Tax advice

Hello,
Can you guys help me on what my tax implications are for my share portfolio in NZ. I invest on the ASX, live in NZ and trade in only around 3-4 stocks per year. Different accountants give me a different opinion stating that to be a trader you need to make a certain number of trades per year. Again each accountant differs with what the minimum number is. IRD rules are hazy on this.
Is any gain in stocks considered capital gain and as such not liable for any tax payment? I understand that any dividend payments are taxable...fair enough.
Any help would be appreciated.
Munster.

All of the different accountants opinions are correct.

Welcome to a wonderful grey area of NZ tax.

But in theory it is all about intent at the time of purchase did you buy them for:
a) the income (then why did you sell them?);
b) the hope of a capital gain.

Then there are the FIF rules for overseas shares and how those rules apply to individual Oz stocks, you will need to know about that.

Best Wishes
Paper Tiger

The law is perfectly clear.
all you need to do is truthfully answer this question: why did I buy these shares?

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Originally Posted by KW

Income tax on dividends and FIF taxes still apply.

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The FIF tax is for total investment over $50K.

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Originally Posted by peat

The law is perfectly clear.
all you need to do is truthfully answer this question: why did I buy these shares?

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Correct. The problem is IRD wont beleive you so will look at other eveidence to determine such as frequency of trades etc.

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Originally Posted by KW

My tax adviser (a lawyer, not an accountant) said that unless you declare yourself to the IRD as being "in the business of trading" then you are considered an investor, even if you "trade" a portion of your portfolio.

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Incorrect but practically, probably true. There are a number of tests including 'amounts derived from busines' and 'personal property acquired for the purpose of disposal'. Your lawyers advice only covers the first.

Each individual investment should be tested. For example, you are a long term investor, but you get a hot time that a share is going to be taken over, so ignoring insider trading, you buy on the tip and sell 4 weeks later at a 50% profit. That should be taxable as you acquired the share for the purpose of disposal.

Thats an obvious example. BUt take XRO for example. They have stated they wont be paying dividends in the foreseable future. So the only reason to buy is for 'capital' gain. Not sure on this one.

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Originally Posted by Harvey Specter

Correct. The problem is IRD wont beleive you so will look at other eveidence to determine such as frequency of trades etc.

Incorrect but practically, probably true. There are a number of tests including 'amounts derived from busines' and 'personal property acquired for the purpose of disposal'. Your lawyers advice only covers the first.

Each individual investment should be tested. For example, you are a long term investor, but you get a hot time that a share is going to be taken over, so ignoring insider trading, you buy on the tip and sell 4 weeks later at a 50% profit. That should be taxable as you acquired the share for the purpose of disposal.

Thats an obvious example. BUt take XRO for example. They have stated they wont be paying dividends in the foreseable future. So the only reason to buy is for 'capital' gain. Not sure on this one.

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Grey,Grey and more Grey and unless your in The Business of Share trading why worry just fly under the radar as I'm sure most do,re Xro and the like they may pay a divvy one day and capital gain is fine,remember rule number one NZ doesn't have a capital gains tax at this point in time so is different from a pure profit driven trade,some more Grey anyone?

Agree - fly under the radar and the best way to do that is not to make any adjustments in your tax return as that could spark their interest. Doesn't mean it is right.

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Originally Posted by Harvey Specter

Agree - fly under the radar and the best way to do that is not to make any adjustments in your tax return as that could spark their interest. Doesn't mean it is right.

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True but because everything is so Grey its not wrong either,we shall call it a neutral stance then

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Originally Posted by KW

The "personal property acquired for the purposes of disposal" does not apply as that is more aimed at someone who is buying and selling goods (eg. antiques, ebay traders, second hand car dealers etc)

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Practically you may be right, technically you are wrong. Personal property is anything that isn't real property (ie. land).

This is the issue with the current rules. If IRD decided to change their approach, the courts would be required to read the legislation correct.

Thanks guys. It certainly is a grey area. My accountant is trying to err on the side of caution i think recommending I pay tax. I beg to differ of course but with some of the gains I have made it is a significant slice on the profits if I sell now and pay tax. Fly under the radar seems to be the general consensus and fight my case if an auditor shows up. Interesting to know if anyone was aware of any court cases in NZ relating to this matter.
Shareinfo.co.nz have the following article on it which echoes some of the thoughts above.
Munst.

"New Zealand does not have a capital gains tax regime, but to say investors are not liable for income tax on capital gains is a simplification. Capital gains from the sale of shares (or any other property, such as real estate) are sometimes taxed, but when is far from clear.

There have been various test cases in recent years regarding this issue, but regrettably there remains a "hit or miss" element to the subject. Links to the more relevant cases are shown. Under current law (section 65 of the Income Tax Act) a capital gain is liable for income tax (and a loss deductible against other taxable income) if one or more of three situations apply where:

• The investor is in the business of dealing in shares, or
  
• The shares were acquired with the dominant purpose of resale at a profit, or
  
• The investor enters into a scheme or undertaking to make a profit from shares.

