As u r selling your DRP ie Dividend Reinvestment Plan shares only which were given at 3% discount in lieu of dividend ...No further tax need paid on its sale proceeds IMHO ...I am no tax expert and not giving tax advise please .
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You raise a good question, thank you. Doesn't apply to me as I simply build up my shares but if someone is taking shares in lieu of dividend with the express intention of immediately reselling them and working the 3% discount for a quick gain on sale, it follows that their express intention was to acquire shares with the immediate purpose to sell them at a 3% profit (or thereabouts depending upon market share price on the day of sale) and therefore the gains made are taxable income as the intent behind the acquisition and disposal of the shares is crystal clear and was done for profit.
When you are in a DRP you still receive initially a cash div but the company uses the cash to purchase a certain number of shares to you and you forfeit the cash. The new shares are technically a Buy and should be recorded as such in your portfolio management system.
Buying to Sell in a short time frame is taxable activity but keeping the shares for say 6 months would probably pass.
'Intention' is everything to IRD and it's up to you to self declare what you're doing.
My practice is to sell, mostly after the ex date, enough shares to satisfy my requirements for funds to expend. Clearly the shares sold are not those " bought " via the dividend as they are in fact not yet allotted or issued, and the number sold need not exactly equate the future anticipated dividend receipt. The cash actually comes in at T + 2 in the normal manner after the sale is made. But I also disagree that the company uses "the cash" to purchase a certain number of shares " to you ".The DRP shares are always new allotments ( increasing the companies total equity shares on issue and requiring a Capital Change Notice announcement to NZX ) or transfers made from treasury stock ( ie shares in its own stock already held by the company ) although some companies do, in a relatively short window of time, buy the equivalent shares on market as new treasury stock to avoid the dilution effect.
You can get confused because of the way your broker ( eg Jarden ) sets up it's IT to create the ability for you to display your portfolio of holdings. To add DRP shares received to your existing holding you do apply " Buy " from the drop down box of options.
Even if u sell after getting your DRP shares to the amount needed its not simple 3% difference which is short term trading profit income because of FIFO rules of IRD ....First in first out will make sure that capital gains income will be counted from your original lot share price ....IMO
Interesting discussion. One idea might be to take shares in lieu of dividend each quarter and once a year sell enough shares that may or may or may not approximate the total shares in lieu of dividend issued during the previous 12 months, but sell whatever you need for income to live on.
If one followed such an approach, (which in no way I am guaranteeing is tax free), on a trifecta of holdings in the KFL, BRM and MLN companies you'd get three lots of income per annum which could be managed to be 4 months apart and still ostensibly take advantage of the 3% shares in lieu of dividend discount. Just an idea...for what its worth.
If its all too hard just take the cash each quarter.
Also possible if it suits individual to use imputation credits attached to offset small gains from 3% discount . Most of the listed PIEs imputation credits are not used by investors as they dont need too . But may lead to lots of paperwork for small gains
Here its noteworthy that included part of income from them is very minuscule compared to total payouts ...so even if u getting say $ 100,000 dividends out of them ....Actual included income with imputation credits attached maybe just $ 25000 ...all taxed @ 28% ...leading to excess credits if u dont have any other incomes to boost your slab rates
Potentially also relevant to this discussion is the practice of the NZ Share Registries, Computershare and Link respectively, and the Holder Statements they issue reflecting changes to a customer account.
Computershare records a Buy addition to a holding as " Purchase " and a Sale subtraction as " Sale ". In neither case is the price at which the transaction occurred recorded ( or, given a transaction can be concluded at more than one price via a series of partial fills, the averaged price ). You have to refer to your own Contract Note from your broker to identify that. On the other hand an acquisition via a DRP is recorded as " Reinvestment " and the price at which the shares were acquired IS helpfully stated ( the same as it is on the related Dividend/DRP Notice ).
Link Market Service simply record both Buy and Sell transactions as " NZX Trading " although it is of course clear from the Holder Statement numbers whether you bought or sold. Again the price at which that transaction occurred is not shown. I don't have access to a Link Holder Statement where a DRP is offered and taken but the practice is likely to follow that of Computershare, because logically it can't be referenced as " NZX Trading ". Technically there is no " Buyer " and of course no " Seller " either involved in being allotted DRP shares.
Unless you are a Trader for IRD purposes ( and I have a Company to do that activity ) I can't see that selling a portion of your personal shareholdings at any time for funds for living expenses or to meet commitments means you derive taxable income.
The Company has already paid the tax on your dividend and the IRD already this & how much
https://www.ird.govt.nz/income-tax/w...g-requirements
With KFL nav up 8 cents in last week ...SP is also following nav ... It getting big help from MFT / SUM last week....now FPH and IFT should bring it up next week
Its portfolio is perfect for all seasons ...has all flavours for every taste . :p
MFT not done yet ...MFT = $ 100 is KFL = $ 2.15 :t_up: