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  1. #1
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    Default US Shares - Taxation

    Hi,

    I was interested to know how the following positions gains would be taxed when closed - I assume they do not fall under the FIF rules?

    a) Long Facebook (FB) Jan 15 2021 $220 Call Options

    b) Short Uber (UBER)

    Thanks.

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    $220 strike price JAN15? What's the probability FB stock will be in the $ (higher than $220 by that time?) since you're betting it's current $190 stock price will be higher? In my experience the vast majority of options contracts expire worthless. The reality is no one would offer a option contract that would give the contract buyer an edge to profit, and hence most options expire with little or no profit; or more likely, you won't find any offering on the contract. Typically options pricing are better suited to stocks that have high volatility, but then typically, no one write contracts on such volatile stocks where the pricing is so in to the $.

    FIF does not apply to derivative / options and hence why IRD/NZ Gov't has place regulation to deter or limit the investments in this area by NZ residents. The FMA states any foreign broker offering options contracts directly to NZ residents would be doing so illegally, without these brokers being licensed by the FMA (which none of them would bother). You could use a local NZ broker to play the options but i'm certain at a much higher cost and you would not be exempt from taxation on any of the profits made from derivatives. The whole idea of the FMA is that prior to this regulations, IRD had no form of taxation on those that made $ from options contracts conducted offshore. Since they were nothing more than contract terms and that the specific asset could not have a 'balance' account value at any specific day, this meant IRD could not directly tax it under FIF, nor could the overseas foreign brokers would comply to NZ regulations (or so IRD could keep tabs of NZ residents making $ from overseas accounts). Since the biggest player the USA is not part of the CRS (Common Reporting Standard where banks/brokers have to remit client information to the foreign tax authority by tax ID#), US brokers are simply ignoring NZ client or restricting their account by excluding derivative investments.

    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.

    Here's an interesting thing to separate the individual investors vs the Kiwi Saver / NZ managed funds. Regardless of the managed fund's performance, FIF applies to the fund regardless on years they gained and on years they've lost value for their clients. While to the individual if they invested directly to the same foreign stock or ETF, on years where their portfolio goes negative, they can switch FIF to 'Comparative Value' method and no tax will be paid for that year. No financial seminar i've attended have provided me a direct answer why the NZ tax system has been so inequitable across the landscape of investments ; such as investing into real estate, Kiwi Saver, directly invested abroad, etc. There's no real level playing field whatsoever!!

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    Hi guys,

    I've recently returned (in Feb 2020) to NZ after about 14 years overseas and I am a very active US Options trader. I have an overseas company that I do these trades through, however thats going to be LTC (Look through company) so as SBQ notes I dont think that'll apply to me as I'm not trading on an individual basis - at least thats my surface level thought, the company will just become a resident for tax purposes or something. I have an accountant sorted, but just wondering anyone else got a few pointers before I go listen to "the professionals" waffle in terms of trading derivatives from NZ?

    Any comments welcome!

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    You should be aware that NZ has AML (Anti-Money Laundering Laws) & CRS (Common Reporting Standard). The reason is despite you have setup funds in the US, have you ever thought how those funds would end up - if they would be sent to NZ? How would you realise those profits and at the end of the day, how would you spend it or get access to it for consumption?

    The AML basically means good record keeping for IRD. So when large amounts are wire transferred in or out of NZ, this is recorded and IRD will look to it in the case of a tax audit. CRS further enforces the tax requirement by foreign residents living in NZ. If you are a US citizen or green card holder, you would be under FACTA and the banks in NZ would be required for you to comply under FACTA - which is they report to the IRS of your bank balances etc (basically the same as CRS but for US citizens).

    The term LTC seems interesting. When I studied tax in Canada, such an arrangement would hold no defense in the case of a tax audit. The key words is "control" - ie Cdn Controlled Private Corporation ; who are the directors, where were decisions made. There are also 'attribution' tax laws in Canada which prevents a person from moving funds from 1 hand to another via by gifting to a relative or spouse, without paying tax (the person that gifts the shares would still have to declare the dividend income on their tax return despite it being already gifted) - anyways, i'm not sure if NZ tax laws are that detailed but it's certainly something to think about it or talk with a NZ tax specialist.

