with my accountant who is an independent trustee and suggested we print out the diary annually and all trustees sign it off at that point. He thought this sounded okay. Be interested in your (and anyone else who would like to comment) view/s as to whether this would make the grade or not. Also be interested in understanding how you define your sell factors (I am sure they would be tranferable). Your views/help would be much appreciated.

Cheers,

I-man

POSSUM THE CAT
09-10-2009, 08:10 AM
Impacman Do you have A trustees meeting before every sale & purchase as you may need the minutes of these meetings as well or trust could be considered a sham.

impacman
09-10-2009, 09:11 AM
Impacman Do you have A trustees meeting before every sale & purchase as you may need the minutes of these meetings as well or trust could be considered a sham.

No we don't but the other trustees have okayed me to manage the share portfolio on their behalf. The trust holds other assets as well so it hasn't been set up to solely invest in equities. Will raise this with our accountant to get their view and let you know the opinion. Thanks for the heads up though.

Cheers

CJ
09-10-2009, 10:54 AM
The only difference is that I have recorded mine on an excel spreadsheet. Not sure whether this is detremental compared to the "no fudging it" aspect of hard copy as you describe. Even a diary can be fudged. entries put in at a later date. It is just harder to delete information.

OldRider
09-10-2009, 11:21 AM
impacman:

My situation seems similar to yours, I have been advised to minute every transaction as noted above. Not too difficult we have several standard forms in Word
and it just takes a minute to fill in the spaces, print out and sign.

All decisions and reasons are as well recorded in Excel spreadsheet, backups of these
are made daily to stick and monthly to CD. CD should be a true unchangeable record.

Accountant and solicitor say they are happy with system.

shasta
09-10-2009, 12:42 PM
No we don't but the other trustees have okayed me to manage the share portfolio on their behalf. The trust holds other assets as well so it hasn't been set up to solely invest in equities. Will raise this with our accountant to get their view and let you know the opinion. Thanks for the heads up though.

Cheers

Your Accountant hopefully has ensured what you are doing is well documented!

Using a Trust has pitfulls where Trustees, MUST be acting in the best interests of the Beneficiaries.

There have been court cases where Beneficiaries have successfully sued the Trustees for capital losses, when they were acting outside the scope of the Trust Deed.

I'd be making sure your Accountant reviews everything annually, including all documentation.

forest
10-10-2009, 05:05 PM
If I borrow (not substantially), the interest I am charged is tax-deducitble? Yes, if you are trading. (Shasta)

Shasta, my understanding is that if money has been borrowed for trading then the interest is tax deductable as you mentioned.

You not mentioning borrowing for long term investing, but I thought the tax rules would be the same. Its an expence for furure earnings (dividend).

Any comments invited.

Cheers Forest.

shasta
10-10-2009, 05:37 PM
If I borrow (not substantially), the interest I am charged is tax-deducitble? Yes, if you are trading. (Shasta)

Shasta, my understanding is that if money has been borrowed for trading then the interest is tax deductable as you mentioned.

You not mentioning borrowing for long term investing, but I thought the tax rules would be the same. Its an expence for furure earnings (dividend).

Any comments invited.

Cheers Forest.

Borrowing to buy shares (whether short, mid or long term) makes no difference, the interest is deductible.

But any gains made regardless would also be subject to tax.

Think of claiming costs as = trading (i know it's a loose intepretation!)

If you have no "income" as such*, the IRD could quite rightly deny the interest expenses claim (+ add Use of Money Interest & Penalties).

* Dividends & Bonus shares/DRP would satisfy the IRD as income.

impacman
10-10-2009, 06:06 PM
Thanks CJ, Oldrider and Shasta. I will follow up with the accountant and do a bit more digging myself. Will come back to the thread with any new/useful information.

Hope the weekend is going well:)

Cheers

fish
11-10-2009, 03:05 PM
If I borrow (not substantially), the interest I am charged is tax-deducitble? Yes, if you are trading. (Shasta)

Shasta, my understanding is that if money has been borrowed for trading then the interest is tax deductable as you mentioned.

You not mentioning borrowing for long term investing, but I thought the tax rules would be the same. Its an expence for furure earnings (dividend).

Any comments invited.

Cheers Forest.

Forest

My accountant assures me that borrowing in order to buy shares that produce income is a tax deductible expense . As long as you buy them with the intention of holding long term for dividend income there is no tax on capital gains-even if you sell a few here and there for various reasons that crop up -as they do from time to time .
I take this to mean that if I believe another share has better prospects at producing income it is ok to sell the less favourable share and not pay tax on any capital gain .
Some time ago I read that the ird might classify you as a trader if you did more than 10 transactions a year . This to me seems non-sensical as if you say had 100,000 invested and did 11 trades a year of 1000 each you would be a trader even though you had not traded the majority 89% !

Precedent is relevant and if you have ever claimed for a capital loss -as a friend of mine has-the ird will have you classified as a trader .

