Overseas investments and NZ tax

[NZT]

Hi,

I am looking to purchase some stocks on NYSE, NASDAQ, HKEX, etc. and am looking to understand what that means from an annual tax return in New Zealand perspective.

Somebody recently told me that if I buy overseas stock, and keep it for a year or longer (as in, don't day trade it) - than I am not subject to Capital Gains Tax in NZ. Is this true?
And the only tax I would need to pay would be ONLY any dividends - and this tax rate would according to my PIR rate in NZ.

Would appreciate if someone could shed some light on this.

Thank you,
NZT

[777]

Well I am no tax expert and you should familiarise yourself with FIF details off the IRD site.

The "somebody" is talking BS. A reason why you should get proper advice.

In general though you are only required to to pay tax on dividends received from overseas companies unless you invest more than $50,000, in which case you will fall under the FIF regime and have to pay tax on 5% of your investment each year. It is a little bit more complicated than this but you can look that up yourself. Should you be investing via a Trust then the $50,000 minimus does not apply and you are under the FIF regime straight away.

The Tax rate would be your marginal tax rate and not PIR rate.

Get it right from the start as it will save a lot of trouble down track.

It is worth doing a read up and then paying for an hours professional advice.

[kiwico]

I agree with 777 - the IRD website is the place to go for understanding the FIF regime for investing offshore (other than most shares on the ASX).

However some shares on the ASX are subject to the FIF regime; if the share is a stapled security or if the company does not apply franking credits these will also count towards your $50,000 (or $0 if trading as a company or trust).

[NZT]

So, I spoke to an accountant.

Apparently, if I invest in overseas stocks, and keep things under $50,000, the only time I would need to fill out an IR3 form would be if the stock had dividends paid out to me - then I pay tax as per the marginal tax rates on these dividends.
If there are no dividends, and irrespective whether the stock increases or decreases, I don't need to fill out an IR3 form (or pay any tax on it).

Anything over $50,000, things get a bit more complicated and FIF tax comes into play. But I will worry about that once I pass the 50K mark.

I will seek a second opinion, and hopefully someone on these forums can validate things too.

[BeeBop]

So, I spoke to an accountant.

Apparently, if I invest in overseas stocks, and keep things under $50,000, the only time I would need to fill out an IR3 form would be if the stock had dividends paid out to me - then I pay tax as per the marginal tax rates on these dividends.
If there are no dividends, and irrespective whether the stock increases or decreases, I don't need to fill out an IR3 form (or pay any tax on it).

Anything over $50,000, things get a bit more complicated and FIF tax comes into play. But I will worry about that once I pass the 50K mark.

I will seek a second opinion, and hopefully someone on these forums can validate things too.

When I lived in NZ, that is what we did pre 2010...we held 50K in our individual names...had an off-shore account so that the fees were less. When the value increased, we would sell some off and bring it back (exchange rate considered) and "secure" it in a mortgage or lower risk NZ purchased fund.

[NZT]

Found this to support the under 50K investment: http://www.ird.govt.nz/toii/fif/how-...threshold.html

[GTM 3442]

When I lived in NZ, that is what we did pre 2010...we held 50K in our individual names...had an off-shore account so that the fees were less. When the value increased, we would sell some off and bring it back (exchange rate considered) and "secure" it in a mortgage or lower risk NZ purchased fund.

Everyone seems to live in fear and trembling of the FIF regime. It's simply a tax on a notional 5% return.

I'd much rather pay tax on that notional 5% than on the actual return.

[blackcap]

Everyone seems to live in fear and trembling of the FIF regime. It's simply a tax on a notional 5% return.

I'd much rather pay tax on that notional 5% than on the actual return.

Why? I cannot think of many companies that pay more than 5% in dividends.

Any value increase in capital is not taxed. So with FIF you are paying more tax are you not than you would be if there was no FIF?

[777]

Why? I cannot think of many companies that pay more than 5% in dividends.

Any value increase in capital is not taxed. So with FIF you are paying more tax are you not than you would be if there was no FIF?

Depends. Unit trusts in Australia have to distribute their profits and the distribution far exceeds the 5% most years. And in down years if you don't make 5% then you just pay tax on what you make. In those down years, if not for the FIF, I would have had to pay tax on what was distributed even though I may have lost money.

[BeeBop]

Far better to pay down the mortgage (at the interest rates we had then) that keep leverage high with off-shore investments. The game changes when leverage is much lower and interest rates are lower than they were then - depending on your forward forecasts and risk tolerance.