    If it can be proven you made trades via a company holding abroad, and the decisions made were made on NZ soil, it may be hard to dispute those profits were beyond your control and thus not taxable in NZ. In this day of age, tax depts have a wealth of resources they can go on, even looking at your ISP records and how and when you made those trades. It's scary as my wife was once audited some 15+ years ago and they knew she had a bank account in China and full record of her issued Visa card on all her purchases she made overseas while traveling. I'm certain information gathering is far more sophisticated today ; seeing how CRS and AML reinforces quite the evasive information gathering.

    One thing certain, the US is not part of the CRS regime imposed by the OECD so privacy laws for US banks still hold.

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    Quote Originally Posted by SBQ View Post
    You should be aware that NZ has AML (Anti-Money Laundering Laws) & CRS (Common Reporting Standard). The reason is despite you have setup funds in the US, have you ever thought how those funds would end up - if they would be sent to NZ? How would you realise those profits and at the end of the day, how would you spend it or get access to it for consumption?

    The AML basically means good record keeping for IRD. So when large amounts are wire transferred in or out of NZ, this is recorded and IRD will look to it in the case of a tax audit. CRS further enforces the tax requirement by foreign residents living in NZ. If you are a US citizen or green card holder, you would be under FACTA and the banks in NZ would be required for you to comply under FACTA - which is they report to the IRS of your bank balances etc (basically the same as CRS but for US citizens).

    The term LTC seems interesting. When I studied tax in Canada, such an arrangement would hold no defense in the case of a tax audit. The key words is "control" - ie Cdn Controlled Private Corporation ; who are the directors, where were decisions made. There are also 'attribution' tax laws in Canada which prevents a person from moving funds from 1 hand to another via by gifting to a relative or spouse, without paying tax (the person that gifts the shares would still have to declare the dividend income on their tax return despite it being already gifted) - anyways, i'm not sure if NZ tax laws are that detailed but it's certainly something to think about it or talk with a NZ tax specialist.

    If it can be proven you made trades via a company holding abroad, and the decisions made were made on NZ soil, it may be hard to dispute those profits were beyond your control and thus not taxable in NZ. In this day of age, tax depts have a wealth of resources they can go on, even looking at your ISP records and how and when you made those trades. It's scary as my wife was once audited some 15+ years ago and they knew she had a bank account in China and full record of her issued Visa card on all her purchases she made overseas while traveling. I'm certain information gathering is far more sophisticated today ; seeing how CRS and AML reinforces quite the evasive information gathering.

    One thing certain, the US is not part of the CRS regime imposed by the OECD so privacy laws for US banks still hold.
    AML has nothing to do with the IRD or taxation, so this is not correct.

    If the investments are held by an LTC (Look through company) then, on the assumption you are a shareholder of the LTC, then the trades will certainly effect you, as you are deemed to hold the proportionate share of the underlying assets for tax purposes. It is for the best that you are seeking professional advice

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    Quote Originally Posted by SBQ View Post
    The FMA states any foreign broker offering options contracts directly to NZ residents would be doing so illegally, without these brokers being licensed by the FMA (which none of them would bother).
    I've traded the occasional option series on an online trading platform recently so something is not quite right with your statement. They did require my NZ tax number so possibly are licensed or possibly they are classed as CFD's not options - but they are structured as true put and calls.
    For clarity, nothing I say is advice....

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    Quote Originally Posted by JeffW View Post
    AML has nothing to do with the IRD or taxation, so this is not correct.

    If the investments are held by an LTC (Look through company) then, on the assumption you are a shareholder of the LTC, then the trades will certainly effect you, as you are deemed to hold the proportionate share of the underlying assets for tax purposes. It is for the best that you are seeking professional advice
    You must be kidding me? Consider the facts; AML does NOT deter or prevent those in organised crime (gangs, drug dealing, etc.) from moving funds around? As my bank manager told me regarding AML, the sufferers are the legit public users as those in crime are unaffected by AML.

    The concept of AML is nothing new, Canada had implemented it in the 90s and some 30 years later, organised crime still flounders there. What is certain is the tax dept has key access to such data and information gathering in the case of a tax audit.

    Regardless of the company setup and arrangement I ask again, when will the profit of these funds would arrive in NZ?