To judge whether a person is undertaking a business, one needs to look at the number of transactions entered into and the holding period before the shares were sold. There would need to be evidence that the pattern of buying and selling was continuous, perhaps over a number of years. The business need not be profitable, but there would need to be evidence that the taxpayer treated their share buying and selling as a business. Dealers usually:

• Invest a substantial amount of capital into the market and will sometimes borrow to fund their purchases
  
  
• Monitor their portfolios regularly — perhaps weekly or even daily; they may have a trading system of some kind.
  
  
• They will usually spend a good deal of time researching their investments
  
  
• They may be trading low value — high risk shares to gain leverage.

This is in contrast to the long-term investor who generally buys a relatively small number of high quality, dividend paying shares, which they hold for years or until there is a genuine reason for selling, such as the company ceasing dividend payments, a down-grading of the future profitability, broker’s advice, adverse publicity, directors reducing their personal shareholdings, the funds being needed for another purpose, or any one of any number of other reasons.

The second net the taxman casts is to catch those who may not be dealers in the normal sense, but where an investor buys shares with the dominant purpose of reselling them at a profit (cf holding those shares as a long-term investment). The vagueness in attempting to determine one’s dominant purpose at the time the investment was made, gives the Inland Revenue Department enormous power to deem the taxpayer’s share buying activity taxable. (Remember, in tax law, the onus is on the taxpayer to prove their innocence, not on the Department to prove guilt.)

In determining "purpose" the Department will look at the circumstances surrounding the transaction. The investor who stags a number of new issues may find it hard to prove their intention was anything but making a quick profit.

The confusing aspect of the law as it stands is that even though one may not be a dealer of shares, one may still be taxed on the profits if they were acquired with the dominant purpose of resale. Conversely, it is unclear whether a dealer would be taxed on share investments done outside of their share dealing business.

Given the lack of clear and definitive guidelines we suggest investors that are traders and long-term investors operate two accounts — one for their non-taxable long-term investments and the other a taxable trading account."

I flicked the IRD an email via my login on there website a couple years ago just to clarify what my position was.

They deemed I was "not in the business of trading' and my loss (it was a bad year lol) they advised "This is a capital loss and therefore not claimable, even if you purchased these with the intention to sell"
I've left it at that since then with the thought that if I made money it must be a capital gain and therefore not claimable even if I purchased these with the intention to sell.

They did ask if I traded over 50k worth of shares or if I owned more than 50k worth of shares so I guess that point there must be different rules.

Most small investors would never go to court due to costs. There are a few big investor cases but they are quite old now.

Thanks again... It appears that intention is the key point. I think the fact that i have held the shares for over 3 years and am now planning to sell some to pay off some of the mortgage means i am not classed as a trader. Thank god for no CGT!!
Munst.

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Originally Posted by MunsterNZ

Thanks again... It appears that intention is the key point. I think the fact that i have held the shares for over 3 years and am now planning to sell some to pay off some of the mortgage means i am not classed as a trader. Thank god for no CGT!!
Munst.

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Munster in your situation I wouldn't even give paying tax a second thought as you have no obligation to,cheers

KW IMHO your onto it mate and my study and research puts me in your camp absolutely,there's a PhD student at AUT who published a comprehensive paper on Share trading and tax in NZ and the history of court cases etc ( Don't have the link) but that papers a must read to make you realize how messed up and Grey the current system is and the application of tax law in regard to share trading

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They did ask if I traded over 50k worth of shares or if I owned more than 50k worth of shares so I guess that point there must be different rules.

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skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

best to ask an accountant, not IRD

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Originally Posted by KW

Its probably the paper that I published the link to above :-)

There is nothing wrong with the law being a bit grey - as this means that you can play it to your advantage. At present, so long as you know what to say and do, you can easily prove that you don't have to pay tax. After all, its very difficult for the taxman to try and prove that what you were thinking at the time is different from what you say you were thinking :-)

I'd rather confusion than the Australian approach which is to tax everyone and everything - no discretion at all.

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Agreed,looking at Aussie tax law other than the blanket CGT it appears quite a rigorous test is applied before they will accept you as a legitimate trader and able to claim losses

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Originally Posted by Xerof

skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

best to ask an accountant, not IRD

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I had and he had no idea, advised me to ask the IRD >_<

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Originally Posted by Xerof

skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

best to ask an accountant, not IRD

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Correct,In my discussions with them the amount you have in shares is irrelevant in determining whether you are a trader or not be it 10k or 1 million,its all about intent at time of purchase

But isnt it the intent and purpose of buying stocks to make a profit? I know dividends are declared and that makes sense, but no one buys shares to lose money.

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Originally Posted by KW

It all hinges on the "Purpose" of acquisition which is a subjective question not one of fact. Hence you cannot be "technically wrong".

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There was a great property case recently where a family built and moved houses about 9 times in 6 years. Every house they built they 'intended to live in for life' but each one they had a fantastic reason to leave (school to far away, to far from parents, to close to parents, creapy neighbors, allergic to carpet, being about to only turn left to get to school (no joke), etc). Judge called bullsh!t and overruled their stated intent and rule their real intent was to profit from selling.