I invest solely to provide for my retirement and have never claimed a deduction for a capital loss or paid tax on a gain in 19 years of share buying and selling-even though i may do it more than 10 times a year .However I have only sold a minority of the shares I own .My share portfolio has always produced a net taxable gain for the ird .

One would hope that the ird would have difficulty establishing an intention to trade when I bought the shares -especially as this is definately not the case .

I wonder if anyone here has had the IRD wrongly accuse them of being a trader and taxing capital gains ?

fungus pudding
11-10-2009, 03:26 PM
Forest

My accountant assures me that borrowing in order to buy shares that produce income is a tax deductible expense . As long as you buy them with the intention of holding long term for dividend income there is no tax on capital gains-even if you sell a few here and there for various reasons that crop up -as they do from time to time .
I take this to mean that if I believe another share has better prospects at producing income it is ok to sell the less favourable share and not pay tax on any capital gain .
Some time ago I read that the ird might classify you as a trader if you did more than 10 transactions a year . This to me seems non-sensical as if you say had 100,000 invested and did 11 trades a year of 1000 each you would be a trader even though you had not traded the majority 89% !

Precedent is relevant and if you have ever claimed for a capital loss -as a friend of mine has-the ird will have you classified as a trader .

I invest solely to provide for my retirement and have never claimed a deduction for a capital loss or paid tax on a gain in 19 years of share buying and selling-even though i may do it more than 10 times a year .However I have only sold a minority of the shares I own .My share portfolio has always produced a net taxable gain for the ird .

One would hope that the ird would have difficulty establishing an intention to trade when I bought the shares -especially as this is definately not the case .

I wonder if anyone here has had the IRD wrongly accuse them of being a trader and taxing capital gains ?

There's no simple answer to this question. If you are a long term holder and pop-off a few now and then, you are most unlikely to attract the attn. of the IRD especially if you reinvest. That's just re balancing to protect your investment. But if you pop-off the odd few to spend or live off, then the rules might change, and it's more likely to be noticed if you have no other income. If you wind down long term holdings after a few years you probably won't be taxed as long as you have finished buying, even if you make heaps of sell transactions in one year. You're not trading - you are retiring. But good luck!

shasta
11-10-2009, 04:55 PM
There's no simple answer to this question. If you are a long term holder and pop-off a few now and then, you are most unlikely to attract the attn. of the IRD especially if you reinvest. That's just re balancing to protect your investment. But if you pop-off the odd few to spend or live off, then the rules might change, and it's more likely to be noticed if you have no other income. If you wind down long term holdings after a few years you probably won't be taxed as long as you have finished buying, even if you make heaps of sell transactions in one year. You're not trading - you are retiring. But good luck!

One thing that does arouse the IRD, is trading in & out of the same share.

If you were rebalancing your portfolio say once a year, you'd be fine.

forest
11-10-2009, 05:05 PM
[QUOTE=fish;276920]Forest

My accountant assures me that borrowing in order to buy shares that produce income is a tax deductible expense . As long as you buy them with the intention of holding long term for dividend income there is no tax on capital gains-even if you sell a few here and there for various reasons that crop up -as they do from time to time .
I take this to mean that if I believe another share has better prospects at producing income it is ok to sell the less favourable share and not pay tax on any capital gain .
Some time ago I read that the ird might classify you as a trader if you did more than 10 transactions a year . This to me seems non-sensical as if you say had 100,000 invested and did 11 trades a year of 1000 each you would be a trader even though you had not traded the majority 89% !





Yes fish my accountant came with an identical story about interest deductability.

Well we are on the subject about expenses for share investing. I also discussed if I could deduct for tax other expenses as a long term share investor and the advice was NO.

Does this sounds right to others. If you invest in shares long term to create a dividend for income cost like computers, travel to meetings, brokerage, magazines, newspapers etc is not tax deductable.

If I operate any other enterprice to create an income I believe you can deduct these very genuine expenses.

What expenses apart from possible interest do other long term share investors claim??

Cheers, Forest

fish
11-10-2009, 09:18 PM
[QUOTE=fish;276920]Forest




Yes fish my accountant came with an identical story about interest deductability.

Well we are on the subject about expenses for share investing. I also discussed if I could deduct for tax other expenses as a long term share investor and the advice was NO.

Does this sounds right to others. If you invest in shares long term to create a dividend for income cost like computers, travel to meetings, brokerage, magazines, newspapers etc is not tax deductable.

If I operate any other enterprice to create an income I believe you can deduct these very genuine expenses.

What expenses apart from possible interest do other long term share investors claim??

Cheers, Forest

I was also told I couldnt claim brokerage expenses as an investor(as opposed to a trader )

I havnt attended any company agm yet and like you am not sure if this is a tax deductible expense .
I would have thought that if you used your computer to keep track of dividend income etc a percent proportional to buisness use would be claimable

johndeyell
12-10-2009, 04:02 PM
Also, are losses on trades tax-deductible?

