New Overseas Tax Rules - Worked sample problem

[Snoopy]

quote:Originally posted by aspex

Snoopy,
When was the last time you paid 1.5% commision each way on overseas transactions. These days about $30 on just about any transaction would be the limit.

Excluding some more recent buying in Australia the last time I bought overseas cost me about 3% 'one way', because both the overseas broker and the local broker (both full service) clipped the ticket! Admittedly this was seven years ago and things may have now changed

But unless your each way commission payable is 0.825% or less, 'Mr_Market's strategy still won't work. Do you know any brokers operating outside of Australasia with fees that low?

quote:
You do risk the difference between the dates of the two transactions (which could be to your advantage).

-OR- it could equally well be to your disadvantage. I don't think yo can claim your three day crystal ball is any more accurate than a coin flip.

SNOOPY

[Halebop]

quote:Originally posted by Snoopy

...But unless your each way commission payable is 0.825% or less, 'Mr_Market's strategy still won't work. Do you know any brokers operating outside of Australasia with fees that low?

Here's a site that compares online broker pricing in the major English speaking markets a Kiwi might more probably expect to invest in:

http://www.stockbrokerguide.com/

US based brokers effectively charge much lower fees than the 0.3% or so you might expect at say ASB. At the US$10 per trade many US brokers charge you'd need to be buying or selling just US$1,200 worth of shares to be paying 0.825%. US based brokers have a minimum limit on the size of account you can set up anyway (I think it's a statutory requirement to identify you as a "sophisticated" investor). So the chance of paying anything like 0.825% is nil unless you diversify yourself to investment mediocracy. ...I notice some stated values are out of date compared to what I pay in NZ, Australia and USA but they are in the ball park.

[Mr_Market]

quote:Originally posted by Snoopy

quote:Originally posted by Mr_Market


Two trades in a year does not make you a 'trader'.

Two trades a year based on a 1.5% commission will result in the loss of 3% of your capital every year.

Cullen's 'Wildcat' tax at a 33% tax rate on 5% of your opening balance will result in the loss of 1.65% of your capital every year.

Thus the tax saving strategy proposed by Mr Market, if it is allowed, will save you the tax. But you will lose *far more money* than your potential tax obligations simply by being forced to pay double brokerage fees every year.

I guess some people would see Mr Market's idea of 'dodging the tax' as a good strategy, even though it would cost one far more than any potential 'Wildcat' tax obligation if carried out!

Snoopy, All my stocks are US based. I pay about $10 per trade no matter what the size of the trade. My brokerage cost would amount to about 0.04% of the value of my entire portfolio if I were to sell down then re-buy.

Looks a bit more attractive now doesn't it. []

[Halebop]

... I meant to say "0.1% or so you might expect at ASB" but in any case well below a figure like 0.825%.

Transaction costs really don't factor into any comparison. US based brokers have the attraction of being able to execute on ADRs too so the US market reach includes major companies from around the globe.

Mr Market's point I think highlights the dumbness of the (re-re-amended) proposal. His strategy is obvious so I'm sure IRD would position themselves to mitigate it but the effort involved would surely be wasteful and under-productive. The original logic of the tax has been lost (Fund Managers are once again disadvantaged) while nimble private investors can structure investments or divert them via Australia to minimize tax liabilities. A huge waste of effort that will proportionately tax red voters more than blue.

I can only imagine the tax proposal is politically motivated rather than fiscally but can't quite see the mileage from it... worse for Labour (and particularly Dunne) I can see a canny opposition tarring housing and domestic investments with the same red-coloured-tax-net brush to score points at election time.

[Mr_Market]

Agree absolutely Halebop. I'm just trying to point out some of the absurd consequences of this ill-conceived bill.

I actually attended one of the select committe hearings. As I sat there listening to the oral submitters presenting their arguments for and against the varied and complex aspects of the proposal, I observed glazed looks upon the the faces of the majority of the committee members. How many of them really understand this I thought to myself. Must these decisions really be left in the hands of amateurs?

[mjdtrader]

quote:Originally posted by aspex

The proposed bill includes transactions where a buy and sell is made in the one year. They are trying to circumvent the "low" initial balance below the threshold.

Hi Aspex

Could you expand on your statement on how trades during the year apply. Apart from capital gains i dont see how that 5% of portfolio 'start'-'end' of year would apply in that case.

[Mr_Market]

I'm considering updating the Wikipedia entry for 'Wealth Tax' (http://en.wikipedia.org/wiki/Wealth_tax) with a New Zealand entry, given that this is what this new legislation amounts to.

Does this sound like the NZ govt (or should I say Labour govt)?
:
'Most of the governments levying this net worth tax are big spenders with a relatively high government spending to GDP rate. And in no place where this kind of tax is in place does it contribute to more than 0.3% of the total tax intake ([1]). It is therefore seen by some people as a statement of philosophy more than a considerable revenue base for the government.'

[mjdtrader]

quote:Originally posted by aspex

quote:
Hi Aspex

Could you expand on your statement on how trades during the year apply. Apart from capital gains i dont see how that 5% of portfolio 'start'-'end' of year would apply in that case.

Yes. I got a letter summarising the deliberations of the committee.
See: http://www.taxpolicy.ird.govt.nz/pub...s/bill48-2.pdf page 6 referring to "quick sales"

Thanks again, i have read through this IRD summary but i do not understand how this quick sale is supposed to work. For example if you start the year with $100000 NZ in overseas shares, but during the same fiscal year ( April 1st and sell before March 31st)you buy and sell shares and make a small capital gain on them.
Reading the bill it seems you will be required to pay %5 tax on these "quick sales" seperatly
Do we then pay this quick sale tax seperatly (ie have to show this capital gain seperatly and pay a seperate tax bill for these quick sells ?)
Then pay a pooled portfolio tax of %5 on any gain on the main pool.
(remembering the fact that your quick sales may haved increased the value main pool)at fiscal year end.
So i assume if i read this correctly - we are taxed twice on %5

I just dont understand these preposals, the bill i read is very vague in detail or examples.

I have many questions that i cannot find answers to

[Grail]

with the "quick sale" rule does that mean that whether you are considered a trader or not you only get taxed at 5% (of your portfolio) instead of your income tax rate (on your total profit)?

[Tim]

If I have a number of UK investment trusts, can the $50000 rule for overseas shares apply to these

Also with the changes should one overweight ones portfolio to ausssie and NZ.
comments appreciated