Even funnier was the fact they lost money on most of the transactions, with only the last two (double garages seemed to be the key) pushing them into a tax paying position.

Interesting discussion.... my only advise is keep a written record of the reason for buying and sell for each share purchase undertaken.
For investing perhaps hold the share in your individual name and if trading perhaps use another entity. (ie Company) If you wish to trade and invest in your own name at the same time then have separate bank accounts for each and a different broker (ie use ASB for trading and Direct Broking for investing). The most important issue is to be able to support the activities that you are undertaking: trading or investing or both...

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(ie use ASB for trading and Direct Broking for investing). ...

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Other way around. DB is slightly cheaper which will be a small help with your trading profits ;)

This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.

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Originally Posted by Aaron

This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.

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Agreed Aaron this is the only clear solution in principle(True family home excluded) where everyone knows where they stand as long as the CGT is set at a lower rate than the top tax rate like15% for example otherwise non compliance will still be an issue,in some countries if you hold the investment for longer than a year you pay a reduced rate of tax on profits as opposed to short term holders,an idea I like

On a similar note and maybe a nob question, just can't think at the moment , how do you normally treat the following scenario (Treated as a trader (individual) and filing tax returns declaring profits and losses)

You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
b) Treat each transaction separately
c) as above usng FIFO basis
d) doesn't make any difference
e) something else - who cares all works out the same in the end??
I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.

Technically you should be able to pick which parcel you are selling. However, I would pick a method and stick to it. I would probably use LIFO as it should give you a better result unless you are averaging down.

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Originally Posted by Jay

You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
b) Treat each transaction separately
c) as above usng FIFO basis
d) doesn't make any difference
e) something else - who cares all works out the same in the end??
I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.

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I will have a go at this one but don't take my word for it.

I thought you had to use FIFO or a Weighted Average Cost to value shares considered trading stock.

Sales 3,337.50 (750*$4.45)
Less Purchases 9,250.00 ((1000*5.00)+(500*4.00)+(500*4.50))
Plus Closing Stock FIFO 5,500.00(1,250*5)+(500*4)+(500*4.50)
Loss 412.50

Or Weighted Average 5,775.00 (4.62*1,250)
Loss 137.50

Correct me if I am wrong on anything but the result is significantly different.
I understand that you need to be consistent once a valuation option is selected as changes in valuation methods need to be justified by sound commercial reasons. Advancing or deferring income tax liability is apparently not a sound commercial reason.

Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.

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Originally Posted by Jay

Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.

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Unless you are a barrister or doctor, Jay I think you have to account for business income on an accrual basis which would include valuing closing stock. The cash basis is applicable to salary and wage earners and dividends can be returned when received rather than the ex date but trading would be a business activity which requires accrual accounting.
Don't take my word for it though, it might pay to get some professional advice if the amounts you are trading are significant.

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Originally Posted by Aaron

Unless you are a barrister or doctor, Jay I think you have to account for business income on an accrual basis which would include valuing closing stock.

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From an IRD Questions we've been asked:

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Originally Posted by IRD -13 February 2004

Question

Can a taxpayer claim a deduction for unrealised share losses?
Answer

Generally, unrealised share trading losses will not be deductible for tax purposes.
Taxpayers in the business of trading in shares hold shares as trading stock. Under the trading stock rules, shares must be valued at cost. Consequently, only realised losses are deductible. However, the shares may be valued at nil if they:

• • have no current or likely future market value; and
• • have been written off as worthless by the taxpayer.

Alternatively, shares which are bought for resale at a profit may not be classed as trading stock, but could meet the definition of “revenue account property”. A deduction for revenue account property is available only in the later of:

• • the income year in which the property is disposed of; or
• • the income year in which the proceeds are derived.

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Originally Posted by Aaron

I thought you had to use FIFO or a Weighted Average Cost to value shares considered trading stock.

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Looks like you may be right. Not an authoritative soucre but good enough for me. Extracts from the Mater Tax guide:

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Excepted financial arrangements

Last reviewed: 08 October 2013

IT07 ss EA 1, EB 3(3), ED 1

An excepted financial arrangement that is held as trading stock or revenue account property must be valued at cost. This category includes shares (other than a share acquired under a share-lending arrangement or a share-lending right), options, short-term trade credits, annuities, insurance contracts, gaming and lottery bets, emissions units and various agreements for the sale or lease of property. See s EW5
..., the value must be calculated using the first-in first-out (FIFO) method or weighted average cost method. In the case of shares, these methods apply on the basis of share types rather than across an entire share portfolio, eg where more than one parcel of the same type of shares is held.

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Thanks guys.

I seem to take ages to try and find what I am looking for on the IRD site.
Use to use an accountant, he said you can use either cash or accural basis, unless you trade under a company then you must use accural basis, that is declaring unrealised losses/gain and each year you take take "cost" as the value at 31st March as you say Aaron.
(I am mainly a salary and wage earner.)
Overall I still make X profit or X Loss, but it is how I declare it each year.

Think I will use the weighted average method - easier to keep track of.

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Originally Posted by Jay

Thanks guys.