Thanks.

They are only deductible if you were going to be paying tax on any profit you made on that trade. I.e. if you're a "trader" then yes; if you're an "investor" then no.

Doggy888
26-11-2009, 08:21 AM
Hi everyone, I'm new to this forum and pardon me if I'm hijacking this thread.

I have a related question, are profits from forex trading taxable ? Its kind of difficult to determine what is "profits" for a forex trading account isn't it ?

RazorX
26-11-2009, 09:17 AM
The simple answer is yes.

In the most basic way profits is any amount over your starting capital at the end of your financial year.

Lets say you start trading on 1 April 2008 with $1000. At 31 March 2009 your account balance is $1500. (This takes into account losses and gains while trading) Therefore your profit is $500 which will be taxed.

It gets more complicated when trying to decide what expenses can be claimed against the profit - i.e internet bill, computer expenses etc. Basically if it is directly related to obtaining income then you can claim the expense.

My advice is that if you are making any substantial profit and are not sure how to work out the tax side of things then get an accountant to do it. They are expensive (So keep good records because it makes things easier and faster for them :)) but it's more expensive to have IRD breathing down your neck.

Doggy888
26-11-2009, 10:07 AM
Thanks Razor. But how about if I'm trading on a partime/personal basis ? According to the IRD website, (http://www.ird.govt.nz/yoursituation-bus/bus-aust-nz/tax-basics/comp-inctax/#06) there's no capital gain tax here ?

Let's say I'm confused because I approach 2 accountants and both tell me different things :(

Doggy888
26-11-2009, 10:33 AM
ok I read more in depth and I think I'm wrong. Profits from trading is not considered as capital gain but as income, and so its taxable.

Another question though, if I'm leaving NZ and work in another country, but I continue trading in my nz account, am I taxable since now I'm not a tax residence ?

Sorry guys, if I should not be asking these questions here please let me know ! :)

shasta
26-11-2009, 10:48 AM
ok I read more in depth and I think I'm wrong. Profits from trading is not considered as capital gain but as income, and so its taxable.

Another question though, if I'm leaving NZ and work in another country, but I continue trading in my nz account, am I taxable since now I'm not a tax residence ?

Sorry guys, if I should not be asking these questions here please let me know ! :)

This is the area to ask questions ;)

Then you fall into the 180 day residency rule re being a NZ taxpayer.

If you become a tax payer in another country, you would need to declare your income from NZ, as overseas income (you will have to investigate tax laws overseas as you can only be a tax paying resident in 1 country).

With the FIF rules, there are 7 countries with double tax agreements inplace, also known as the grey list.

If you fall outside that scope, you will need to read up on the FIF rules, they can be onerous/complex.

NZ doesn't have CGT, but most other countries do, bare that in mind

Doggy888
26-11-2009, 12:26 PM
Thanks shasta ! You reminded me of DTA, so I lookup the IRD website more and realise even if I'm not physically here, I'm still considered to have enduring relationship, since I'll have investment account here. But I should be tax under the country where I'm working in if there's DTA.

ok, more of a forex/tax specific question. How do we consider "gain" in a forex account for tax reporting purposes ? Balance ? Liquidable Equity ? Margin Available ? How do we take the floating P/L into account ? Forex is such a dynamic instrument that its hard to pinpoint a exact figure w/o specifying a exact precise date/time.

In addition, if we are using automated system that generate several trades a day, the transaction history is going to be very very long :(

CJ
26-11-2009, 12:35 PM
I have a related question, are profits from forex trading taxable ? Its kind of difficult to determine what is "profits" for a forex trading account isn't it ?Forex is a financial arrangement. Therefore there is no such thing as capital gains.

Depending on your structure, you may be taxed on unrealised gains as well.

shasta
26-11-2009, 01:25 PM
Thanks shasta ! You reminded me of DTA, so I lookup the IRD website more and realise even if I'm not physically here, I'm still considered to have enduring relationship, since I'll have investment account here. But I should be tax under the country where I'm working in if there's DTA.

ok, more of a forex/tax specific question. How do we consider "gain" in a forex account for tax reporting purposes ? Balance ? Liquidable Equity ? Margin Available ? How do we take the floating P/L into account ? Forex is such a dynamic instrument that its hard to pinpoint a exact figure w/o specifying a exact precise date/time.

In addition, if we are using automated system that generate several trades a day, the transaction history is going to be very very long :(

Might be best to direct some of those FX trader questions to the Forex thread, Peat, Arco & Dumbass will be able to help you :)

I know nothing of FX, but i can help you with tax questions.

Further to CJ's post, as an individual you get to account for profits/losses on a cash basis (ie, only realised profits/losses), should you wish to trade as a Trust/Company/Limited Liability P'ship - then the accrual rules apply.

Doggy888
27-11-2009, 02:02 PM
If I were to setup a Trading Trust to perform my trading activities, and subsequently distribute the profits to my children who are the beneficiaries of the trust. Will that be considered as tax avoidance and get the IRD to knock on my door ?

