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  1. #21
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    Quote Originally Posted by Aaron View Post
    I wouldn't have thought that the FIF regime is much worse than anything else depending on your return on investment. Assuming you are on the top tax rate of 33% tax will eat 33% of your net taxable earnings no matter what the investment. What is the difference between paying tax on a dividend earning company in NZ that has minimal growth or paying tax on 5% of the value of a FIF investment assuming (you would hope for the risk involved) it will generate growth of at least 5% or more but pay next to no dividends. Like you say if the FIFs grow by less than 5% use the CV method and no tax to pay if it goes backward (although you will have to pay tax on the regrowth which is the real unfair part of the FIF regime).
    Perhaps it is my naivety of the NZ stock market, but I would have assumed that most companies don't keep their share price (mostly) static and don't pay out massive dividends (although I do understand NZ does pay out higher dividends that the US, on the whole). If my assumption is right, that would mean share prices do fluctuate (hopefully upwards), and therefore in NZ we have the benefit of not paying any tax on the (paper only) capital gains of the shares - just the dividends. Would it be fair to say that this should lead to lesser tax overall than going purely with FIF?

    Quote Originally Posted by Aaron View Post
    You could buy a dividend paying company on the ASX that is on the exempt list. You pay tax on the dividends(no franking credit allowed, come on Aussie remember CER). The FDR is just a replacement for dividends. You are right to worry about tax but I would be more concerned with finding an investment that is going up instead of down. Any growth over 5% is tax free on your FIF.
    That said I would also like to hear how other people invest overseas particular in passive/index funds.
    I agree - like I said earlier my preference is just ETFs - simple, easy, non-exciting but largely proven to be one of the best options there is in the long term. I too would love to hear from others involved in overseas investment.

    Thanks!

  2. #22
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    I was very early on turned off by SmartShares, but I am coming around with the more research that I do. I think if NZ ever got a full capital gains tax the benefits of SmartShares would diminish quickly (and I would move to a US-based ETF VTI without any question), but for now it seems that investing overseas in a FIF regime results in effectively a 1.6% subtraction from whatever percentage gains are earned by the shares. That far exceeds the 0.75% expense ratio for SmartShares.

    But like I have said all along - I hope I'm wrong!

  3. #23
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    Quote Originally Posted by JonathanGiles View Post
    Perhaps it is my naivety of the NZ stock market, but I would have assumed that most companies don't keep their share price (mostly) static and don't pay out massive dividends (although I do understand NZ does pay out higher dividends that the US, on the whole). If my assumption is right, that would mean share prices do fluctuate (hopefully upwards), and therefore in NZ we have the benefit of not paying any tax on the (paper only) capital gains of the shares - just the dividends. Would it be fair to say that this should lead to lesser tax overall than going purely with FIF?
    The yeild stocks (power and property companies) pay out 60%+ of profits as dividends. Growth companies (Xero) pay out nothing.

    Typically overseas companies (esp US), even 'income stocks' dont pay out dividends due to double taxation (which NZ avoids by imputation credits). Likewise, multinationals may not have access to their cash due to tax reasons (eg. Apple has $100B in cash which it is only just starting to distribute though divs and buybacks)

    Quote Originally Posted by JonathanGiles View Post
    I was very early on turned off by SmartShares, but I am coming around with the more research that I do.
    But smartshares are NZ and Australia only so no global diversification which is what I thought you want??

  4. #24
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    Jonathan, you must beware of other issues with US ETFs. The main one is death duty tax is liable on any holding over $60000 for non US residents. This is why you need to look a non US domiciled ETfs. Some investors buy on the UK stock excahnge where these ETFs are domiciled in Ireland. However, Vanguard has just launched a new global one that is australian domiciled, VGS, with an MER of 0.18%. Dividends can be reinvested.
    About the FIF regime try not to make investment decisions based on taxation but focus on long term returns.