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    Quote Originally Posted by peat View Post
    I've traded the occasional option series on an online trading platform recently so something is not quite right with your statement. They did require my NZ tax number so possibly are licensed or possibly they are classed as CFD's not options - but they are structured as true put and calls.
    From the horse's mouth: https://www.fma.govt.nz/contact/faqs/#Foreign

    Why can’t I use an Australian regulated, European regulated, or US regulated foreign exchange provider?
    You can, but it’s illegal for them to offer derivatives to retail investors in New Zealand without being licensed by us. If they are willing to break the law to get your business, it’s likely they will be cutting corners in other areas and you will have much less protection if things go wrong."

    Spells clear to me. Most major brokerage firms provide some services in derivative & options trades. If not, even simple foreign exchange rate services will require the foreign brokerage firm to be licensed by the FMA despite the NZ client not having any access to these services.

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    Also I should reiterate NZ does not have any depository insurance. That is $ in the banks are not insured in the case of bankruptcy. Whereas in Canada they have CDIC, and in the US they have FDIC (which insures balances up to $250,000 per account) and with brokers, they have SIPC covers up to $500,000. TDAmeritrade covers up to $1,000,000 for joint accounts.

    So where is this FMA BS they're saying that investors $ is not safe in the overseas major brokerage houses or banks? It's not like people are sending money to Nigeria from a phone scam.

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    Quote Originally Posted by peat View Post
    I've traded the occasional option series on an online trading platform recently so something is not quite right with your statement. They did require my NZ tax number so possibly are licensed or possibly they are classed as CFD's not options - but they are structured as true put and calls.
    Quote Originally Posted by SBQ View Post
    From the horse's mouth: https://www.fma.govt.nz/contact/faqs/#Foreign

    Why can’t I use an Australian regulated, European regulated, or US regulated foreign exchange provider?
    You can, but it’s illegal for them to offer derivatives to retail investors in New Zealand without being licensed by us. If they are willing to break the law to get your business, it’s likely they will be cutting corners in other areas and you will have much less protection if things go wrong."

    Spells clear to me. Most major brokerage firms provide some services in derivative & options trades. If not, even simple foreign exchange rate services will require the foreign brokerage firm to be licensed by the FMA despite the NZ client not having any access to these services.
    Quote Originally Posted by SBQ View Post
    The FMA states any foreign broker offering options contracts directly to NZ residents would be doing so illegally, without these brokers being licensed by the FMA (which none of them would bother).
    Quite a few are licensed as it turns out, including the one I use.
    https://www.fma.govt.nz/compliance/l...s%5B101%5D=101

    Your statement implied there were none.
    For clarity, nothing I say is advice....

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    Quote Originally Posted by peat View Post
    Quite a few are licensed as it turns out, including the one I use.
    https://www.fma.govt.nz/compliance/l...s%5B101%5D=101

    Your statement implied there were none.
    ?? My statement is clear that NZ residents must trade via FMA's licensing scheme - that list if it is of any indication of how many brokers are licensed is insignificant to the global market share of brokers. Not one I can see that is US based.

    What is apparent, FMA is telling investors that bogus or risky brokers overseas do exists.. yes I get that, in places like Zimbabwe. But over in the US, we see brokers that are bigger than ALL of the banks in Australia & NZ combined and offer real insurance protection to their clients.

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    I am reading the thread as well as the links provided but still confused. Perhaps someone can provide answers or confirmation to below?
    1. Trading futures does not fall under FIF but will any gains subjected to income tax (overseas income) here in NZ i.e 33% for over 70k?
    2. Investment returns from shares will be under FIF if over 50k of investment. How about if you are share trading and not holding long term positions? I assume it will not fall under FIF and just normal income tax as item 1?

    Thank you in advance for anyone who could confirm.

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    Quote Originally Posted by jorge_telosa View Post
    I am reading the thread as well as the links provided but still confused. Perhaps someone can provide answers or confirmation to below?
    1. Trading futures does not fall under FIF.....
    Generally futures are treated as a 'scheme of arrangement' for tax purposes and are taxed under 'scheme of arrangement' tax rules, not FIF.

    Quote Originally Posted by jorge_telosa View Post
    ....but will any gains subjected to income tax (overseas income) here in NZ i.e 33% for over 70k?
    Yes all schemes of arrangements are subject to income tax on both the 'interest' portion of your return and the 'capital' portion of your return.

    Quote Originally Posted by jorge_telosa View Post
    2. Investment returns from shares will be under FIF if over 50k of investment.
    Investment returns from non-exempt Australian shares will be under FIF if the total purchase price of your entire overseas portfolio was over $50k. Note it is the purchase price in NZD that determines if the FIF regime is triggered or not. The current market price is not a factor.

