Overseas shares - IRD's IR3

Hi all

I don't have $50k and this is just a curious post. It's that time of the year, I had a look at the IR3.

I failed to locate a overseas shares section in the IR3. There is overseas income section but the help section says that seems to be income when you are overseas working.

If I had $50k acquired cost of overseas shares. If I had overseas dividend does this get reported in the "dividend" of the IR3 the same as the NZ dividends? What about the FIF's FDR or CV methods - where in the IR3 does this go in?

With the CV method. What is the definition of the opening and closing market value? Say a person had Facebook shares and just left it there for the full year. Is that the 1 April and the 31 March?


Cheers.

All overseas income goes in the overseas box.

FIF income is the lesser of 5% of the balance at the 31st Mar of the year before (ie 1st Apr of tax year you are calculating) or CV if less than 5% (using the same opening balance and closing balance). Any dividends paid are used in calculating both. Buying and selling during the year needs to considered as well.

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Originally Posted by 777

All overseas income goes in the overseas box.

FIF income is the lesser of 5% of the balance at the 31st Mar of the year before (ie 1st Apr of tax year you are calculating) or CV if less than 5% (using the same opening balance and closing balance). Any dividends paid are used in calculating both. Buying and selling during the year needs to considered as well.

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Ok. Thanks for that. Makes sense.

So it's 31 March of the previous year and the current 31 March?

I don't but let's say if I have less than $50k and I get dividends, this dividend still goes in the overseas section?

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Originally Posted by rayonline

Ok. Thanks for that. Makes sense.

So it's 31 March of the previous year and the current 31 March?

I don't but let's say if I have less than $50k and I get dividends, this dividend still goes in the overseas section?

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Yes on the March dates. For 2018 tax return the fif is calculated using the 31/3/17 value and 31/3/18 value.

There is a good write up on it on the IRD site.



Yes. If if less than $50,000 you just declare the dividends in NZ$ in the overseas income and claim any tax paid on those dividends as tax paid overseas.

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Originally Posted by 777

Yes on the March dates. For 2018 tax return the fif is calculated using the 31/3/17 value and 31/3/18 value.

There is a good write up on it on the IRD site.



Yes. If if less than $50,000 you just declare the dividends in NZ$ in the overseas income and claim any tax paid on those dividends as tax paid overseas.

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Thanks for that :)
I have the FIF guide printed out but maybe I missed the part about the March dates.

Hello - is it possible to post the link for those dates 31Mar17-31Mar18 as I can't see it..perhaps I'm having a moment?! Thanks!

NZ tax year is 1st April to 31st March. Nothing more complicated than that.

Finished mine last week, always a mission as bits and pieces all over the place. Clicked the button with trepidation expecting I would be owing them money, but turned out they owed me, and it already in the bank account. Fairly impressive speed on their part.
Am making an early vow to keep on top of it through the year this time round rather than just chucking all the bits of paper in a box

I'm now doing my 2020 IR3 and IRD seem to stump me each year on the FIF return. I previously used the IRD tool to calculate the amount of FIF income so I know how much is due (and have uploaded this into the IR3 online return as overseas income) but on completing the FIF part of the IR3 online it seems this is not acceptable in that I've got to put all the information in again, either in another version of an online document or into an online excel spreadsheet.

Has anyone else had this issue or am I going about it the wrong way?

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Originally Posted by kiwico

I'm now doing my 2020 IR3 and IRD seem to stump me each year on the FIF return. I previously used the IRD tool to calculate the amount of FIF income so I know how much is due (and have uploaded this into the IR3 online return as overseas income) but on completing the FIF part of the IR3 online it seems this is not acceptable in that I've got to put all the information in again, either in another version of an online document or into an online excel spreadsheet.

Has anyone else had this issue or am I going about it the wrong way?

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The IRD's FIF on line calculator is just that. Nothing is saved for reference purposes by the IRD when you use it. I don't do my tax return on line so I don't know if there is any way to link the calculator to your own IR3 tax return. But I have never seen a 'button' to do it. So I suspect the answer is 'no'.

SNOOPY

If it is your first year with foreign investments and you hold more than $50K at 31/3/20 using fair dividend rate

the opening balance at 1/4/19 is $0 so does that mean $0 tax this year? I am finding it confusing

Thanks in advance :)

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Originally Posted by tango

If it is your first year with foreign investments and you hold more than $50K at 31/3/20 using fair dividend rate

the opening balance at 1/4/19 is $0 so does that mean $0 tax this year? I am finding it confusing

Thanks in advance :)

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Once you exceed the $50K threshold, then FIF applies for that whole taxation year.