  5. #25
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    Quote Originally Posted by Harvey Specter View Post
    But smartshares are NZ and Australia only so no global diversification which is what I thought you want??
    That is a valid point. I guess my concern is about what is more important - greater diversification or lower fees? Perhaps one option for me would be to do global diversification up until the minimum amount ($100k in the case of a joint account). It won't scale in the long term (I'm talking 30+ years), but I guess it is better than nothing (and who knows, maybe tax laws will be completely different by then) :-) I welcome any thoughts you may have.

  6. #26
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    Quote Originally Posted by voltage View Post
    Jonathan, you must beware of other issues with US ETFs. The main one is death duty tax is liable on any holding over $60000 for non US residents. This is why you need to look a non US domiciled ETfs. Some investors buy on the UK stock excahnge where these ETFs are domiciled in Ireland. However, Vanguard has just launched a new global one that is australian domiciled, VGS, with an MER of 0.18%. Dividends can be reinvested.
    About the FIF regime try not to make investment decisions based on taxation but focus on long term returns.
    Voltage - one way around this is to invest via a family trust (which I do have lying around) - that way the death duty tax isn't applied upon the death of my spouse and I - instead it is related to the trust which endures beyond our lives.

    I agree on the "don't make decisions on tax law" (I think I said it sometime today too) - but I think in this case if we ignore tax law we may be indeed impacting on our long term returns. In this case, the current NZ tax law, I believe, effectively reduces the annual capital gain on shares (can you tell I'm not an accountant - I'm sure I'm using the incorrect terminology) by 1.6%. Therefore, if we make 7%, we should reduce that to 5.4%. If SmartShares makes 7%, we should reduce that by 0.75% to 6.25%. At least, that is my understanding - and if correct - is quite substantial.

  7. #27
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    Yep the FIF tax completely put me off international investments via ETFs. I tried to sell it to myself by thinking of the diversification, low fees etc, but after a lot of thought and running through a few scenarios I decided it wasn't worth the hassle and extra compliance costs. I figure my KiwiSaver dough is in a growth fund made up of international shares so I do have some exposure to overseas markets, but it doesn't change the fact that I'm still heavily skewed to the Australasian market which is not ideal. Hopefully they change the rules one day but in the mean time I can't be bothered pissing around with that ridiculous tax.

  8. #28
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    These are valid points however we cannot ignore the fact that US makes up 50% of the world market. I am 40% weighted into asx shares which have significantly underperformed in recent years. NZX is a minnow by world standards. Also much of the research shows most fund managers and us, as active stock pickers, are very unlikely to outperform the index long term. The answer is to use global ETFs, but as indicated above this is a difficult exercise from NZ. There is no simple answer at this stage.

  9. #29
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    Hi all.

    Today I came across SuperLife who seem to have some interesting passive funds with low(ish) fees at 0.35% for overseas share funds. The 0.35% is made up of 0.20% administration and 0.15% investment managers fees. They provide a very interesting product...but what I don't understand is how their funds are taxed. I can appreciate that with direct FIF investments I do not pay any PIE tax, but I do pay the FIF tax. When it comes to NZ-based PIE funds like what SuperLife offer, I don't understand the implications of FIF and PIE. I would presume that the fund internally covers the FIF taxes, but I don't understand the repercussions on me. I know I will pay the PIE tax at my PIR, but this is on the gross amount returned to me, and I don't understand if the gross amount returned to me is just minus the 0.35% expense ratio, or has also had FIF taxes removed from it.

    In other words, given two equivalent investments in two equivalent funds, one directly investing overseas and incurring FIF taxes, and one investing via a NZ-based PIE scheme, would one expect near-equivalent returns, or is the net return of the NZ-based PIE scheme necessarily lower?

    Does anyone have any clarity on this issue?
    Thanks!

  10. #30
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    Some interesting links:

    http://iisolutions.co.nz/wp-content/...bal-shares.pdf
    And a follow-up to this PDF: http://www.goodreturns.co.nz/article...ds-unfair.html

    http://www.pascoebarton.co.nz/articl...y-too-much-tax
    http://milfordasset.com/learn-and-plan/faqspie/

    Unfortunately, I'm none the wiser as to what is the better approach! Can someone smarter than me clarify?
    Last edited by JonathanGiles; 16-01-2015 at 07:43 PM.

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