I seem to take ages to try and find what I am looking for on the IRD site.
Use to use an accountant, he said you can use either cash or accural basis, unless you trade under a company then you must use accural basis, that is declaring unrealised losses/gain and each year you take take "cost" as the value at 31st March as you say Aaron.
(I am mainly a salary and wage earner.)
Overall I still make X profit or X Loss, but it is how I declare it each year.

Think I will use the weighted average method - easier to keep track of.

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Sounds like your a hobby trader rather than being in the Business of share trading?

Yes you are right couta1. Not my main source of income by a long stretch. Mainly held for the long term, still have a long term portfolio under a Trust but now trade some (under my own name) as well for extra pocket money/to supplement income when retired - althought that is a few or ten or so years away yet.
Rightly or wrongly, I started declaring the trades and so a bit hard to stop now but still carry on trading. Don't want to get "caught out" like w69, I think it was, did.

Jay (FYI), the accrual basis does apply to Companies but for share trading purposes, where the shares are considered to be "trading stock", they are valued at cost (see section ED 1 of the Income Tax Act 2007). Share are listed as an "excepted financial arrangement" and as such are excluded from the accruals basis. Its tricky stuff to understand, but that's my understanding of the accruals rules... happy to be corrected if I am wrong....:)

Re the "discussion"on Trilogy re investment and trading; i have tracked down this thread.Worth reading imo esp KW and Harveys and others.

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Originally Posted by MunsterNZ

Thanks guys. It certainly is a grey area. My accountant is trying to err on the side of caution i think recommending I pay tax. I beg to differ of course but with some of the gains I have made it is a significant slice on the profits if I sell now and pay tax. Fly under the radar seems to be the general consensus and fight my case if an auditor shows up. Interesting to know if anyone was aware of any court cases in NZ relating to this matter.
Shareinfo.co.nz have the following article on it which echoes some of the thoughts above.
Munst.

"New Zealand does not have a capital gains tax regime, but to say investors are not liable for income tax on capital gains is a simplification. Capital gains from the sale of shares (or any other property, such as real estate) are sometimes taxed, but when is far from clear.

There have been various test cases in recent years regarding this issue, but regrettably there remains a "hit or miss" element to the subject. Links to the more relevant cases are shown. Under current law (section 65 of the Income Tax Act) a capital gain is liable for income tax (and a loss deductible against other taxable income) if one or more of three situations apply where:

• The investor is in the business of dealing in shares, or
  
• The shares were acquired with the dominant purpose of resale at a profit, or
  
• The investor enters into a scheme or undertaking to make a profit from shares.

To judge whether a person is undertaking a business, one needs to look at the number of transactions entered into and the holding period before the shares were sold. There would need to be evidence that the pattern of buying and selling was continuous, perhaps over a number of years. The business need not be profitable, but there would need to be evidence that the taxpayer treated their share buying and selling as a business. Dealers usually:

• Invest a substantial amount of capital into the market and will sometimes borrow to fund their purchases
  
  
• Monitor their portfolios regularly — perhaps weekly or even daily; they may have a trading system of some kind.
  
  
• They will usually spend a good deal of time researching their investments
  
  
• They may be trading low value — high risk shares to gain leverage.

This is in contrast to the long-term investor who generally buys a relatively small number of high quality, dividend paying shares, which they hold for years or until there is a genuine reason for selling, such as the company ceasing dividend payments, a down-grading of the future profitability, broker’s advice, adverse publicity, directors reducing their personal shareholdings, the funds being needed for another purpose, or any one of any number of other reasons.

The second net the taxman casts is to catch those who may not be dealers in the normal sense, but where an investor buys shares with the dominant purpose of reselling them at a profit (cf holding those shares as a long-term investment). The vagueness in attempting to determine one’s dominant purpose at the time the investment was made, gives the Inland Revenue Department enormous power to deem the taxpayer’s share buying activity taxable. (Remember, in tax law, the onus is on the taxpayer to prove their innocence, not on the Department to prove guilt.)

In determining "purpose" the Department will look at the circumstances surrounding the transaction. The investor who stags a number of new issues may find it hard to prove their intention was anything but making a quick profit.

The confusing aspect of the law as it stands is that even though one may not be a dealer of shares, one may still be taxed on the profits if they were acquired with the dominant purpose of resale. Conversely, it is unclear whether a dealer would be taxed on share investments done outside of their share dealing business.

Given the lack of clear and definitive guidelines we suggest investors that are traders and long-term investors operate two accounts — one for their non-taxable long-term investments and the other a taxable trading account."

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This is the best summary of the situation. It should be noted however that the mere separation out of activities that are stated to be trading, (perhaps through a different broker) and those that are claimed to be investing in and of itself will not be considered to be a definitive sole measure of intention even if done so through separate legal entities, (for example by conducting trading through a company or trading trust). The argument that you can effectively and definitively separate trading and investing activities because they're traded through different accounts and brokers doesn't hold water of itself in as much as the fact that one's intention needs to be evidenced by one's investment behaviour, (actions speak louder than words as far as the IRD are concerned).

Further, even separating trading activities into a separate company doesn't disassociate you from your other trading by virtue of the associated person's test in the Income tax Act.