Short answer, yes FIF applies because you started with a $0 balance and ended with more than $50K during the tax period.

This paper gain tax does not apply on the final year you withdraw all the funds out. That is the only advantage I see with FIF as a person in the last year of investing could amassed a large capital gain, but would not have to declare it under FIF if the account was closed and all the cash proceeds held in NZ terms. As the FIF calculation goes, they look at the total portfolio balance from April 1st to end of March 31st. If the shares were held for many years and that last final year was a whopper, you would pocket that capital gain as long as you sold and held the account under the $50K threshold before March 31st.

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Originally Posted by SBQ

Once you exceed the $50K threshold, then FIF applies for that whole taxation year.

Short answer, yes FIF applies because you started with a $0 balance and ended with more than $50K during the tax period.

This paper gain tax does not apply on the final year you withdraw all the funds out. That is the only advantage I see with FIF as a person in the last year of investing could amassed a large capital gain, but would not have to declare it under FIF if the account was closed and all the cash proceeds held in NZ terms. As the FIF calculation goes, they look at the total portfolio balance from April 1st to end of March 31st. If the shares were held for many years and that last final year was a whopper, you would pocket that capital gain as long as you sold and held the account under the $50K threshold before March 31st.

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Thanks so much.

Am I right in thinking that the fair dividend rate calculation is on the opening balance of $0 this year?

That would mean no tax to pay this year but next year I get hit with 5% of the opening value?

So to clarify... on the first year that you have foreign investments if you use fair dividend rate (FDR) then there is $0 to pay because the opening balance was nil but next year I pay 5% tax on the balance at 1/4/20. Right?

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Originally Posted by tango

So to clarify... on the first year that you have foreign investments if you use fair dividend rate (FDR) then there is $0 to pay because the opening balance was nil.

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Yes.

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but next year I pay 5% tax on the balance at 1/4/20. Right?

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No.

5% of your opening balance is deemed as your FIF income and you pay tax on that amount.

If your marginal tax rate is 30% then you will end up paying 0.3 x 5% = 1.5% of the opening balance.

Of course if your buy and hold balance (including dividends and accounting for exchange rate valuation changes) has shrunk during the year then as an individual you will pay no FIF tax at all for that year.

SNOOPY

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Originally Posted by Snoopy

Yes.



No.

5% of your opening balance is deemed as your FIF income and you pay tax on that amount.

If your marginal tax rate is 30% then you will end up paying 0.3 x 5% = 1.5% of the opening balance.

Of course if your buy and hold balance (including dividends and accounting for exchange rate valuation changes) has shrunk during the year then as an individual you will pay no FIF tax at all for that year.

SNOOPY

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THANK YOU!

This has been doing my head in but I think I have it sussed now :)

Fun times... I see the advantage of only holding New Zealand stocks :D

so glad to get that done for the year!

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Originally Posted by tango

THANK YOU!

This has been doing my head in but I think I have it sussed now :)

Fun times... I see the advantage of only holding New Zealand stocks :D

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Is it an advantage? An over-emphasis by shareholders wanting dividend instead of capital gains (the former with tax at RWT unless there's some credit imputation which is marginal)?

The reason FIF came about was due by overseas emphasis of capital gains and as we all know, in NZ there is no CGT. So FIF had to come out to address this advantage. Who stand to gain the most under FIF? -> IRD

There is a point on the FIF that intrigues me and that is the $50k "acquired' cost. So if, someone starts with a portfolio of $45,000, purchasing a selection of overseas shares and they never add any more NZ money to that portfolio, by rights they never have to pay FIF even if their portfolio grows to $200,000?

Note: this does not apply to me but it could relate to some newer NZ based investors.

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Originally Posted by BeeBop

There is a point on the FIF that intrigues me and that is the $50k "acquired' cost. So if, someone starts with a portfolio of $45,000, purchasing a selection of overseas shares and they never add any more NZ money to that portfolio, by rights they never have to pay FIF even if their portfolio grows to $200,000?

Note: this does not apply to me but it could relate to some newer NZ based investors.

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Correct. The only paper trail available to support this FIF law is purchase receipts. That is why the FIF law is drafted as it is.

However, in this time of antagonism towards cheques, that is forcing shareholders into Dividend Reinvestment Plans, those DRP purchases do count as purchases, even though no more cash from NZ is flowing overseas. So in such circumstances, it wouldn't be difficult for a $45k investment to creep over that $50k limit.