CJ
27-11-2009, 04:04 PM
If I were to setup a Trading Trust to perform my trading activities, and subsequently distribute the profits to my children who are the beneficiaries of the trust. Will that be considered as tax avoidance and get the IRD to knock on my door ?

Sounds like a legitimate use of a trust - just make sure it is set up properly and the yearly admin is done. Remember that if the beneficiaries are under 18, it is taxed at 33% (?), not their marginal rate.

shasta
27-11-2009, 10:48 PM
If I were to setup a Trading Trust to perform my trading activities, and subsequently distribute the profits to my children who are the beneficiaries of the trust. Will that be considered as tax avoidance and get the IRD to knock on my door ?

If your using a Trust dont forget to show the initial funds as a loan, so you can "gift" up to $27,000 a year tax free.

If you structure it right with your partner you may be able to gift $54,000.

Just remember using a Trust means you must be aware that Trustess are meant to act in the best interests of it's beneficiaries, a high risk trading strategy could come back on you, should you lose capital.

Better to trade using a company & have the Trust own the shares...;)

Make sure you write down why you want to do this, & what you expect to achieve, that way your accountant can get it right first time.

Over the years i've seen so many flawed structures, because someone didnt want to pay a few $ to an Accountant & get it done properly.

You really need to get it right to start with.

Using a Trust means you should have a longer term focus.

Perhaps a Trust would be better suited for a more conservative investment portfolio, & an LAQC company used for trading?

You need to specific your aims, goals & requirements for doing this, & THEN look at a structure.

Happy to help

Jay
29-11-2009, 09:07 AM
Shasta , what is your "learned opinion" on trustees, who they should be.

When my Trust was set up, I was not the settler but a beneficiary and trustee with my solicitor.
To me this is still not so "bullet" proof, as they will usually just sign what ever you put in front of them within reason.
Thinking of changing trustees to myself and my wife or under a company with us as directors.
Generally speaking, is one of the above a better, as then we can sign the minutes etc etc there and then

newbe
27-01-2010, 02:52 PM
If your using a Trust dont forget to show the initial funds as a loan, so you can "gift" up to $27,000 a year tax free.

If you structure it right with your partner you may be able to gift $54,000.

Just remember using a Trust means you must be aware that Trustess are meant to act in the best interests of it's beneficiaries, a high risk trading strategy could come back on you, should you lose capital.

Better to trade using a company & have the Trust own the shares...;)

Make sure you write down why you want to do this, & what you expect to achieve, that way your accountant can get it right first time.

Over the years i've seen so many flawed structures, because someone didnt want to pay a few $ to an Accountant & get it done properly.

You really need to get it right to start with.

Using a Trust means you should have a longer term focus.

Perhaps a Trust would be better suited for a more conservative investment portfolio, & an LAQC company used for trading?

You need to specific your aims, goals & requirements for doing this, & THEN look at a structure.

Happy to help

I Shasta, I'm just cathing up on this thread and see you seem to know a lot about Trusts. I run a business, carry out share trading and my wife and I own our own house. Where could we obtain the best advice on setting up a trust? And how do we learn about the ways it can benefit us? Maybe we could start another thread on trusts?

shasta
27-01-2010, 03:14 PM
I Shasta, I'm just cathing up on this thread and see you seem to know a lot about Trusts. I run a business, carry out share trading and my wife and I own our own house. Where could we obtain the best advice on setting up a trust? And how do we learn about the ways it can benefit us? Maybe we could start another thread on trusts?

It's hard to advise on such complex matters without having a bit more info.

What existing structure does your business use?

What is your motivation to use a Trust, asset protection, tax, risk management?

Do you have a personal mortgage, or any debt with the business?

What is your current family situation, do you have children, if so what age?

Are you an investor or share trader, if you're trading i'd avoid doing this via a Trust (too many issues to explain)

If you would rather not post personal info here, PM me ;)

Stylerz
06-02-2010, 10:01 PM
Shasta if i were to work in Australia for the next couple of years, and i keep my nz property and shares, what would my tax obligations be?

Been trying to work it out off the ird and aussie tax websites but cant quite get my head around it.

Where would i pay the tax on income for renting my house? Just to the Auz tax department?

All of my shares are PIE trusts. So no further tax to be paid in New Zealand. But if i move to Aussie would there be additional tax to pay on them?

Thanks in advance!

shasta
07-02-2010, 01:21 PM
Shasta if i were to work in Australia for the next couple of years, and i keep my nz property and shares, what would my tax obligations be?

Been trying to work it out off the ird and aussie tax websites but cant quite get my head around it.

Where would i pay the tax on income for renting my house? Just to the Auz tax department?

All of my shares are PIE trusts. So no further tax to be paid in New Zealand. But if i move to Aussie would there be additional tax to pay on them?

Thanks in advance!

By way of having a relationship still with NZ (having property/shares/family ties) you will still be regarded as an NZ taxpayer.