Put simply, while separating out activities is a good idea for active traders, your investing through your investment account will still be objectively measured if push comes to shove by the IRD based on the evidence of your investing patterns more than anything else not which account you invested through and if you buy and sell shares on a pretty regular basis in your investment account which you claimed were bought with the intention of being long term investments, the fact that you're trading through a separate account for really quick trades won't help you much, in fact it could be argued the IRD will use that against you and either by association, (associated persons test) or direct link between claimed left and right hand of the same individual, they could easily make the case that ostensibly all your activities are trading.

Its a murky area of the law and people would be well advised to take advice for their particular circumstances from a good quality accountant or tax lawyer with expertise in this area if they have concerns but in general if you are going to separate out your activities make sure your long term investing activities really are just that and when in doubt whether you'll be investing long term or not put it through your trading account so you don't taint your true investments.

In terms of what constitutes long term investment investors might want to consider the Government's moves in respect of the brightline test regarding property transactions. Anything sold within 2 years is automatically considered to be on trading account. This shouldn't be interpreted to mean that investors holding shares for longer than two years and one day are automatically exempt from trading, most especially so if they invested in growth companies that don't pay dividends

http://www.interest.co.nz/opinion/78...and-parliament

Definitely murky alright and if IRD says your "intent" was to trade for profit you have to prove you weren't.Int that some traders also get get turned down being reclassified as traders because of all the losses they can claim on. Go figure!!

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Originally Posted by Joshuatree

Definitely murky alright and if IRD says your "intent" was to trade for profit you have to prove you weren't.Int that some traders also get get turned down being reclassified as traders because of all the losses they can claim on. Go figure!!

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Human nature everyone is an investor in land and shares when things are going up but it is surprising how stated intentions turn from investing to trading/speculation when a downturn hits and losses are made.
A comprehensive capital gains tax might sort this out better. Although I guess I need to understand how it works in practice as you would still be arguing over capital/revenue distinctions as they would involve different tax rates. Maybe John Key is right, too complicated. How about a two year brightline test for shares as well as property? If you are investing long term surely two years isn't long at all.

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from earlier in the bread -

To judge whether a person is undertaking a business, one needs to look at the number of transactions entered into and the holding period before the shares were sold. There would need to be evidence that the pattern of buying and selling was continuous, perhaps over a number of years. The business need not be profitable, but there would need to be evidence that the taxpayer treated their share buying and selling as a business. Dealers usually:


Invest a substantial amount of capital into the market and will sometimes borrow to fund their purchases

Monitor their portfolios regularly — perhaps weekly or even daily; they may have a trading system of some kind.

They will usually spend a good deal of time researching their investments

They may be trading low value — high risk shares to gain leverage.

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Brilliant - I feel that that has more meaning than 'intent'

Heres one earlier thread re being classed a trader or investor. There is at least one other. thread with more in it.

A friend of mine asked me if you have to pay extra tax on dividends on top of the imputation credits already paid. I said, I don't know, but will ask sharetrader, where there is a lot of knowledgeable people. Anyone know about tax on dividends? Thanks sw.

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Originally Posted by see weed

A friend of mine asked me if you have to pay extra tax on dividends on top of the imputation credits already paid. I said, I don't know, but will ask sharetrader, where there is a lot of knowledgeable people. Anyone know about tax on dividends? Thanks sw.

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All NZ dividends have 33% deducted from them. This is made up of the imputation credit and the withholding tax. If your marginal tax rate is less than 33% then you would get a refund. If not then you have fully paid your tax.

Foreign dividends have anywhere between 0 and something more deducted and you then would have to pay at what ever marginal rate you we are on. This is done in the foreign income section of the tax return, not the dividend section. A credit for overseas tax paid can also be claimed depending on the source of the dividend.

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Originally Posted by 777

All NZ dividends have 33% deducted from them. This is made up of the imputation credit and the withholding tax. If your marginal tax rate is less than 33% then you would get a refund. If not then you have fully paid your tax.

Foreign dividends have anywhere between 0 and something more deducted and you then would have to pay at what ever marginal rate you we are on. This is done in the foreign income section of the tax return, not the dividend section. A credit for overseas tax paid can also be claimed depending on the source of the dividend.

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Thanks 777, will pass it on.

So at the end of the road - when you are an aged couple like us - I'm just on eighty, isn't it fair enough to play with the few dollars you saved in shares to make the time more enjoyable. I've paid the piper, over and over. I trade to pay for our next holiday, or my wife's hearing aids or the like. sometimes the taxman gives me a rebate on dividends.

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Originally Posted by Beagle

This is the best summary of the situation. It should be noted however that the mere separation out of activities that are stated to be trading, (perhaps through a different broker) and those that are claimed to be investing in and of itself will not be considered to be a definitive sole measure of intention even if done so through separate legal entities, (for example by conducting trading through a company or trading trust). The argument that you can effectively and definitively separate trading and investing activities because they're traded through different accounts and brokers doesn't hold water of itself in as much as the fact that one's intention needs to be evidenced by one's investment behaviour, (actions speak louder than words as far as the IRD are concerned).