    Quote Originally Posted by jorge_telosa View Post
    How about if you are share trading and not holding long term positions? I assume it will not fall under FIF and just normal income tax as item 1?
    Trading in non-exempt foreign shares does come under FIF, but there are special 'quick sale' provisions if you buy and sell within a year. See page 2 of this document.

    https://home.kpmg/content/dam/kpmg/p...s-FIF-2015.pdf

    SNOOPY
    Last edited by Snoopy; 21-11-2020 at 05:55 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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    Quote Originally Posted by Snoopy View Post

    Investment returns from non-exempt Australian shares will be under FIF if the total purchase price of your entire overseas portfolio was over $50k. Note it is the purchase price in NZD that determines if the FIF regime is triggered or not. The current market price is not a factor.



    Trading in non-exempt foreign shares does come under FIF, but there are special 'quick sale' provisions if you buy and sell within a year. See page 2 of this document.

    https://home.kpmg/content/dam/kpmg/p...s-FIF-2015.pdf

    SNOOPY
    Hold on there... FIF has nothing to do with what 'purchase price' being under $50K. What triggers FIF is the TOTAL of ALL foreign accounts outside NZ. If a person had a UK broker + a US broker, the sum of these accounts if over $50K in value, will fall under FIF.

    I've explained this here with a link directly from IRD's pdf docuement;

    https://www.sharetrader.co.nz/showth...l=1#post857435

    Your KPMG pdf doc also explains FIF as a threshold limit with an example on the right column of 2nd last page. Initially the person bought USCo under the FIF limit but his account balance triggered FIF once he bought UKCo. Once your account passes over the $50K NZD total, FIF kicks in for that year.

    How about from IRD's point of view. Do you really think IRD will allow people to make multiple foreign share purchases in the amounts 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....
    Last edited by SBQ; 21-11-2020 at 10:14 PM.

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    Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k? So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares. Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct? But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.

    Seems like it is better to be under FIF rather than paying 33%, or am i wrong?

    So in my case:
    1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?
    2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.
    Last edited by jorge_telosa; 22-11-2020 at 08:08 AM.

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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. What triggers FIF is the TOTAL of ALL foreign accounts outside NZ. If a person had a UK broker + a US broker, the sum of these accounts if over $50K in value, will fall under FIF.
    Yes, you have to add all of your FIF liable accounts together. And if the total that you put into them is over $50k then the FIF regime applies. That is what I said.

    Quote Originally Posted by SBQ View Post
    I've explained this here with a link directly from IRD's pdf docuement;

    https://www.sharetrader.co.nz/showth...l=1#post857435
    Yes and I use the same quote that you referenced from the IRD pdf

    -------

    Page 15 from the horse's mouth:

    IF:

    "NZ$50,000 threshold is exceeded 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"

    THEN:

    all your offshore interests are subject to the FIF rules - the first NZ$50,000 is not exempt.

    ----------

    Up until you spend up to $NZ50k , FIF does not apply. After that FIF does apply to all of your FIF investments. There is no exemption for the first $50k investment you made that subsequently does fall under FIF. (I may not have made that clear). If your total FIF investment of over $50k shrinks in value to below $50k, then FIF still applies, because your historical triggering of the $50k purchase threshold cannot be reversed on those investments. Of course you could sell these investments at a loss, then start again with a new purchase total under $50k and the FIF regime would not apply to that new investment.

    Quote Originally Posted by SBQ View Post
    Your KPMG pdf doc also explains FIF as a threshold limit with an example on the right column of 2nd last page. Initially the person bought USCo under the FIF limit but his account balance triggered FIF once he bought UKCo. Once your account passes over the $50K NZD total, FIF kicks in for that year.
    You have misinterpreted what was written. Read the bold bit again. FIF was triggered with a purchase. It is only the sum of the purchase prices that matter, not the market balance.

    Quote Originally Posted by SBQ View Post
    How about from IRD's point of view. Do you really think IRD will allow people to make multiple foreign share purchases in the amounts 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....
    No.

    But the IRD will allow multiple foreign purchases for a total of under $NZ50,000. And provided you don't put more than $NZ50k into those investments in total or add any other subsequent investments that may fall under FIF, then you are not subject to FIF. If your $50,000 subsequently grows to $500,000 you can bring it back to NZ tax free with no need to declare any FIF interest along the way.