SNOOPY

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Originally Posted by Snoopy

Correct. The only paper trail available to support this FIF law is purchase receipts. That is why the FIF law is drafted as it is.

However, in this time of antagonism towards cheques, that is forcing shareholders into Dividend Reinvestment Plans, those DRP purchases do count as purchases, even though no more cash from NZ is flowing overseas. So in such circumstances, it wouldn't be difficult for a $45k investment to creep over that $50k limit.

SNOOPY

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Thank-you - so overall it would be difficult: the investor would need to decide to start with an initial portfolio that had no distributions at all - a listed fund of some type and just let it run...but funds shares can turn bad. Although sell, return it to NZD and repeat the exercise.

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Originally Posted by BeeBop

There is a point on the FIF that intrigues me and that is the $50k "acquired' cost. So if, someone starts with a portfolio of $45,000, purchasing a selection of overseas shares and they never add any more NZ money to that portfolio, by rights they never have to pay FIF even if their portfolio grows to $200,000?

Note: this does not apply to me but it could relate to some newer NZ based investors.

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Are you sure about that? Under the FIF rules if using the FDR or CV methods market value at the beginning of the financial year is required. This is from the IRD guide page 15

total amount of the interests doesn't exceed the NZ$50,000 threshold at any time in the year when you're a New Zealand resident (for a natural person), or any time in the year for the trustee of an eligible trust

Or have a read and get back to me if I am wrong.

https://www.ird.govt.nz/-/media/proj...ir461-2019.pdf

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Originally Posted by Aaron

Are you sure about that? Under the FIF rules if using the FDR or CV methods market value at the beginning of the financial year is required. This is from the IRD guide page 15

total amount of the interests doesn't exceed the NZ$50,000 threshold at any time in the year when you're a New Zealand resident (for a natural person), or any time in the year for the trustee of an eligible trust

Or have a read and get back to me if I am wrong.

https://www.ird.govt.nz/-/media/proj...ir461-2019.pdf

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Actually I could be wrong I tried to read the legislation which takes me from Section CQ(5)(1)(d) to section EX 68 measurement of Cost but it confuses the hell out of me but I can't find any reference to market value.

I guess a $49,000 investment in Tesla a few years ago might not be caught under the FIF rules.

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Originally Posted by Aaron

Actually I could be wrong I tried to read the legislation which takes me from Section CQ(5)(1)(d) to section EX 68 measurement of Cost but it confuses the hell out of me but I can't find any reference to market value.

I guess a $49,000 investment in Tesla a few years ago might not be caught under the FIF rules.

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I would imagine a fair % of NZ investors with shares under FIF are skirting IRD under the assumption that their purchases (kept under $50K) would not attract any FIF. How can it be this way? If total accumulated amount invested abroad (even under multiple accounts) exceeds $50K, then FIF applies.

My accountant clarified that those shares that are exempt from fif calculations, ie. all ASX shares and others, would NOT count towards the de minimis of $50k. Do you agree?

Not all ASX shares are exempt. There is a list of those that are somewhere on IRD site.

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Originally Posted by Fred114

My accountant clarified that those shares that are exempt from fif calculations, ie. all ASX shares and others, would NOT count towards the de minimis of $50k. Do you agree?

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Your accountant is incorrect. There's a fair % of shares on the ASX that are not FIF exempted. My thread here - use the link to IRD's website where you can enter the ASX company.

https://www.sharetrader.co.nz/showth...l=1#post889382

IRD goes in detail about the ASX shares must have a franking account and even still - it appears to be dependent on the % payout in the franking. So if it's like 0% - very unlikely to be FIF exempted. Others can clarify here.

To the individual, FIF does NOT apply when capital cost is under $50K in value from the start of the investment to the current year.

This your best bet to find out how an ASX listed entity is treated tax wise:

https://brc2.ird.govt.nz/opa12/web-d...lobal%24global

But read ALL the text carefully. FIF exempt generally contains 'taxed under the general income tax rules'

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Originally Posted by Fred114

My accountant clarified that those shares that are exempt from fif calculations, ie. all ASX shares and others, would NOT count towards the de minimis of $50k. Do you agree?

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Yes exempt 'overseas' shares do not count towards your FIF share balance. But to see if they really are exempt, you need to check here:

https://www.ird.govt.nz/income-tax/i...ent-fund-rules

SNOOPY

Thanks for the helpful clarification Snoop

It is really messed up. I have shares in Two Australian listed funds, both run by Magellan
MHH high conviction fund and MFF Magellan capital investments fund. Both seem to have a similar structure yet MHH is not FIF exempt but MFF is. I can’t see the logic, all very confusing.