Further, even separating trading activities into a separate company doesn't disassociate you from your other trading by virtue of the associated person's test in the Income tax Act.

Put simply, while separating out activities is a good idea for active traders, your investing through your investment account will still be objectively measured if push comes to shove by the IRD based on the evidence of your investing patterns more than anything else not which account you invested through and if you buy and sell shares on a pretty regular basis in your investment account which you claimed were bought with the intention of being long term investments, the fact that you're trading through a separate account for really quick trades won't help you much, in fact it could be argued the IRD will use that against you and either by association, (associated persons test) or direct link between claimed left and right hand of the same individual, they could easily make the case that ostensibly all your activities are trading.

Its a murky area of the law and people would be well advised to take advice for their particular circumstances from a good quality accountant or tax lawyer with expertise in this area if they have concerns but in general if you are going to separate out your activities make sure your long term investing activities really are just that and when in doubt whether you'll be investing long term or not put it through your trading account so you don't taint your true investments.

In terms of what constitutes long term investment investors might want to consider the Government's moves in respect of the brightline test regarding property transactions. Anything sold within 2 years is automatically considered to be on trading account. This shouldn't be interpreted to mean that investors holding shares for longer than two years and one day are automatically exempt from trading, most especially so if they invested in growth companies that don't pay dividends

http://www.interest.co.nz/opinion/78...and-parliament

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I have just had my tax return done for 16/17 (its a long story) and really cant challenge , change anything at this late stage but i have found out a few more things.
Your info is correct Roger. Despite separating my trading and Investing portfolios out to diff brokers , many of my investment stocks have been treated like trading stocks UNLESS they are over 2 years old (the bright line prop test above) so i got a shock to see that instead of getting a tax return this year i have a lot more tax to stump up with. The other thing of note was also what my intention was when SELLING a stock!!!?. This could also decide what status that share was under. On top of all that my accountants want nearly double the fee from last year. Havnt had a chance to add up all my transactions but so far it doesn't look a lot different.

Am thinking of switching accountants but will that create more problems /costs with them having to set up a new "template" so to speak and does my history get transferred to new accountant etc, can they be difficult about this etc. Thoughts appreciated.

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Originally Posted by 777

All NZ dividends have 33% deducted from them.

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Unless they are PIES.

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Originally Posted by Joshuatree

I have just had my tax return done for 16/17 (its a long story) and really cant challenge , change anything at this late stage but i have found out a few more things.
Your info is correct Roger. Despite separating my trading and Investing portfolios out to diff brokers , many of my investment stocks have been treated like trading stocks UNLESS they are over 2 years old (the bright line prop test above) so i got a shock to see that instead of getting a tax return this year i have a lot more tax to stump up with. The other thing of note was also what my intention was when SELLING a stock!!!?. This could also decide what status that share was under. On top of all that my accountants want nearly double the fee from last year. Havnt had a chance to add up all my transactions but so far it doesn't look a lot different.

Am thinking of switching accountants but will that create more problems /costs with them having to set up a new "template" so to speak and does my history get transferred to new accountant etc, can they be difficult about this etc. Thoughts appreciated.

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What im hearing is there are a number of ways accountants process things and treat ones share activities.Some are way more hardline then others when interpreting the gray areas.

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Originally Posted by fungus pudding

Unless they are PIES.

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True but you don't have to declare those.

[QUOTE=Joshuatree;709028]I have just had my tax return done for 16/17 (its a long story) and really cant challenge , change anything at this late stage but i have found out a few more things.
Your info is correct Roger. Despite separating my trading and Investing portfolios out to diff brokers , many of my investment stocks have been treated like trading stocks UNLESS they are over 2 years old (the bright line prop test above) so i got a shock to see that instead of getting a tax return this year i have a lot more tax to stump up with. The other thing of note was also what my intention was when SELLING a stock!!!?. This could also decide what status that share was under. On top of all that my accountants want nearly double the fee from last year. Havnt had a chance to add up all my transactions but so far it doesn't look a lot different.

Am thinking of switching accountants but will that create more problems /costs with them having to set up a new "template" so to speak and does my history get transferred to new accountant etc, can they be difficult about this etc. Thoughts appreciated.[/QUOTE]

JT I'd recommend looking at Sharesight and possibly Xero. I use both and Sharesight connects with Xero, which connects to my bank account (ANZ), so basically all done automatically. Has saved me lots on accountancy fees and made the accountant's job much easier.

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Originally Posted by Joshuatree

What im hearing is there are a number of ways accountants process things and treat ones share activities.Some are way more hardline then others when interpreting the gray areas.

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Exactly the reason why I don't use an Accountant, do all my own financials and therefore I determine which shares fall into each category based solely on intent at time of purchase(Current and only tax benchmark to use) and not any subsequent reason for selling, whatever that may be.