    SNOOPY
    Last edited by Snoopy; 22-11-2020 at 12:05 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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    Quote Originally Posted by jorge_telosa View Post
    Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k? So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares. Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct? But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.

    Seems like it is better to be under FIF rather than paying 33%, or am i wrong?

    So in my case:
    1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?
    2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.
    No it would be worse than FIF. Regardless of amount invested, every $1 of gain of profit you make from frequent trading (hyperactive day trades, monthly, weekly, etc) would be subjected to RWT rates. The distinction here is you're 'speculating' with the 'INTENT' to profit and not necessarily the intent for retirement savings. Of course this can be disputed by picking 5 accountants in NZ, and not all will agree. Some will say it's only FIF ; but my guess is siding on the 'intent' aspect. For eg. have a look at NZ's managed funds under PIE and none of them practice the habit of day trading so they can maintain FIF standing. I'm certain that would all change if the fund manager changed their scope to doing ultra short term profits vs long term retirement gains. Then their funds would be subjected to corporate tax rates.

    The 'quick sale' calculation ONLY applies under FIF. The key determination why FIF came about is to address overseas emphasis of capital gains vs in NZ, the share emphasis is on paying dividends which results in lower capital gain.

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    Quote Originally Posted by jorge_telosa View Post
    Thank you Snoopy and SBQ for the answers. As I understand from your examples, am I correct that it will only be under FIF if at one time all outstanding investments reached over 50k?
    If you mean 'reached' in the sense of adding up all the dollars you invested, and the total dollars you invested added up to less than $50k then you are correct. The FIF regime is not triggered.

    Quote Originally Posted by jorge_telosa View Post
    So if I am day trading and buying less than 50k during the day but also selling it on that day, then I will not be subjected to FIF since I dispose the shares.
    You are correct in that you won't be subject to FIF, but your reasoning is wrong. You won't be subject to FIF because you haven't invested more that $NZ50k. The fact that you have bought and sold the shares within the same day is of no consequence.

    Quote Originally Posted by jorge_telosa View Post
    Even if I invested 49k in a day and sold it for 55k, it will still not be subjected to FIF, correct?
    Correct, because the cash you outlaid for the trade was less than $NZ50k. Whatever you sold the shares for is of no consequence as regards the FIF regime..

    Quote Originally Posted by jorge_telosa View Post
    But as Snoopy mentioned, I might be subjected to quick sale adjustments but FIF will always be zero if daytrading with less than 50k purchases. I am only trading US stocks and only 1 stock a day.
    As long as your total active investments from all potential FIF sources add up to less than $NZ50k at any one time, then FIF does not apply.

    Quote Originally Posted by jorge_telosa View Post
    Seems like it is better to be under FIF rather than paying 33%, or am i wrong?
    I have extensive personal experience with FIF, but I should add I have always held through a year and therefore never invoked the quick sale provisions myself. But from my reading of that KPMG summary it appears you would benefit from being under FIF if you made -on average- more than 5% on all your trades for the year. Yet you have to remember that FIF does not apply to single trades. You cannot pick and choose what trades you do under FIF and what you don't, and it applies to all trades as 'one transactional collective' for the year. As a day trader, I think it is very unlikely you will be able to average 5% return on all trades. So by far the most likely result is that you will end up paying tax on the actual net profits you make from your trades

    Quote Originally Posted by jorge_telosa View Post
    So in my case:
    1. Future trading gains will be subjected to income tax (i.e. 33% if over 70k)?
    Yes

    Quote Originally Posted by jorge_telosa View Post
    2. Share “day trading” will not be subjected to FIF if total purchase is below 50K. But subjected to quick sale adjustment? This is better cause you are going to pay less rather than the income tax thresholds.
    If your total purchases are less than $50k there is no quick sale adjustment, because you are not in the FIF scheme.

    And don't be mislead my those apparently low FIF tax percentages. If FIF did apply then 5% of your total trade purchase value would be the dollar amount of your income from FIF. If you are in the top tax bracket. Then that income is taxed at 33%, exactly the same income tax rate that you would be taxed at as a non-FIF trader. There is no 'lower income tax rate' for FIF scheme participants.

    SNOOPY
    Last edited by Snoopy; 22-11-2020 at 12:57 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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    Well explained snoopy.

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    Thank you Snoopy. Spot on answers. Appreciated.

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