There is also the 180 day residency rule, so in any case the first year you will be considered a NZ taxpayer still.

Without knowing your exact situation, it would seem you will be an NZ taxpayer.

Any income derived in Australia will be taxed at source & payable to the Australian tax authority.

You will then need to account for your Australian/Overseas income in your NZ tax return.

As NZ & Australia have a "DTA" (Double Tax Agreement), any tax paid in Australia will be offset against your total income (NZ + Oz).

You pay tax on your NZ rental income as per normal, as if you were still in NZ.

BTW, your shares won't be exposed for CGT (as in Australia), whether they are from the ASX or not, as you will be an NZ taxpayer.

Hope thats clear enough!

Stylerz
07-02-2010, 07:11 PM
Thanks Shasta for the helpful reply.

Looks like i will be able to keep my property and shares without it being to much hassle. Didnt really want to have to sell everything.

Is there any time limit that i can be a NZ tax payer, and work in Auz.

Should there be any additional tax to pay when i submit my Auz earnings and property income to the NZ IRD?

shasta
09-02-2010, 12:41 PM
Thanks Shasta for the helpful reply.

Looks like i will be able to keep my property and shares without it being to much hassle. Didnt really want to have to sell everything.

Is there any time limit that i can be a NZ tax payer, and work in Auz.

Should there be any additional tax to pay when i submit my Auz earnings and property income to the NZ IRD?

If you continue to have a "relationship" with NZ, ie Property, Family, Investments etc, you will be deemed an NZ resident for tax purposes, & there isn't a time restriction.

With regards to additional tax, the tax credits from any overseas income, are only claimable up to the maximum that would otherwise be claimable in NZ. (Makes sense as the NZ IRD won't send you a refund, on your tax paid to the Australian IRD!).

Heres a link that might be handy for you to bookmark

http://www.ird.govt.nz/yoursituation-nonres/tax-residency/

Have a wee read, & if you want anything explained in plain english let me know ;)

fish
14-02-2010, 06:08 AM
2 years ago my wife and I took out a big margin loan to invest in nz equities with the aim of increasing our income now and to provide a retirement income in ten years or so .

I have substantial personal income but my wife only has a couple of part-time paye jobs earning about $20,000 pa .

The interest on the margin loan being tax deductable plus all the imputation credits means that she has $40000 of excess imputation credits which my accountant says she cant use against paye and has to carry forward .

Clearly we would like to put them to good use. Ideas so far are her to create a business-but we are really are to busy for that , or become a director of a company -a definate possibility .

Any other ideas ?.
Anyway she could stop paying paye now .
Can imputation credits be transferred between husband and wife ?

shasta
14-02-2010, 12:34 PM
2 years ago my wife and I took out a big margin loan to invest in nz equities with the aim of increasing our income now and to provide a retirement income in ten years or so .

I have substantial personal income but my wife only has a couple of part-time paye jobs earning about $20,000 pa .

The interest on the margin loan being tax deductable plus all the imputation credits means that she has $40000 of excess imputation credits which my accountant says she cant use against paye and has to carry forward .

Clearly we would like to put them to good use. Ideas so far are her to create a business-but we are really are to busy for that , or become a director of a company -a definate possibility .

Any other ideas ?.
Anyway she could stop paying paye now .
Can imputation credits be transferred between husband and wife ?

Your wife could approach the IRD to change her tax rate to reflect the level of imputation credits she cannot use, i know in some situation this can happen.

Failing that!

There is no current way of transferring imputation credits between individuals/spouses etc (btw Peter Dunne is advocating income splitting).

To transfer the investment income to her will require some tinkering.

You could do off-market transfers (at market value) into a company with both you & your wife as Directors, but not as shareholders*, as it may be hard to prove to the IRD this isn't a tax avoidance scheme.

Now to get around that issue, you could set up a Trust which owns all the shares in the company.

This gets around the issue of Trustees liability issues around share trading (as it's done by the company directors).

Any profits can be paid to the Trust, along with imputation credits attached, & if you structure the Trust so that you are Trustee & she is the beneficiary, the dividend is passed through to her.

Run this scenerio past your Accountant, as i'm not 100% up with the tax laws (been 7 years out of the CA environment).

Potential Issues with the above:

1. Moving trading/investments into a company/trust means accounting for unrealised gains/losses, that individuals do not need to

2. The administration of a company & trust has alot of paperwork involved & will cost a fair bit to set up (Laywers & Accountants fees), i'd think around $5k to set up & $2-3k a year ongoing?

3. The potential loss of imputation credits to enter into this arrangement

4. Under the scenerio above, you would have a debt owing to you by the company, this would be better re-structured into the Trust, re gifting duty purposes (your Accountant should have some thoughts around this)

5. You may be better off putting your "investments" into a trust, & having the margin loan & trading stocks in an LAQC, with just you as the shareholder.