Many years ago I changed my accountant because his interpretation of tax laws was different to mine-and what I could find from others.
I always buy shares with the intention of a long-term hold for my retirement.
If the value of that share unexpectedly rises my portfolio needs to be rebalanced and I might sell some

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Originally Posted by fish

Many years ago I changed my accountant because his interpretation of tax laws was different to mine-and what I could find from others.
I always buy shares with the intention of a long-term hold for my retirement.
If the value of that share unexpectedly rises my portfolio needs to be rebalanced and I might sell some

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I always buy with an intention of gaining a future dividend. What I try to do is gain as low an entry price into that stock as possible. This means the dividend I get is much better yielding for the money I spent at the time. For example if I bought THL at $1.00 I'm now getting $0.21 a share dividend. That's the kind of Income yield I like and more than happy to pay my tax on it.

I only sell if I think the value of my capital reduces and the dividend income looks iffy. Take SKT for instance. Had that for a while and enjoyed a tasty income. But now I reckon it is going to become worthless and when that happens there will be no dividend. So a while back it was time to quit it.

Other wise there are some times in life when sh1t happens and I just need cash. So I might be forced to sell some assets - shares included.

So I am quite content to pay my tax on dividend income and see no reason to pay any other share related tax.

Does anyone know if you can claim travel expenses to an AGM as an income-focused share investor (not a trader), like you can travel to inspect a rental property?
I believe you can in Australia, as long as the company pays a dividend.
Thanks

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Originally Posted by Gringo

Does anyone know if you can claim travel expenses to an AGM as an income-focused share investor (not a trader), like you can travel to inspect a rental property?
I believe you can in Australia, as long as the company pays a dividend.
Thanks

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Why would you not be able to? You can claim other expenses against your income for shares such as interest etc. I claim my AGM expenses.

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Originally Posted by Gringo

Does anyone know if you can claim travel expenses to an AGM as an income-focused share investor (not a trader), like you can travel to inspect a rental property?
I believe you can in Australia, as long as the company pays a dividend.
Thanks

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Rental properties have two parts. 'Property manager' and 'investor'. The investor can't claim the travel expense as that would be a claim against capital, of which there is no taxable income. The 'property manager' can claim said expense as they are in the business of renting properties and producing a taxable income.

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Originally Posted by blackcap

Why would you not be able to? You can claim other expenses against your income for shares such as interest etc. I claim my AGM expenses.

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I'd get a second opinion on that, seems there's some overlapping of investor vs trader

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Originally Posted by t.rexjr

Rental properties have two parts. 'Property manager' and 'investor'. The investor can't claim the travel expense as that would be a claim against capital, of which there is no taxable income. The 'property manager' can claim said expense as they are in the business of renting properties and producing a taxable income.

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Where on earth did you dig that up from?

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Originally Posted by fungus pudding

Where on earth did you dig that up from?

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Accounting for dummies?

Thought it was simplifying the logic. Maybe not...

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Originally Posted by Gringo

Does anyone know if you can claim travel expenses to an AGM as an income-focused share investor (not a trader), like you can travel to inspect a rental property?
I believe you can in Australia, as long as the company pays a dividend.
Thanks

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Not a lot of information to go on but I would opine that the trader/investor distinction isn't the important factor. The main question is are you in the business of share investing. Obviously you have an investment or you would not be invited to the AGM but are you in the "business" of investing? To claim expenses for income tax purposes you need to be in "business" which depends on many factors such as the extent of the activity undertaken and the likelihood of making a profit. For example if you have a $10,000 investment in a UK company and you want to fly to the UK for the AGM I would suggest the airfares and hotel costs would not be deductible.

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Originally Posted by t.rexjr

Rental properties have two parts. 'Property manager' and 'investor'. The investor can't claim the travel expense as that would be a claim against capital, of which there is no taxable income. The 'property manager' can claim said expense as they are in the business of renting properties and producing a taxable income.

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Have to say I've not heard that one either.
Certainly a non-issue if the owner (investor) is the property manager, looking after their own rentals.

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Originally Posted by Gringo

Have to say I've not heard that one either.
Certainly a non-issue if the owner (investor) is the property manager, looking after their own rentals.

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Ignore it. I thought I was offering a logic test but clearly whats logic in my mind just confuses others... :p:scared:

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Originally Posted by t.rexjr

Ignore it. I thought I was offering a logic test but clearly whats logic in my mind just confuses others... :p:scared:

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You should’ve have known better mate that giving tax advise on sharetrader is not a good idea ..lol

Last place I’d come seeking advice on such matters

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Originally Posted by Aaron

Not a lot of information to go on but I would opine that the trader/investor distinction isn't the important factor. The main question is are you in the business of share investing. Obviously you have an investment or you would not be invited to the AGM but are you in the "business" of investing? To claim expenses for income tax purposes you need to be in "business" which depends on many factors such as the extent of the activity undertaken and the likelihood of making a profit. For example if you have a $10,000 investment in a UK company and you want to fly to the UK for the AGM I would suggest the airfares and hotel costs would not be deductible.

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Thanks Aaron. That makes sense. Would like to find where the exact guidelines are on the IRD website, but no joy there. Might need to visit Mr CPA...

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Originally Posted by Gringo

Thanks Aaron. That makes sense. Would like to find where the exact guidelines are on the IRD website, but no joy there. Might need to visit Mr CPA...

