What are your Investment Rules?

[Aaron]

With inflation higher than 1979-1980s we could be in for the biggest bull run in the past century. In that chart, from 1985 to 1995 you has a massive bull run. Yes major crashes from 1 time events are very short lived. But what we have with inflation will span for years and when that settles down, then things start to get exciting.

The model with Kiwi Saver is all funds pay tax based on the individual's taxable income. However in that mix of stock holdings, you can have NZX shares that attract no capital gains tax, end up paying a lot of taxes on the dividends. Take The Warehouse Group which has paid consistent dividends for the past 20 years but it's share price has gone nowhere (worse if you factor the cost of inflation) and the individual is worse off when they are taxed on dividend income instead of NZ capital gains. Keep in mind NZ has imputation credits so that company dividends are not double taxed. One of the reasons American companies retain earnings and go for growth as they double tax dividends

The Comparative Value Method does not apply to fund managers!! If I recall correctly in my readings, IRD states that all fund operators (passive or active) who receive contributions for investment, must use the FDR method. Either way each method, on a negative year, ends up having no tax to pay. FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method

The PIE regime just rubs more insult to the small investor who are on lower income levels. Why should individuals on the high income tax bracket, get the benefit of only paying 28% on their Kiwi Saver fund when their annual income tax bracket could be 30%, 33%, or 39%??? It's the same kind of insult why the wealthy are able to buy multiple houses and hold in excess of 10+ years so all the capital gain is tax free. The whole monetary system is set up to favour the asset owners, PIE rates can drop to 10.5% or 17.5% if your income is lower but not the same as the benefit provided to someone on 39%.

I honestly believe Bill English did a disservice to NZ by introducing Kiwi Saver.Michael Cullen introduced Kiwisaver, we have discussed this before The #1 beneficiary to this scheme is IRD. There's no disputing this math as John Bogle said, if the Market Return is 7% a year for 50 years, and the individual that has to pay tax on those market return gains year after year and also see's managed funds taking a cut, he/she may be lucky to see 5% per year net for the Market Return. However the latter only gets 1/3rd of the total gain while the 2/3rd is pocketed mostly by IRD and expensive managed funds and the cut that financial advisers take. at tops IRD take 39% not sure your way of thinking on this. In an ideal world we would have no tax nor any need of a financial advisor but that is not realistic. Anything adds up compounded over 50 years. Interesting they compounded Kiwisaver returns over 48years to get a significantly large figure to spook investors around the GST on mgmt fees. https://www.nzherald.co.nz/nz/govern...TUL5DG7UFEWA4/

I'm also very critical on Kiwi Saver funds that do nothing more than buy the Vanguard VOO (S&P500 index ETF) as a passive fund way of investing, but charge 10 times more in admin/mgt fees. I know myself it does not take much for a broker to enter the buy / sell details to buy the VOO for their clients. Certainly being able to charge 0.1% or 0.15% on something that the Vanguard VOO only charges 0.04% per year. What reason do these NZ fund managers have to charge so much more on top of the Vanguard fund fee?

This is why I advice people to open up a Hatch or Sharesie account directly and manage their own retirement fund. A married couple can contribute up to $50,000 each before FIF applies. So they essentially they can buy the same VOO index ETF as so called KS saver funds do, but only pay the same rate that Vanguard charges. This I believe is the best bet for the small individual as even with Kiwi Saver, that 3% employer matching contribution is grossly negated by the higher mgt fees of funds, and the tax they have to pay in those funds, year after year.

See in red, agreed better to cut out as many middle men as possible to get the best returns as long as you stick to indexes and hope the time in the market mantra works for the next 10-20 years.

[SBQ]

Keep in mind NZ has imputation credits so that company dividends are not double taxed. One of the reasons American companies retain earnings and go for growth as they double tax dividends

Likewise in N. America where dividends have similar "dividend tax credit" to lessen the effect of double taxing. Still NZ's corporate tax rate of 28% vs Canada's 12-15% or US's 21%, without a doubt shareholders in corporations in these countries get to keep more of their earnings than in NZ. Compound those % differences over multiple decades and the difference again is remarkable despite NZ's imputation dividend tax credit (which varies a lot by % - not fully 100%).

FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method

I had a url that showed the difference between an individual investing directly vs through a managed or KS fund, showing the distinction that the individual can choose between FDR and CR while managed funds are only stuck with FDR. Perhaps someone else can clarify.

The whole monetary system is set up to favour the asset owners, PIE rates can drop to 10.5% or 17.5% if your income is lower but not the same as the benefit provided to someone on 39%.

