Starting out - tax nonsense

[Doggy888]

Hi everyone, I'm new to this forum and pardon me if I'm hijacking this thread.

I have a related question, are profits from forex trading taxable ? Its kind of difficult to determine what is "profits" for a forex trading account isn't it ?

[RazorX]

The simple answer is yes.

In the most basic way profits is any amount over your starting capital at the end of your financial year.

Lets say you start trading on 1 April 2008 with $1000. At 31 March 2009 your account balance is $1500. (This takes into account losses and gains while trading) Therefore your profit is $500 which will be taxed.

It gets more complicated when trying to decide what expenses can be claimed against the profit - i.e internet bill, computer expenses etc. Basically if it is directly related to obtaining income then you can claim the expense.

My advice is that if you are making any substantial profit and are not sure how to work out the tax side of things then get an accountant to do it. They are expensive (So keep good records because it makes things easier and faster for them but it's more expensive to have IRD breathing down your neck.

[Doggy888]

Thanks Razor. But how about if I'm trading on a partime/personal basis ? According to the IRD website, (http://www.ird.govt.nz/yoursituation...omp-inctax/#06) there's no capital gain tax here ?

Let's say I'm confused because I approach 2 accountants and both tell me different things

[Doggy888]

ok I read more in depth and I think I'm wrong. Profits from trading is not considered as capital gain but as income, and so its taxable.

Another question though, if I'm leaving NZ and work in another country, but I continue trading in my nz account, am I taxable since now I'm not a tax residence ?

Sorry guys, if I should not be asking these questions here please let me know !

[shasta]

ok I read more in depth and I think I'm wrong. Profits from trading is not considered as capital gain but as income, and so its taxable.

Another question though, if I'm leaving NZ and work in another country, but I continue trading in my nz account, am I taxable since now I'm not a tax residence ?

Sorry guys, if I should not be asking these questions here please let me know !

This is the area to ask questions

Then you fall into the 180 day residency rule re being a NZ taxpayer.

If you become a tax payer in another country, you would need to declare your income from NZ, as overseas income (you will have to investigate tax laws overseas as you can only be a tax paying resident in 1 country).

With the FIF rules, there are 7 countries with double tax agreements inplace, also known as the grey list.

If you fall outside that scope, you will need to read up on the FIF rules, they can be onerous/complex.

NZ doesn't have CGT, but most other countries do, bare that in mind

[Doggy888]

Thanks shasta ! You reminded me of DTA, so I lookup the IRD website more and realise even if I'm not physically here, I'm still considered to have enduring relationship, since I'll have investment account here. But I should be tax under the country where I'm working in if there's DTA.

ok, more of a forex/tax specific question. How do we consider "gain" in a forex account for tax reporting purposes ? Balance ? Liquidable Equity ? Margin Available ? How do we take the floating P/L into account ? Forex is such a dynamic instrument that its hard to pinpoint a exact figure w/o specifying a exact precise date/time.

In addition, if we are using automated system that generate several trades a day, the transaction history is going to be very very long

[CJ]

I have a related question, are profits from forex trading taxable ? Its kind of difficult to determine what is "profits" for a forex trading account isn't it ?

Forex is a financial arrangement. Therefore there is no such thing as capital gains.

Depending on your structure, you may be taxed on unrealised gains as well.

[shasta]

Thanks shasta ! You reminded me of DTA, so I lookup the IRD website more and realise even if I'm not physically here, I'm still considered to have enduring relationship, since I'll have investment account here. But I should be tax under the country where I'm working in if there's DTA.

ok, more of a forex/tax specific question. How do we consider "gain" in a forex account for tax reporting purposes ? Balance ? Liquidable Equity ? Margin Available ? How do we take the floating P/L into account ? Forex is such a dynamic instrument that its hard to pinpoint a exact figure w/o specifying a exact precise date/time.

In addition, if we are using automated system that generate several trades a day, the transaction history is going to be very very long

Might be best to direct some of those FX trader questions to the Forex thread, Peat, Arco & Dumbass will be able to help you

I know nothing of FX, but i can help you with tax questions.

Further to CJ's post, as an individual you get to account for profits/losses on a cash basis (ie, only realised profits/losses), should you wish to trade as a Trust/Company/Limited Liability P'ship - then the accrual rules apply.

[Doggy888]

If I were to setup a Trading Trust to perform my trading activities, and subsequently distribute the profits to my children who are the beneficiaries of the trust. Will that be considered as tax avoidance and get the IRD to knock on my door ?

[CJ]

If I were to setup a Trading Trust to perform my trading activities, and subsequently distribute the profits to my children who are the beneficiaries of the trust. Will that be considered as tax avoidance and get the IRD to knock on my door ?

Sounds like a legitimate use of a trust - just make sure it is set up properly and the yearly admin is done. Remember that if the beneficiaries are under 18, it is taxed at 33% (?), not their marginal rate.