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  1. #101
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    Feb 2005
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    Auckland, , New Zealand.
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    My answer was that the FIF would not apply to trading. I also said I was no authority but that is how I would handle it.

  2. #102
    Senior Member
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    Nov 2018
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    Christchurch
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    Quote Originally Posted by Aaron View Post
    My question is not about the distinction between trading and long term investing and how profit would normally be calculated depending on where you fit.

    The question is whether a share trader in NZ, trading shares on the US stock exchanges would account for profits per the FIF rules or whether they could calculate profit as a trader in NZ shares would normally calculate profit. (i.e. sales les purchases less opening stock plus closing stock)

    I would contend that the definition of a FIF per the income tax act is
    EX 28Meaning of FIF is any of the following (a) a foreign company:

    That means the FIF rules would override normal profit calculations. FTG is confident this is not correct but cannot point to a piece of legislation or discussion paper to back this up. I would contend that this is the case but because the FIF rules can be very time consuming and if you are calculating profit in a reasonable way IRD is not likely to challenge you.
    From my recent discussions with my accountant over the past few years, the answer is yes once you trade foreign shares listed in overseas stock exchange (with some exception to FIF-exempt ASX listings). It does not matter if you trade infrequently or day trading, the rule is black and white under FIF (which states 'overseas' being foreign share ownership). This is how Kiwi Saver funds are taxed, likewise with PIE funds too (with the differentiation having a max cap RWT rate of 28% on the taxable FIF income).

    Also FIF does have a 'normal profit calculation' called the Comparative Value method (which is basically a tax on the capital gain). If it can be shown the capital gain is less than 5% (which the FDR is set at), then the CV would be used. Likewise there is no sense using the CV method in an exceptional year where the capital gain is far more than 5% of the portfolio. The FDR method maxes out at 5%, and any excess return is carried on to the next year (if the gains remain). But as I mentioned before, FIF taxes paper gains and with FDR, you are multiplying a tax on the capital year after year (as how any management fee structure does, and strongly erodes future compound returns).

    My accountant also implied that the complexities of FIF is so severe to the person that day trades, that IRD rarely ever questions these tax returns because they themselves don't know how to make a reassessment (it's very time consuming to audit 1000s of trades a year for a very busy day trader and even if there was an error, the auditor would spend hours or days just to find a needle in a haystack error).

    Fortunately none of my share holdings are held under a 'NZ resident' status brokerage account.

  3. #103
    Permanent Newbie
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    Mar 2010
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    2,496

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    Quote Originally Posted by SBQ View Post
    Fortunately none of my share holdings are held under a 'NZ resident' status brokerage account.
    Sounds like agreement with my view, thanks.

    Your last statement is interesting. If you live in NZ how do you get a "non-NZ resident" brokerage account?

  4. #104
    Senior Member
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    Nov 2018
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    Christchurch
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    Quote Originally Posted by Aaron View Post
    Sounds like agreement with my view, thanks.

    Your last statement is interesting. If you live in NZ how do you get a "non-NZ resident" brokerage account?
    My father lives in Canada, brokerage account is in JWROS status so until the day he dies, fat chance IRD will touch the account. Besides, my broker does not abide to NZ's FMA regulations and will not divulge that info like other 'weak handed' brokers do. We worked out that it's far better for the compounded growth of the portfolio to pay a CGT in Canada's rules than under FIF in NZ (hence my previous posts that Cdn resident investors get more at retirement than NZ KS investors do when investing in the same asset like a Vanguard VOO ETF. Tax matters and every financial advisor should be well versed in advising all their clients about it. Sadly this is not the case in NZ.

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