(Hopefully National does align the top tax rate to the company/trust tax rates so ANY dividends paid to you are taxed at source, & there is no further liability due to having income at the current top tax rate)

6. If your wife was to maintain the paperwork/administration, there is the oppportunity to pay her a nominal salary (untaxed) to utilise the imputation credits, although this has to be "justified".

I'll give it some more thought, but i'd run that past your Accountant & see what they think will suit your situation best.

CJ
14-02-2010, 12:40 PM
I am not sure why she cant use the IC to offset PAYE. Have the interest expense wiped out the income already? They will be converted to a loss and carried forward to be used next year.

IC's cant be transfered from person to person.

From a planning perspective, it would have been better for the share and the loan to be in your name, not joint name.

fish
19-02-2010, 06:02 PM
I am not sure why she cant use the IC to offset PAYE. Have the interest expense wiped out the income already? They will be converted to a loss and carried forward to be used next year.

IC's cant be transfered from person to person.

From a planning perspective, it would have been better for the share and the loan to be in your name, not joint name.

My accountant has approached IRD this week and they still wont allow imps to offset PAYE .

I think the best way to approach this is to sell enough shares to get rid of the margin loan and to further decrease the imputation credits allocated to my wife we could split the assets equally with the share portfolio into our separate names with the telecom shares going to my wife and the vector to me.The fixed income/bonds to my wife etc .
I would then take out a margin loan again but this time in my own name and buy back the shares I sold

skeet
26-03-2010, 11:28 PM
Share Losses - Deductions
Court of Appeal Decisions

Introduction
In two recent test cases Inland Revenue asked the Court of Appeal to clarify when taxpayers may deduct losses incurred on the sale of shares. The Court said that those losses are deductible if the taxpayers would have been taxed on any profit from the sale of those shares. In the light of these decisions, this article outlines when profits from share transactions will be assessable and
when losses from share transactions will be deductible. It also sets out how Inland Revenue will apply these Court decisions to taxpayers who claim deductions for losses on share sales.
The test case results will also be relevant to the taxation of transactions in other types of personal property and to land sales (under section 67(4)(a) of the Income Tax Act 1976). However, this article covers only the tax treatment of share transactions.

Background
The Court of Appeal decisions in C of IR v Stockwell (CA 119/92) and C of IR v Inglis (CA 116/92) were delivered on 19*November 1992. These will both have important implications for some taxpayers. They decided that if taxpayers buy shares and would have been liable for tax on any profits or gains from selling the shares, then any losses they incur on that sale are deductible. The decisions apply only to people who trade in shares (or other property) as a business, or who buy shares for the purpose of reselling them. The Court drew a clear distinction between these people and others who typically invest spare money from time to time, hoping for dividends and some capital growth. Proceeds from these casual transactions would be neither taxable nor deductible.

Taxation of Share Sales
Profits or gains from the sale or other disposition of company shares are assessable for income tax if:
(a) The profits are business profits (section 65(2)(a) of
the Income Tax Act 1976); or
(b) The taxpayer is in the business of dealing in shares
(section 65(2)(e), 1st limb); or
(c) The taxpayer acquires the shares with the purpose of
selling or otherwise disposing of them (section
65(2)(e), 2nd limb); or
(d) The profits come from any undertaking entered into
or devised for a profit making purpose (section
65(2), 3rd limb).
“Acquired for the purpose of selling”
Profits from selling shares are taxable if the taxpayer acquired the shares with the purpose of selling or otherwise disposing of them. However, sometimes taxpayers buy shares for more than one purpose, and may be uncertain about the tax treatment of those share transactions. In these situations the dominant purpose at the time of buying the shares is the relevant one. Often ordinary investors acquire shares to make capital gains from their growth in value, as well as to earn
income from dividends. In this situation there is no clear purpose of resale when the shares are bought, so any profit on sale would not be taxable. Neither would any losses be deductible.
To work out whether the profit (or loss) from a taxpayer's share sales are assessable (or deductible), it is necessary to look at each individual parcel of shares that the taxpayer sells during the year, and the purpose for which s/he acquired those shares.

