New Overseas Taxation Legislation

[777]

Now that the implementation date of 1st April is approaching does anyone understand it exactly?

Have any of you taken professional advice about it?

If my understanding is correct then I am better off with the new system than the old as all my holding in Platinum Trusts distribute more than the 5% figure to be used. This would hold for most Australian Unit Trusts over time as Australian laws require them to pay out all realized profits. These are held in a family trust.

On a personal basis my overseas investments do not exceed $50,000 on cost or current value. However these are hedged funds and as I understand it the total profit will be taxable when they are wound up ( 2012 thru 2015 ). Having played around with a spreadsheet I have come up with the result that I would be better off adopting the new system than sticking with the old one. The question here is , do I have that option.

And what happens when , in years to come, these investments have a value over the $50,000 minimum. Are you then required to change or does the value at 1/4/07 still prevail?

A lot of questions but it is getting close and some decisions and adjustments need to be made.

Any discussion would be appreciated.

[Steve]

Do a search for the existing 'discussion' thread...

[Deev8]

quote:Originally posted by Steve

Do a search for the existing 'discussion' thread...

It's here:
New Overseas Tax Rules - Worked sample problem

Take care because the early posts refer to the earlier proposed tax - better to start at the end of the discussion thread.

[Jessie]

Will Australian unit trusts such as Platinum International Fund be subject to the new deemed dividend rate system? If so, investors in these funds may be better off as they generally pay much more than 5% in distributions each year.

[patsy]

quote:Originally posted by Jessie

Will Australian unit trusts such as Platinum International Fund be subject to the new deemed dividend rate system?

No because it's Australian based.

[Snoopy]

quote:Originally posted by patsy

quote:Originally posted by Jessie

Will Australian unit trusts such as Platinum International Fund be subject to the new deemed dividend rate system?

No because it's Australian based.

With respect Patsy, I don't think it is that simple, and I think you are wrong.

The new regime applies to collective investment vehicles that invest overseas (that means outside Australia and New Zealand in this context) wherever they are based. An Australian based investment vehicle that only invested in Australia and New Zealand would not be subject to the new regime. Platinum International invests in many more countries than Oz and Nz, so falls under the new regime.

Even worse than that, it is also subject to Australian capital gains tax for which no compensatable credit is available in New Zealand. So Platinum International from a New Zealand perspective is now double taxed. It is a terrible situation for Platinum International holders based in NZ.

SNOOPY

[Snoopy]

quote:Originally posted by aspex

Capital gains tax on NZ residents from the Oz IRD?
I think not.
or are you suggesting that they pay CGT within the fund before valuation? That may be so.

The latter. Oz funds have to pay capital gains on all their trades.
NZ investors do not *see* a capital gains tax, only a lower unit price.

IOW the capital gains are removed upsteam of the individual investors. Individual investors may not see the CGT, but they still pay it.

SNOOPY

[Steve]

quote:Originally posted by Snoopy

IOW the capital gains are removed upsteam of the individual investors. Individual investors may not see the CGT, but they still pay it.

IOW[?]

[Jessie]

I am quite confused by this new tax. I have direct overseas shares which originally cost about $45,000 and some Platinum International units which originally cost $30,000. I assumed I would fall comfortably under the $50,000 threshold but perhaps not. In that case maybe I should sell my Platinum units before the end of next month.

I also don't want the hassle of having to list all my overseas investments and their cost for the benefit of IRD - I am not precisely sure how much some of them cost as I have bought and sold shares in the same company several times in some cases 15 years ago.

Is there a clear description of this tax somewhere? I can't find anything on the IRD web site. It seems astonishing that it is being introduced so soon without clear guidlines covering a situation like mine which can't be that unusual.

Perhaps I should sell Platinum anyway if it is taxed for capital gain already. I think I now have to declare new units issued during the year as income? I think their tax status changed last year for some reason? Although Platinum has performed well over the years, I think I can find good investments with good diversification which are better treated taxwise - eg, direct investment in Australian shares.

[Snoopy]

quote:Originally posted by Jessie

I am quite confused by this new tax. I have direct overseas shares which originally cost about $45,000 and some Platinum International units which originally cost $30,000. I assumed I would fall comfortably under the $50,000 threshold but perhaps not. In that case maybe I should sell my Platinum units before the end of next month.

I also don't want the hassle of having to list all my overseas investments and their cost for the benefit of IRD - I am not precisely sure how much some of them cost as I have bought and sold shares in the same company several times in some cases 15 years ago.

Perhaps I should sell Platinum anyway if it is taxed for capital gain already. I think I now have to declare new units issued during the year as income? I think their tax status changed last year for some reason? Although Platinum has performed well over the years, I think I can find good investments with good diversification which are better treated taxwise - eg, direct investment in Australian shares.

Jessie, on the information you have disclosed you come under the new tax regime, no doubt about it.

Platinum has been taxed on any realised capital gains for as long as I can remember. There is nothing new in that. Personally I have a lot of respect for Platinum. Great managers who maybe have the potential to produce OK returns for you despite being double taxed from 1st April 2007! So perhaps you should think about selling enough of your other overseas investments, retaining only $20,000 worth of 'others', to get Platinum under the threshold?

If you are serious about 'selling down', and this is an exercise I have been gradually working through myself, the most tax effective way to do it is to sell down those investments that have grown the least. The $50,000 exemption is based on original cost. So by keeping the investments that have grown the most, that means you will do less to upset the 'OzNz' to 'All Other Country' balance of your portfolio.

You should also pull out of any dividend reinvestment schemes that means your holdings will incrementally increase at today's cost that in turn will tip over the threshhold with time. Take the 'cash dividend' option and you should be OK. If you are getting new Platinum units in lieu of dividends then AFAIK there has been no change in legal tax treatment for New Zealand investors paying income tax in New Zealand. Where did you hear about such a thing?

If you have bought and sold shares in a single company, reducing your holding to nil in the interim, then obviously the purchase price of your shares is the most recent one. If you have only bought and sold only part of your holding then I haven't seen anything that says you can't use LIFO (Last in first out) to value the shares you still have.

SNOOPY

PS I too will be putting more into Australia to get some of my international diversification back. But even there I will have to be careful. Some companies that look Australian, like James Hardie and Westfield, do come under the new regime!