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  1. #11
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    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

  2. #12
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    Quote Originally Posted by tango View Post
    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
    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.

  3. #13
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    Quote Originally Posted by SBQ View Post
    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.
    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?

  4. #14
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    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?

  5. #15
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    Quote Originally Posted by tango View Post
    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.
    Yes.

    but next year I pay 5% tax on the balance at 1/4/20. Right?
    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
    Last edited by Snoopy; 25-06-2020 at 02:39 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  6. #16
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    Quote Originally Posted by Snoopy View Post
    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

  7. #17
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    so glad to get that done for the year!
    Last edited by tango; 30-06-2020 at 03:31 PM.

  8. #18
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    Quote Originally Posted by tango View Post
    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

  9. #19
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    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.

  10. #20
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    Quote Originally Posted by BeeBop View Post
    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
    Last edited by Snoopy; 07-01-2021 at 08:30 AM.
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