What the Cases said
This article concentrates on the Inglis case, which is the main judgment about taxing share sales. The Stockwell case agreed with the decision in Inglis, and also considered the sort of behaviour that would show that a taxpayer was in the business of dealing in shares (section*65(2)(e), 1st limb).
In the Inglis decision the taxpayer had sold properties and invested the proceeds in the sharemarket until he and his wife were ready to purchase a larger house. The share market crash meant that he made substantial losses on those share investments. He wasnt in the business of dealing in shares, but the fact that he bought the shares to sell them when he and his wife decided to buy a house proved that he had bought the shares with the clear and dominant purpose of reselling them. If he
had sold any of the shares at a profit, that profit would have been taxable as profits from property acquired for the purpose of resale (section 65(2(e), 2nd limb). The Court of Appeal reasoned that the Act allows deductions for expenditure or loss in gaining or producing assessable income (section 104), but section 106 (1)(a) prevents any such deductions for capital losses. However the Court considered that this prohibition only applies to losses of fixed capital and that money used for
share trading effectively changes to circulating capital (i.e., .the cost of trade.). Thus, in substance, the shares became stock in trade, were held on revenue account and any trading loss on them would be deductible under dection 104. This means that a taxpayer who is in the business of dealing in shares or who buys shares with the dominant purpose of reselling them can claim a deduction for any loss realised on the resale of those shares. The practical effect of these decisions is that where a
taxpayer acquires shares with the dominant purpose of reselling them, then in the year of sale: (a) the taxpayer will be assessable on any profit from the sale (i.e., the amount by which the sale price (less any brokerage) exceeds the cost price (plus any brokerage)); (b) the taxpayer may claim a deduction for any loss on the sale (i.e., the amount by which the sale price (less any brokerage) is exceeded by the cost (plus any brokerage)) (c) expenditure incurred to acquire shares will be deductible and the amount of any difference on resale will be taxable or deductible, as the case may
be. Taxpayers who seek to deduct share sale losses (where profits would have been assessed under the 2nd limb of section 65(2)(e)) have the onus of showing that when they bought the shares they had a clear and dominant purpose of reselling them. The requirement for taxpayers to show their clear and dominant purpose in acquiring shares was established in C of IR v National Distributors
(1989) 11 NZTC 6,346. In that case, the court envisaged that taxpayers would point to the following
types of activities in order to give an objective indication of their purpose in acquiring shares
. regular and systematic reviewing of their share portfolio . whether they adopted a coherent pattern of sales and purchases; . if they had sold shares for no other apparent purpose
than for trading; . whether the shares were held for a relatively short
period; . the taxpayer.s vocation; and . any other relevant circumstances about their acquisition
and use of the shares.

Example
Chris is not a professional gambler, but likes to go on tours to big overseas racing carnivals two or three times a year. She funds each trip by investing on the sharemarket (she finds the returns are better than the TAB) and realising the investments when she makes her travel arrangements. She invested $8,000 to provide for her Melbourne Cup trip (the total cost was $8250, once brokerage was included). However, when she sold the shares she only got $3,880 ($4,000 less brokerage of
$120). Chris spent that November at home but got some consolation by working out that she could deduct $4,370 (i.e. $3,880 minus $8,250) from her assessable income for that year.

Summary
The Court of Appeal decisions in C of IR v Stockwell and C of IR v Inglis allow taxpayers who trade in shares (and other property) as a business, or who buy for the purpose of reselling (and would therefore be taxable on any profits from those transaction) to deduct any losses they incur on those transactions.

http://www.ird.govt.nz/technical-tax/tib/vol-4/

Aaron
27-03-2010, 03:10 PM
Fish I can't understand how the imputation credits can't be used against her tax and the PAYE refunded unless your wife has invested via a trust or a company that is not an LAQC company.

If the investments are in her own name there shouldn't be a problem with NZ imputation credits (not Aussie franking credits) and she should get her PAYE refunded with any losses from excess imputation credits carried forward.

fish
05-04-2010, 08:48 PM
Fish I can't understand how the imputation credits can't be used against her tax and the PAYE refunded unless your wife has invested via a trust or a company that is not an LAQC company.

If the investments are in her own name there shouldn't be a problem with NZ imputation credits (not Aussie franking credits) and she should get her PAYE refunded with any losses from excess imputation credits carried forward.

Thanks Aaron.
Thats what I would have thought-but my accountant says otherwise . Have you got any links I could go to ?

Aaron
06-04-2010, 09:28 PM
You can try the IRD website an IR274 discusses the imputation system. I imagine your accountant would have it right maybe you just need him/her to go over it and explain things better.
I imagine there is more to it than I am aware but it seemed odd. With $40,000 imp cr that would be $133,333 gross dividend which would put your wife in the top tax bracket depending on the margin loan interest. can't really advise but hypothetically if your wife received "in her own name" $133,333 gross div and $40,000 imp cr( @30%) plus $20,000 wages with $3,900 PAYE (@ 19.5%) less margin interest say $70,000 (7% of $1,000,000) then in her 2009 income tax return she would have $16,960 imp cr to carry forward and a refund of $3,900 tax.

fish
10-04-2010, 07:07 AM
Saw the accountant yesterday-you are absolutely correct Aaron .
When he told me I couldnt use her imputation credits and she would have to carry them forward -he meant the 40000 less the 4000 Paye which will be claimed back

buxlo12
18-04-2010, 10:13 AM
Does anybody have any experience with PIR rates for listed companies. Can you select your PIR or does it default to 30%? Can you nominate your PIR if you are investing via a company, or trust.

Per the IRD website PIR (http://www.ird.govt.nz/toii/pir/workout/)for:
Company is 0%
Trust either 0%, 21% or 30%


Can a trust nominate two investments with different PIR. One at 0% so an income can be offset against deductions i.e. accounting fees. The PIR for the other listed entity be 21% to be a final tax?

