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  1. #1

    Default FIF rules and share options

    I've searched on the IRD website and on Google, but can't find an answer to my question: Are share options considered an attributing interest in an FIF? Having read the IR461 document, which doesn't even mention share options, I'm guessing the answer is no?

    The reason I ask is I purchased some listed options in a foreign company and want to make sure I remain under the $50,000 FIF threshold for all my foreign share holdings. If share options aren't considered an attributing interest, that means I can invest quite a bit more in foreign shares and still remain under the threshold.

  2. #2
    Legend
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    Quote Originally Posted by Citizen Erased View Post
    I've searched on the IRD website and on Google, but can't find an answer to my question: Are share options considered an attributing interest in an FIF? Having read the IR461 document, which doesn't even mention share options, I'm guessing the answer is no?

    The reason I ask is I purchased some listed options in a foreign company and want to make sure I remain under the $50,000 FIF threshold for all my foreign share holdings. If share options aren't considered an attributing interest, that means I can invest quite a bit more in foreign shares and still remain under the threshold.
    You haven't given enough information for a definitive answer to your question.

    Are these options that just expire at some time in the future with no value?

    Are the options normally redeemable for cash but at the discretion of the issuer may be converted to shares?

    Are they index options or individual company options?

    Who has issued the options: the company concerned or a third party?

    You may have to apply for a declarative judgment from the IRD if your particular situation is not covered. However, from what I have read on other FIF judgments, the key to the answer is whether the option you have bought behaves 'on market' like an alternative (albeit leveraged) to owning the underlying head share or overseas index. If it does, then it will almost certainly be seen as an 'attributing interest' that is subject to the FIF regime.

    SNOOPY
    Last edited by Snoopy; 06-02-2018 at 06:14 PM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  3. #3

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    To answer your questions:

    1. The options expire on 24 May 2020 if not exercised

    2. The options can be converted to shares for three cents each

    3. They're individual company options, listed on the ASX (ASX:AVZO)

    4. The options were issued by the company

    My Google search finally turned up something - a company prospectus issued by another Australian company, which describes the situation I'm asking about: "New Zealand investors will need to consider whether the Securities are attributing interests in a FIF and give rise to FIF income for New Zealand tax purposes. It should be noted that in the case of Options, until they are exercised and Shares are issued, they should not in and of themselves be an attributing interest in a FIF because they should not meet the definition of being an income interest as defined in the FIF rules."

    I think that answers my question.

  4. #4
    Legend
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    Quote Originally Posted by Citizen Erased View Post
    To answer your questions:

    1. The options expire on 24 May 2020 if not exercised

    2. The options can be converted to shares for three cents each

    3. They're individual company options, listed on the ASX (ASX:AVZO)

    4. The options were issued by the company

    My Google search finally turned up something - a company prospectus issued by another Australian company, which describes the situation I'm asking about: "New Zealand investors will need to consider whether the Securities are attributing interests in a FIF and give rise to FIF income for New Zealand tax purposes. It should be noted that in the case of Options, until they are exercised and Shares are issued, they should not in and of themselves be an attributing interest in a FIF because they should not meet the definition of being an income interest as defined in the FIF rules."

    I think that answers my question.
    Thanks for the clarification. From the IRD website the defintion of an 'attributing interest' is as follows:

    ------

    An attributing interest includes:

    a direct income interest in a foreign company or unit trust, eg
    shares in a foreign company, except shares in certain Australian companies, or
    units in a foreign unit trust, except units in certain Australian unit trusts,

    ------

    I see that AVG resources is not making profits, and it appears they have no working assets in Australia, That means they don't have a current franking credit account, so will be subject to the FIF regime, despite being Australian listed. I am very surprised that you can simply buy the options and so become FIF exempt though. I guess it all hinges on the definition of whether you have a 'direct income interest'?

    I wonder what the other Australian company was that suggested options do not count? I am not sure that I would trust a non-resident company's opinion on this.

    Personally I would be looking in the monthly tax information bulletins, published by the IRD themselves.

    http://www.ird.govt.nz/aboutir/newsl...-bulletin.html

    SNOOPY
    Last edited by Snoopy; 06-02-2018 at 09:32 PM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  5. #5

    Default

    For what it's worth, the prospectus where I found the info was for a capital raising by Bailador Technology Investments Limited.

    Their position on options not meeting the definition of being an income interest makes perfect sense to me. Options aren't a stake in a company. They confer no voting rights and receive no dividend income. They're simply an option to purchase shares at a future date, if you so choose.

    I searched the entire IRD website (using both their own search engine and Google) and the only times options are mentioned is when discussing tax on employee share options.

    I understand about the franking credits, so am taking the position that the options are FIF exempt, but if I convert them to shares they'll fall under the FIF rules.
    Last edited by Citizen Erased; 07-02-2018 at 06:16 PM. Reason: grammar

  6. #6
    Legend
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    Quote Originally Posted by Citizen Erased View Post
    For what it's worth, the prospectus where I found the info was for a capital raising by Bailador Technology Investments Limited.

    I searched the entire IRD website (using both their own search engine and Google) and the only times options are mentioned is when discussing tax on employee share options.

    I understand about the franking credits, so am taking the position that the options are FIF exempt, but if I convert them to shares they'll fall under the FIF rules.
    A similar position to AVZ then: Investing in developing projects that are unlikely to generate a meaningful profit means no franking credits available for shareholders. It also means despite being Australian listed, BAILADOR is not FIF exempt.

    Their position on options not meeting the definition of being an income interest makes perfect sense to me. Options aren't a stake in a company. They confer no voting rights and receive no dividend income. They're simply an option to purchase shares at a future date, if you so choose.
    I can't fault your logic CE. I guess I learned something today.

    SNOOPY
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

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