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  1. #11
    Senior Member
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    Quote Originally Posted by jhf View Post
    Thank SNOOPY and other guys providing the advice.

    SNOOPY, is your diary a physical traditional paper based diary?

    I made an excel table with all of my transactions and then added the reasons for each transaction under the column of "Reasons for investment". The reasons might be like:
    1. AIR has a good dividend history. Current Dividend Yield:12.2% (as calculated at directbroking.co.nz, 11 cents / 90 cents)
    2. I'm a ANZ customer. Add ANZ to diversify bank shares. Good dividend history. Current divident yield: 5.2%.
    3. buy MET on 2 June: came across news about MET's lost its case with APVG regarding the acquisition. Retirement village and eldly care business are definitely good long term investment as the population is aging.
    4. sell MET on 10 June: "Shareholder Meeting called to Vote on Litigation" announced 8 Jun. Seems the management is more interested in selling the company at premium instead of focusing on improving operations. The potential legal action might incur lots of fees and time. In contrast Ryman is bigger than MET and has no such issue.
    5. Buy RYM on the same day when selling MET: better long term investment in retirement village and care industry (than MET). Bigger company, bigger development pipelines, no complex, costly and long legal dispute issue. Refer to "KordaMentha Independent Advisers Report" (http://nzx-prod-s7fsd7f98s.s3-websit...271/323998.pdf).

    Then I sent the excel table to my own email box (in this way, a time stamp can be there for future verification). Do you think this is already a good approach? Cheers.
    You're making reason's up. Having experience with tax auditors, the 'intention' means very little when the 'facts speak for themselves'. That is you bought at this date, and sold it within a week or 2 later. If your portfolio has a 'history' of frequent trading, then the whole account would deemed as a trading account and not as a savings for retirement account. What I mean is, to say 1 or 2 particular transactions that show a clear profit was not the intent for profiting... does not speak for the rest of the account if similar behaviour is shown in other trades with different shares.

    This kind of behaviour is why the NZ gov't brought in the 'bright line' test for residential property flipping (raised from 2 years to now 5 years). It would be very hard to explain to the tax auditor if you've been in and out on a particular stock within a much shorter period like 1 or 2 months. Again, it's all about the 'frequency' of selling for a profit. If you had a portfolio and kept buying every month or so and did this for like 5 or 10 years, then this is a clear example of not trying to profit.

    IMO, if you want to establish an account to be tax free from capital gains, you must demonstrate it by not frequently buying and selling; surely not within 2 or 3 weeks or months because the market was favourable at the time to profit.

    I'm quite certain if you asked your accountant or IRD, they would say the same thing.

  2. #12
    On the doghouse
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    Jun 2004
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    Quote Originally Posted by SBQ View Post
    You're making reason's up. Having experience with tax auditors, the 'intention' means very little when the 'facts speak for themselves'. That is you bought at this date, and sold it within a week or 2 later. If your portfolio has a 'history' of frequent trading, then the whole account would deemed as a trading account and not as a savings for retirement account. What I mean is, to say 1 or 2 particular transactions that show a clear profit was not the intent for profiting... does not speak for the rest of the account if similar behaviour is shown in other trades with different shares.

    This kind of behaviour is why the NZ gov't brought in the 'bright line' test for residential property flipping (raised from 2 years to now 5 years). It would be very hard to explain to the tax auditor if you've been in and out on a particular stock within a much shorter period like 1 or 2 months. Again, it's all about the 'frequency' of selling for a profit. If you had a portfolio and kept buying every month or so and did this for like 5 or 10 years, then this is a clear example of not trying to profit.

    IMO, if you want to establish an account to be tax free from capital gains, you must demonstrate it by not frequently buying and selling; surely not within 2 or 3 weeks or months because the market was favourable at the time to profit.

    I'm quite certain if you asked your accountant or IRD, they would say the same thing.
    There is no 'bright line' test for shares though. And the reason for that is that sometimes it is legitimate to rebalance a portfolio more frequently than every two years. Just because you buy and sell something within a couple of months does not mean you are a trader. If you have a pattern of buying and selling frequently then that is another matter.

    SNOOPY
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  3. #13
    Senior Member
    Join Date
    Nov 2018
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    Christchurch
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    Quote Originally Posted by Snoopy View Post
    There is no 'bright line' test for shares though. And the reason for that is that sometimes it is legitimate to rebalance a portfolio more frequently than every two years. Just because you buy and sell something within a couple of months does not mean you are a trader. If you have a pattern of buying and selling frequently then that is another matter.

    SNOOPY
    I wish it were true. If so, we need an explanation for all the NZ managed funds that do frequent rebalancing of their portfolios and WHY those funds and or their clients (whom the majority being under the Kiwi Saver scheme) are subjected to paying taxes under the PIR?

    Clearly, if the NZ individual were to just buy a NZ listed share, sit on it for 10 years without selling, then there's the clear advantage of paying no tax than to be under a KS scheme. However this is not the case with the OP person asking.

    I would believe it's very hard to convince IRD that doing frequent portfolio re-balancing (and if it could be done in an effective indiscriminate way?) would prove no profiting has taken place. Even with a bright line test with residential properties, if I had a 30 year habit of buying houses every 5 or 10 years, and then selling them every 5 years (under FIFO), IRD would still go at the capital gains as, this would demonstrate a pattern for profiting. Look at it from the other end of the scenario ; how likely are people wanting to sell their assets at a loss vs 'oh prices have gone up so fast in a short time and I want to sell' ? The process in place to buy and sell a house is very complex and a lot of disclosure & paper work is required. One simply can't say I sold my 3rd rental home in Auckland, and then use the proceeds to buy 2 or 3 houses in Palmerston North (because of some farming boom occurred there and houses were set to rise faster... and hence, the argument being 'I was only re-balancing my real estate portfolio around).

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