What makes a Trader v Investor

[JBmurc]

If you enter every trade with an underlying assumption that there could be an eventual dividend gain sometime in the future, and each of your exits was due to a change in that hypothesis how can IRD classify you as a trader? Doesn't make any sense

You think thats bad few years ago the IRD brought in Tax on Gold and Silver Bullion ... myself and mate purchase a few bars esp. my mate with 60,000oz of silver as a long term 10yr min hold plan ..but years later we are told now if you sell for more than you paid you will have to pay TAX ??

But we don't have Cap gains tax in NZ ?? we are not trading the metal .. how can one be taxed on it ? and if so if we sell for less than paid will the Govt give us tax credits ???

If we went and purchase ETPMAG which is a Silver Bullion ETF we wouldn't get taxed ... so does that mean if we exchanged are silver bullion for certificates (Paper silver then thats no longer bullion ??)

[JBmurc]

Except if the IRD makes the assessment that you are a trader based on their criteria, YOU HAVE TO PROVE THEM WRONG.
Ahhh what do I know, I am now retired, haha.

Yes thats what got me to become a tax paying trader .. accountant stating I'm in a grey area with share investment/trading I might just have to prove to the IRD I'm not in time...

[Waltzing]

"But in your tax return where you have to declare non taxed gains, if these amounts are large and consistent, I would be careful."

all our limited companies that trade pay tax and our software transactions solution provide a much higher level of journal data source auditing than the simple traditional file systems used by most accountants. I should know as i know the authors of those systems going right back to solution 6.

[Mr Slothbear]

......... But in your tax return where you have to declare non taxed gains, if these amounts are large and consistent, I would be careful.

have done my own return for many years but never seen this section to declare untaxed gains?

[bottomfeeder]

have done my own return for many years but never seen this section to declare untaxed gains?

Only if youre filing an IR10 attachment. ie summary of financial statements.

[see weed]

woops wrong thread.

[KJMLimited]

IRD use the word 'intent' which is a lovely grey definition. What was your intention at the time of purchase? Make a note at the time, as that is what they will ask you to start with. They also look at the number of trades and the number is again in the grey area but around 5 or more per annum. That is 10 transactions counting the buys and sells.
It is best to separate the investing and trading, as one wouldn't want a genuine long term investment that produces a decent capital gain to be captured as a trade and therefore subject to tax. Also remember, once a trader, always a trader in the eyes of IRD. I keep trades and investments separate by trading through a company, and the company pays tax on any net profits - ie brokerage and other costs such as accountants fees are claimable. Then I pay myself a tax paid dividend every now and again and get a refund on the difference between my personal tax rate and the company tax rate.

[Mr Slothbear]

Wondering if someone can helpwigh a question I have.

a company I have shares in is doing a retail non renounceable rights offer. I have a relatively substantial holding approx 15-20% of my listed equities, the offer price per share is $4.30 per share, the current share price is approx $5 per share so there is an arbitrage opportunity of a bit over 10% prodit.

would taking part in the rights offer and selling the same number of shares on market be seen as trader behaviour in the eyes of IRD?

appreciate all your info and wisdom

[Baa_Baa]

would taking part in the rights offer and selling the same number of shares on market be seen as trader behaviour in the eyes of IRD?

On face value I'd say yes, that would be a trade and liable for capital gains tax.

The underlying tax principle is 'intent'. If you intend to buy, and sell, for a capital gain, that is a taxable trade.

If you intend to buy, and not sell, that is a non-taxable investment, except on dividends.

For the later though, if at some time in the future you sell because of some circumstance, for example you are concerned about the company and wish to shift your investment elsewhere, that is a grey area, but unlikely to be interpreted as the former intent, to buy and sell purely for a capital gain.

I suggest keeping a trading diary "I bought this share on this day for X$ with the intent to hold it forever". Then if circumstances change in the future, make another diary note "circumstances changed and I sold for this reason and intend to reinvest it elsewhere".

If you genuinely have the intent to take up the rights, solely to sell them for an arbitrage capital gain, then I would say that is certainly a taxable trade.

The thing is though, whether you'd ever come up on the IRD's radar.

Seems to be plenty of people who obviously trade and don't care much about taxable capital gains, and get away with it. But IRD has a long memory and has the most powerful investigative powers in government, so if for some reason they do decide to have a look in to ones financial affairs in the future, for whatever reason, history can can catch up with them.

Best just to be honest imo, buy the rights, sell them at a profit and voluntarily pay the appropriate capital gains tax at your going rate, and be done with it. So your 10% turns into 6.6% gain, after tax, for example.

[777]

Baa_Baa you are suggesting then that you can pick and choose what you call a taxable trade and a non taxable trade at your will. My understanding is that you are either a trader or not.