If the trust PIR is 21% and it retains its profits in the trust (no distributions to beneficiaries) will it have to included that income in its tax return as it is not at the correct rate?
If the trust PIR is 30% and it retains its profits in the trust (no distributions to beneficiaries) will it have to included that income in its tax return. or is the 30% PIR considered a final tax and does not need to be included in the trust tax return?

CJ
18-04-2010, 06:01 PM
I believe a PIR for a trust is only a final tax if it is 30% unless it is distributed to beneficiaries.

You can still deduct expenses even if the PIR is a final tax.

buxlo12
19-04-2010, 06:42 AM
Yes you can still deduct expenses however I don't want to be accruing losses in my trust with no income to offset.
I also do not want a tax bill where I would I would have to either sell shares or contribute funds.

CJ
19-04-2010, 07:24 AM
Yes you can still deduct expenses however I don't want to be accruing losses in my trust with no income to offset.
I also do not want a tax bill where I would I would have to either sell shares or contribute funds.

Just because you dont want to accumulate losses is no reason to turn exempt income into taxable income. The losses wont be forfeited so have value even if used in later periods.

buxlo12
19-04-2010, 06:51 PM
Yes you can still deduct expenses however I don't want to be accruing losses in my trust with no income to offset.
I also do not want a tax bill where I would I would have to either sell shares or contribute funds.


Just because you dont want to accumulate losses is no reason to turn exempt income into taxable income. The losses wont be forfeited so have value even if used in later periods.

Yes I could carry forward losses in later years. However at the moment I do not have plans for the trust to be generating income that is not exempt income from a PIE or dividends with imputation credits attached. It could be a long time before those tax losses are used up. Also I don't want to be forced into a less than ideal investment or investment structure to use up the losses in my trust.

I was not wanting turn all exempt income into taxable income. I was wanting to have one PIE investment with a PIR of 0% that would derive taxable income. The distributions would be higher as the PIR is at the lowest rate. This taxable income would offset interest and accounting costs giving a net taxable profit of approximately zero.
The other PIE investments that the trust has I would elect a 30% PIR. This would be excluded income that the trust would not have to pay tax on.

Does anyone know if a trust can elect different PIR for different PIE investments? i.e 0% and 30%?

Jay
19-04-2010, 07:06 PM
"Does anyone know if a trust can elect different PIR for different PIE investments? i.e 0% and 30%? "

I would think only if the investemnt is with two differewnt instituions - as far as the major banks are concerned, well thats how it works for the bank I am with.
One entity = 1 PIE tax rate. I think you can elect a different RWT rates on "unique" account numberss if you really want to

CJ
20-04-2010, 07:38 AM
Yes I could carry forward losses in later years. However at the moment I do not have plans for the trust to be generating income that is not exempt income from a PIE or dividends with imputation credits attached. It could be a long time before those tax losses are used up. Also I don't want to be forced into a less than ideal investment or investment structure to use up the losses in my trust.

I was not wanting turn all exempt income into taxable income. I was wanting to have one PIE investment with a PIR of 0% that would derive taxable income. The distributions would be higher as the PIR is at the lowest rate. This taxable income would offset interest and accounting costs giving a net taxable profit of approximately zero.
The other PIE investments that the trust has I would elect a 30% PIR. This would be excluded income that the trust would not have to pay tax on.

Your plan - taxable income offsets expenses so no tax to pay.
My solution - no taxable income. Can still deduct expenses but they get carried forward as a loss.

If you never use the losses, you are in exactly the same position as your plan. If you do use the losses, you have saved money. Having PIE income taxed as a final tax does not effect your ability to claim expenses.

But to answer your question, I believe you can elect different PIE rates but they would have to be on different investments.

The only reason to not elect the 30% PIR (ie a final tax) is where you will be distributing to beneficiaries that could have used a lower PIR.

buxlo12
23-04-2010, 09:47 PM
Thanks CJ,

I was just looking at a PIE distribution statement from a listed entity. If the PIR was 0% the dividend would be imputed so their would be no tax to pay anyway. The expenses in the trust would create a loss to carry forward, putting me back a square one.

However if it was a fixed interest PIE that has a PIR of 0% the trust would be getting a higher interest payment that would be fully taxable. Then the expenses in the trust would have taxable income to offset. Unfortunately I am looking at listed PIE equities that will be paying dividends and not fixed interest.

I think I am going to set up an LAQC, I will lend money from the trust to the LAQC that am the sole shareholder of. The LAQC will purchase the shares and incur the interest and accounting costs. It will collect fully imputed dividends from the stocks that it owns. The excess imputation credits will be converted to a loss and allocated against my personal income.

The other issue I have is I do not want to taint my trust from a relationship property stand point. The LAQC will be considered relationship property and I want to charge interest on the loan from the trust to the LAQC. What would be a good benchmark (that would be considered as fair) to charge interest on?