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  1. #21
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    Dean Riley, head of group tax at Kiwi Bank, covers the FIF trader/investor distinction in this seminar :

    https://www.youtube.com/watch?v=FHpq...outu.be&t=2975

  2. #22
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    Quote Originally Posted by steve9 View Post
    Dean Riley, head of group tax at Kiwi Bank, covers the FIF trader/investor distinction in this seminar :

    https://www.youtube.com/watch?v=FHpq...outu.be&t=2975
    Not really crystal clear under FIF. Again like most financial advisers in NZ, they always come out saying "go seek a tax specialist...."

    Shortly after the FIF question they briefly talked about US Estate Duties on Joint account holders. The lady may not be crystal clear on US estate taxes ; she did say YES for sole individual that dies, their US holding will attract US estate taxes regardless of amount (interestingly, for US residents the threshold for estate / death taxes doesn't apply unless after $11.5M). But on the issue of joint accounts ; she should clarify too that the joint account holder that dies is also subjected to US estate taxes on their 'original' contribution portion to buy the asset. She should also mentioned there's a $60K NRA exemption. But i'm not holding any faith to these NZ financial advisers... more or less they're all out farming it by telling clients "Go see a tax specialist". I can assure in Canada or in the US, CFP registered advisors won't tell you to go see a tax specialist and will have most of that tax info at hand.

    https://www.frankhirth.com/news/us-t...non-us-persons

    "If assets are held jointly, each individuals contribution to the acquisition of the US asset should be carefully documented. If contribution amounts are not clearly understood, the IRS could operate a “worst-case scenario” approach and include 100% of the value of the asset within the estate of the first joint owner to die."

  3. #23
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    Quote Originally Posted by SBQ View Post
    Hold on there... FIF has nothing to do with what 'purchase price' being under $50K.

    How about from IRD's point of view. Do you really think IRD will allow people to make foreign share purchases under $50K and let it compound 10 or 20 years which could end up over $500K or $1M and the NZ resident not pay a $1 in tax? I don't think so....
    One last note on SBQs -wrongful- interpretation of how FIF works.

    The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced.

    If the FIF scheme was triggered when your investor running balance exceeded $NZ50k, our investor would have to keep a daily ticker feed of their share investment and the exchange rate on that day to get an instantaneous read out of the exchange rate as well, so that everything can be converted back to $NZ. Unless our investor had such a set up, he could inadvertently break the FIF rules by not noticing that his investment had popped up in value to over $50k (and so breaking a threshold) before coming back down again. It gets more complicated again if you have more than one FIF investment. You would have to co-ordinate the ticker feeds and currency value feeds of all your investments and add them together, every day.

    Now imagine you did not do all of this and the IRD decided to investigate you. They would have to download all the price information themselves, and run the same exercise that you did not download. By the time they co-ordinated all the dividend information as well, we might be looking at several hundred hours work. And only at that point could they start figuring out what your tax obligations might be. And at the end of it all they might find that your approach of 'just paying tax on dividends' might have resulted in a greater tax bill anyway! The whole thing would be an administrative nightmare, that would more than likely in administrative costs, chew through the extra tax reigned in anyway.

    Now consider the purchase price based approach. When you make your FIF purchase you will very likely have a contract note converted to NZD. That document will be a proof of purchase in an NZD amount that can be easily verified by the IRD by just looking at it. There is no need to gather any more information. That is administratively workable, in a sense that the 'running balance approach' is not.

    Thus what seems to be an illogical way of doing things is the only practical way to go, even though from the perspective of 'Person B' it is not fair.

    SNOOPY
    Last edited by Snoopy; 24-11-2020 at 12:45 PM.
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  4. #24
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    Quote Originally Posted by Snoopy View Post
    One last note on SBQs -wrongful- interpretation of how FIF works.

    The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced.

    If the FIF scheme was triggered when your investor running balance exceeded $NZ50k, our investor would have to keep a daily ticker feed of their share investment and the exchange rate on that day to get an instantaneous read out of the exchange rate as well, so that everything can be converted back to $NZ. Unless our investor had such a set up, he could inadvertently break the FIF rules by not noticing that his investment had popped up in value to over $50k (and so breaking a threshold) before coming back down again. It gets more complicated again if you have more than one FIF investment. You would have to co-ordinate the ticker feeds and currency value feeds of all your investments and add them together, every day.

    Now imagine you did not do all of this and the IRD decided to investigate you. They would have to download all the price information themselves, and run the same exercise that you did not download. By the time they co-ordinated all the dividend information as well, we might be looking at several hundred hours work. And only at that point could they start figuring out what your tax obligations might be. And at the end of it all they might find that your approach of 'just paying tax on dividends' might have resulted in a greater tax bill anyway! The whole thing would be an administrative nightmare, that would more than likely in administrative costs, chew through the extra tax reigned in anyway.

    Now consider the purchase price based approach. When you make your FIF purchase you will very likely have a contract note converted to NZD. That document will be a proof of purchase in an NZD amount that can be easily verified by the IRD by just looking at it. There is no need to gather any more information. That is administratively workable, in a sense that the 'running balance approach' is not.

    Thus what seems to be an illogical way of doing things is the only practical way to go, even though from the perspective of 'Person B' it is not fair.

    SNOOPY
    I'm sure you will find most accountants will work on the same interpretation that the FIF $50K threshold is simply 'a threshold'. There are all sorts of examples online that show going over the $50K and valuations are determined at a SET DATE ; and the Quick Sales method makes frequent trading complicated enough to keep the accountants busy. If you trade too frequent, then IRD will simply say you're doing it as a means to profit and FIF will not apply ; but instead, the worse ; RWT would apply. A similar threshold applies to whether a business should be GST registered or not. Once you exceed the $30K in sales, you must be registered despite it could be less than $30K in many months of the same year.

    But look at the example of the KMPG pdf - it shows the person in the 1st year under $50K and then FIF triggered by buying UKCo later on. Both transactions were under the $50K each but there's no denying the account value exceed $50K later for FIF to kick in.

  5. #25
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    Quote Originally Posted by Snoopy View Post
    One last note on SBQs -wrongful- interpretation of how FIF works.

    The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced....
    Fairness is subjective. Maybe the introduction of a FIF type FDR regime for NZ real estate and NZ and Australian equities returns could get around Ardern’s self imposed ban on a CGT. With real estate it could be deferred until the property is sold.
    Last edited by Bjauck; 26-11-2020 at 04:52 PM.

  6. #26
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    Quote Originally Posted by SBQ View Post
    Shorting Uber shares directly is simplistic (providing your broker has a pool of shortable shares ; note not all brokers are the same and you'll find the NZ brokers most likely don't have access or an allotment of shares to allow for short position). In terms of FIF, an account balance is always determined during a short position so therefore, tax by FIF will still apply.
    Am surprised that FIF rules would apply to a short position. Is this correct? I would argue that at no time do you have "a direct interest in a foreign company" as defined by EX30 of the Income tax Act. When the broker closes out the short position the shares are returned to the broker's pool of shortable stock. One is never listed as the holder of the stock.

    Also, if one was to say, go short in XYZ Inc in May 2017 at $1000 a share and cover in June 2020 at $100 a share, how exactly would that be taxed under FIF rules? With there being a margin loan, short borrowing costs, responsibility to pay dividends to the long party etc, and never actually owning the stock, surely it's more akin to a Financial Arrangement?

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