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Like many tax laws I don't think there are clear guidelines. There are a number of cases that have gone to court where the issue is discussed that will give some guidance but I think there is some grey area. If you have a lot invested in a number of companies and you spend a significant amount of time researching and monitoring your investments and you make a profit after expenses you are more likely to be in business, but like Winner69 says best to get your advice from an expert.

I would have thought that if you are going to claim your expenses to go to the AGM then you would have to declare the profit if/when sold as well, as you are claiming an expense to derive income, so you must declare that income, not sure if declaring just the Dividend would suffice.
Not advice just logic (to a degree) but I would check with an accountant or you could ring the IRD and put a hypothetical scenario to them, they may give you a straight answer or a "it depends" depends on what and see if it applies??
You can still ring them anonymously I think.

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Originally Posted by Jay

I would have thought that if you are going to claim your expenses to go to the AGM then you would have to declare the profit if/when sold as well, as you are claiming an expense to derive income, so you must declare that income, not sure if declaring just the Dividend would suffice.
Not advice just logic (to a degree) but I would check with an accountant or you could ring the IRD and put a hypothetical scenario to them, they may give you a straight answer or a "it depends" depends on what and see if it applies??
You can still ring them anonymously I think.

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I would have thought it would depend what business you are in. The business of investing long term for dividend income or trading shares for profit. Whether people are investors or traders often seems to depend on if the markets are going up or down as a long term investor can't claim a capital loss if their investment goes down in value and a trader has to pay tax on increases that would be considered capital gains and non-taxable for the long term investor. You need to know what business you are in before you can correctly calculate taxable profits and losses and what expenses you can claim. You can probably split these activities but there are a million threads on this site discussing that issue no need to rehash it.

P.S. just in case it is not obvious my statement re the market up or down and trader or investor distinction is a light hearted dig at all the bull**** artists of this world. No one on this site of course.

Question, when trading Aus shares do people convert each trade back to NZ$ or at the end of the tax year and therefore go I made $100AuD avge rate was 0.9 for year (can get this from the IRD site I think) so profit was $1.11 for the year for my Aussie shares?

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Originally Posted by Jay

Question, when trading Aus shares do people convert each trade back to NZ$ or at the end of the tax year and therefore go I made $100AuD avge rate was 0.9 for year (can get this from the IRD site I think) so profit was $1.11 for the year for my Aussie shares?

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You can use IRD mid month/ end of month or rolling avg rates, or just square things up weekly using OFX rates.

Rights issues (Below is a blurb from an IRD publication)
Companies can offer their shareholders rights to buy new shares, generally at a discount to the market value.

Legislative changes have been made to make it clear that the discounted amount is not a taxable dividend for shareholders that exercise the right, and that the right itself (which has value and may in some cases be traded or renounced) is not a taxable dividend.

The policy rationale for ensuring that rights and discounted shares issued under a rights issue are not treated as dividends is that the company does not give up anything of value. A rights issue involves the company raising new equity when the shareholders invest new funds in the company.

So the discount is not a taxable dividend from the company and the right itself is NOT a taxable dividend therefore if you sell the right, I guess this means the proceeds from the sale of the rights is also not a dividend? (or taxable income) for that matter.

Does anyone have any information on this or have experience with the IRD regarding proceeds from selling rights and whether it is taxable?

Tried a search but nothing came up.

Specifically someone asked me about the AIR NZ rights issue which must have had some value on the secondary market.

Another blurb I found was that "the issue of shares at a discount is not a dividend if the person subscribes for shares under the right, provided the company does not, as part of the rights issue, give the person the right to dispose of the shares back to the company"

This blurb does not relate to the sale of the right to a third party so not much help.

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Originally Posted by Aaron

Rights issues (Below is a blurb from an IRD publication)
Companies can offer their shareholders rights to buy new shares, generally at a discount to the market value.

Legislative changes have been made to make it clear that the discounted amount is not a taxable dividend for shareholders that exercise the right, and that the right itself (which has value and may in some cases be traded or renounced) is not a taxable dividend.

The policy rationale for ensuring that rights and discounted shares issued under a rights issue are not treated as dividends is that the company does not give up anything of value. A rights issue involves the company raising new equity when the shareholders invest new funds in the company.

So the discount is not a taxable dividend from the company and the right itself is NOT a taxable dividend therefore if you sell the right, I guess this means the proceeds from the sale of the rights is also not a dividend? (or taxable income) for that matter.

Does anyone have any information on this or have experience with the IRD regarding proceeds from selling rights and whether it is taxable?

Tried a search but nothing came up.

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Not sure why you did a search when you have already been to the IRD and they have given you the answer. The bit in bold answers your question.

The only time the proceeds of 'selling a right' would be taxable, would be if you bought those rights with the intention of selling them to make a profit
It's the same deal with head shares.

SNOOPY

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Originally Posted by Snoopy

Not sure why you did a search when you have already been to the IRD and they have given you the answer. The bit in bold answers your question.

The only time the proceeds of 'selling a right' would be taxable, would be if you bought those rights with the intention of selling them to make a profit
It's the same deal with head shares.

SNOOPY

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Cheers Snoop, obvious now you point it out.