A couple of my mates are thinking of starting a sharetrading club. What is the best entity to use?
I understand that some active fund managers can trade without being subjected to capital gains tax - how do they do it?
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A couple of my mates are thinking of starting a sharetrading club. What is the best entity to use?
I understand that some active fund managers can trade without being subjected to capital gains tax - how do they do it?
Not quite sure but I think if you have a PIE structure then you can trade without paying tax on your gains.
The 2 share clubs that I know of simply trade as a partnership as they are small scale - $10k & $25k initial funds i think. They are more Share 'Investment Clubs too so don't actively trade and don't pay tax on capital gains.
IMO,if your mates are intending to trade, they should just pay the tax if they make any gains...
AMR, they do that by tracking the index only, which removes the trading aspect of it.
As for a share club, you would be best to use a Partnership, which keeps the admin side very simple.
Basically gives you the same benefits as an LAQC without the extra hassle & requirements
The Australians have limited liability Partnerships which would be even better, pity we don't have them in NZ
NZ does have LLP now, they were introduced at the end of 2008.
Paying tax depends on whether you intend to trade for growth or hold for income. I think Fisher funds said they held long term for income so didn't have to pay tax (prior to being a pie). All other active funds would have paid tax. Passive funds didn't.
Yes limited liability does sound good in case someone ends up buying something like Brisconnections "because they look cheap"!
I'm sure that funds no longer pay tax on capital gains, whether active or passive.
Rationale was mums and dads don't so why should they if they invest in a fund .... so they changed the law
No we have big traders like fund managers not paying capital gains tax but the little guys continue to do so
Prob not as simple as all that but something along those lines
CJ, Thanks for the update re LLP's, that change slipped past me.
Makes sense, so nice to see politicans get something right for a change!
LLP's are definitely a welcome addition. My only concern (with them being so new) is the cost of implementation.
Fine for large investments but for a small shareclub, it will probably wipe out a chuck of your capital.
sorry I can"t give good advice.The share club I was in in 1987 lost all it's money and owed the bank some!However we down sized from 10 members to 5 and increased monthly contributions to $50 each per month.From about 1990 onwards we had too much success and then with approx $120,000 we ran into problems as to whose name the shares should be in as registries would not accept a shareclub.Then there was the problem of having a tax number.We then had a member who had to go on a benefit as her husband left her and she had 4 children to look after.To do it properly meant lawyers and accountants.In the end we distibuted the shares to members,sold unwanted shares and split up the cash.I would expect it is still too hard unless you have an accountant on board;I do not think tax dept would worry about $500 each but as we found it can get out of hand.