This is so wrong in NZ. In Canada, they have this tax called "clawbacks" which essentially is to take away a benefit. If the senior retired person has too high of an income, then they LOSE portions of their superannuation gov't pension plan because they're already asset rich and the gov't pension plan was to mainly support those in need and not those who are already rich.

at tops IRD take 39% not sure your way of thinking on this. In an ideal world we would have no tax nor any need of a financial advisor but that is not realistic. Anything adds up compounded over 50 years. Interesting they compounded Kiwisaver returns over 48years to get a significantly large figure to spook investors around the GST on mgmt fees. https://www.nzherald.co.nz/nz/govern...TUL5DG7UFEWA4/

I also don't like the way they illustrated the math behind it on how much extra cost per year it would be to the investor. John Bogle's method is the proper way to illustrate the loss of compound returns when issues like high management fees or taxation come into the mix. Again to lose 2/3rds of a 7% per year return portfolio over 50 years? I would say the 5% example he stated would be more in line to what we have in NZ with KS or PIE funds.

But 2 posts before, the N. American way of managing investments for retirement is fare more elegant because it addresses the inequality between the rich and poor. It takes away benefits for those who had more luck in their portfolio returns, while maintaining social security pension for those that had sub-par performance. Individuals can accumulate their annual contribution rooms (on years where they don't fulling contribute 100%) and time things in according to the stock market conditions. Likewise at the end during retirement age 65, individuals choose how much they allocate to withdraw and since seniors are already on a low income tax bracket rate, they benefit by having all those years of stock market compounding gains to be taxed at a lower rate.

The way NZ does it with Kiwi Saver is they tax their investments based on what years they make the most $ on. So naturally in years where they are most productive and can contribute the most (say in their 30s, 40s, 50s), their investment returns would also be taxed at that same high rate. The effect of this is a considerable loss in compound returns. How does this help out to the low income families that struggle to save 3% of their annual income?? It doesn't. In Canada, removing a portion of their income so that it is not taxed, and invested for the retirement, is a far greater incentive than what we have here where more incentive is provided for the high income individuals in the 30%+ tax bracket (if they choose to invest in a PIE fund).

Also NZ doesn't have investment plans for people with disabilities which means they are treated with the same yard stick as everyone else (yet their earning ability would not be remotely the same as those without mental or physical disabilities). Canada has the RDSP plan where the gov't will match contributions by the disabled person + any contributions from family or friends, and these investments buying equities on the stock market, grow 100% tax free. How about holding assets in a trust? Well in NZ there's no distinction given to people with disabilities if they are the beneficiary of the trust, ie trust tax rate in NZ is 33%. But in Canada, the disable person can be the beneficiary of the trust, and that trust is only taxed at the individuals low income tax rate.

I could go on and on about Canada's incentive scope for education too... problems that in NZ in the past where Jacinda believes uni tuition is too expensive. In Canada you have RESP which addresses investing for the future for education (and these investments again, grow 100% tax free).

What is NZ doing??

[Snoopy]

I had a url that showed the difference between an individual investing directly vs through a managed or KS fund, showing the distinction that the individual can choose between FDR and CR while managed funds are only stuck with FDR. Perhaps someone else can clarify.

SBQ, you are correct in what you say above.

https://moneykingnz.com/tax-on-forei...te-taxes-work/

From section 4:
"NZ domiciled funds always use the FDR method to calculate their FIF taxes – they have no option to apply the de minimis exemption or select the CV method in low return years. Given it’s reasonable to expect low or negative returns every few years (where the CV method is advantageous), this is a major disadvantage of these funds."

(Said within the context of talking about fund managers)
FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method

And Aaron is correct as well.

SNOOPY

[DTC]

Selling the losers and keeping the winners becomes a self fulfilling prophecy, as everybody sells down those stocks that have fallen in price, causing more people to sell their losers, and so on and so on...

[voltage]

Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.

[777]

Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.

If you live in NZ then you pay tax at your marginal rate on worldwide income.

[voltage]

I thought FDR is always 5% of the opening market value of your FIF investments at the start of the tax year, therefore no further tax on dividends is required

[Snoopy]

I thought FDR is always 5% of the opening market value of your FIF investments at the start of the tax year, therefore no further tax on dividends is required

You are correct. There is no separate dividend tax under FDR. However, should any tax be deducted from your overseas dividends, you can use this to offset any tax due in NZ under FDR.

SNOOPY

[kiwico]

Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.

Have a look at Interactive Brokers - much cheaper trading costs, much cheaper foreign exchange costs and next to no cost (if any) for W-8BEN.

I have a NabTrade account but I use this for ASX trades only. Interactive Brokers is much better for US, UK and Europe exchanges.

[voltage]

Thanks, the only issue is trying to keep things simple. I have a full broker and use for some trades to get their research, Hatch for US, COMMSEC for the ASX exchange and Jarden Direct for NZ. This is too complex and fees using a full broker are high.
So, IB maybe the answer but is it a complicated platform to use.

Hatch says it is partnering with FNZ to develop one of New Zealand’s leading platforms for DIY investors.
This partnership will bring together Jarden Direct and direct retail investment service Hatch.
Maybe when this happens this could be the answer, a one stop shop.