Does the status stay the same year after year? According to current rules I would be better off putting any excess over 50k into MHH, but could the status change year on year?

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Originally Posted by ratkin

It is really messed up. I have shares in Two Australian listed funds, both run by Magellan
MHH high conviction fund and MFF Magellan capital investments fund. Both seem to have a similar structure yet MHH is not FIF exempt but MFF is. I can’t see the logic, all very confusing.

Does the status stay the same year after year? According to current rules I would be better off putting any excess over 50k into MHH, but could the status change year on year?

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If you are wanting to stay clear of FIF then would you not need to invest in MFF rather than MHH?

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Originally Posted by ratkin

It is really messed up. I have shares in Two Australian listed funds, both run by Magellan
MHH high conviction fund and MFF Magellan capital investments fund. Both seem to have a similar structure yet MHH is not FIF exempt but MFF is. I can’t see the logic, all very confusing.

Does the status stay the same year after year? According to current rules I would be better off putting any excess over 50k into MHH, but could the status change year on year?

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As with many of the great quotes about Life (the Universe & Everything) it was Douglas Adams who coined the phrase

Rigidly defined areas of doubt and uncertainity

The 'logic' is straight forward:

MHH is predominantly/totally invested in companies outside of Oz/NZ offers no franking on dividends and you is totaly FIffed.

MFF investments included a sufficient % of Australian companies and provides sufficient franking with their dividends that they are the on otherside of the 'threshold' and are FIF exempt.

These statements are true for the last tax year.


Other years?
Well that depends on that magical dividing line as to whether they will be on one side or the other, and how you will have to account for them.

Good old Douglas, I miss him.

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Originally Posted by Snow Leopard

The 'logic' is straight forward:

MHH is predominantly/totally invested in companies outside of Oz/NZ offers no franking on dividends and you is totaly FIffed.

MFF investments included a sufficient % of Australian companies and provides sufficient franking with their dividends that they are the on otherside of the 'threshold' and are FIF exempt.

These statements are true for the last tax year.


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Attachment 12650

Here is the list of MFF investments over 0.1% of their portfolio and I am not seeing any Australian companies. So unless the “sufficient amount” is miniscule then I am still in the dark as to why Mhh had Fif but Mff does not.

Yes, probably best to ignore what I said as it is wrong, though I am sure it used to be right a few years ago :D.

It would seem that now the simple rules are ( ignoring the tricky bits :mad ;: ):

If it is an Australian (or NZ) tax resident company that can (in theory or practice) pay franked dividends it is exempt.

Otherwise it isn't.


So MFF as an Oz company is good,
and MHH as an Oz ETF are FIF.

Even ETF's that 'invest' totally in Oz shares and pay franked dividends are FIF!

Like an earlier poster I've just gone through the process of completing IRD's FIF calculator and then finding I've been wasting my time as I have to do it all again for my return. Perhaps IRD could put a little note by it clarify what a waste of time it is. Grrrrrr!

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Originally Posted by kiwico

Like an earlier poster I've just gone through the process of completing IRD's FIF calculator and then finding I've been wasting my time as I have to do it all again for my return. Perhaps IRD could put a little note by it clarify what a waste of time it is. Grrrrrr!

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They never said the FIF was easy. Even accountants get it wrong. In industry, financial advisors are clueless about FIF or it's impact on their client's portfolio. Their goal is to make things so complicated that no one knows and therefore, people would just 'trust' their investment in Kiwi Saver or PIE so you don't have to worry about FIF. Warren Buffet calls them "The Helpers" as they charge commissions like crazy and everyone from the financial advisor, to the management of the funds, up and down the chain including IRD, all get their cut.

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Originally Posted by kiwico

Like an earlier poster I've just gone through the process of completing IRD's FIF calculator and then finding I've been wasting my time as I have to do it all again for my return. Perhaps IRD could put a little note by it clarify what a waste of time it is. Grrrrrr!

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I don't understand your comment. The IRD on line FIF calculator is just that, an on-line tool. It is made very clear the information you put into it is not sent to the IRD. So of course you have to submit the information again when you submit your tax form. However, the FIF calculator does have a formatting feature that allows you to print your inputs and the calculator outputs as a pdf. I always do that to ensure that my time on the FIF calculator does not get lost.

SNOOPY

I just paid Hatch $50 to do mine. Was worth every cent. I tried doing it myself but am too lazy and stupid.