Overseas shares - IRD's IR3

[tango]

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

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

[SBQ]

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

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

[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.

[Snoopy]

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.

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

[BeeBop]

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

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.

[Aaron]

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.

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

[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

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.

[SBQ]

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.

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.

[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?