What to do with foreign dividends

[ENP]

I own some New Zealand, Australian and recently bought some American shares.

I have both a NZD and AUD account where I put my dividends into when I receive them. This isn’t a big issue as I normally buy shares in lots of $3-4k to get brokerage below 1%

However, with my USD dividends that I will start receiving soon, the brokerage is slightly higher so I’m buying in lots of $15k or so to keep brokerage down below that 1% level.

Here comes my dilemma…

Do I put these dividends ($400-500 per year) into a separate foreign currency account and leave it there earning 0% interest. Or do I move it into a local currency account where I can earn 3-4% interest on it. I know I’ll lose out on the foreign exchange spread if I move it back and forth too often. However, since it takes me 18 months or so to save up to buy one lot of US shares and then I may wait a bit until something I like becomes good value to buy, it may be sitting in mu USD account earning 0% interest for 2+ years doing essentially nothing.

For those who invest in US, UK or other overseas markets directly, what do you do with your foreign dividends?

Thanks

Elliot.

[Sauce]

Hi ENP

If you are confident you will continue to purchase shares overseas in that currency then I would leave it in the foreign currency account. The spread will make sending it back and forth not worth it - once you take off tax on the interest and the spread paid on the transfers it would have to be a very long time to make it worth it. And then you are exposed to the exchange uncertainty of the exhange rate fluctuations as well.

If you do transfer funds use Orbit Remit - they are an excellent low cost provider. For large amounts you can negotiate even better rates, but they are always way cheaper than the banks. I have used them for AUD to NZD and AUD to USD and couldn't be happier with the service and the rate.

Also, be very conscious of your tax obligations. Dividends from overseas shares is taxable income. And any shares you buy in the US, and many in AUS, will be subject to the foreign investment tax in addition to that. The foreign investment tax is a ruthless capital gains tax (much worse than the capital gains tax paid by US residents for instance).

I hope this helps

Regards,

Sauce

[CJ]

Also, be very conscious of your tax obligations. Dividends from overseas shares is taxable income. And any shares you buy in the US, and many in AUS, will be subject to the foreign investment tax in addition to that. The foreign investment tax is a ruthless capital gains tax (much worse than the capital gains tax paid by US residents for instance).

Subject to the $50k deminimus which I assume he is still within.

Overseas shares can be a tax mine feild. Something else for you to research.

[Sauce]

Yes, your right of course. Cheers CJ.

It is a very dirty tax in my opinion. Over many years you could end up paying more in tax than your total capital invested if it fluctuated in the right manner !

Sauce

[ENP]

Yes, your right of course. Cheers CJ.

It is a very dirty tax in my opinion. Over many years you could end up paying more in tax than your total capital invested if it fluctuated in the right manner !

Sauce

Where do I find out more info?

IRD ?

[Snoopy]

For those who invest in US, UK or other overseas markets directly, what do you do with your foreign dividends?

I own only one US listed share, YUM Brands. I ordered my broker to transfer them into my own name so I save the local broker annual management fees . Then I found out YUM have a dividend reinvestment scheme. So I just compound the dividends.

There may be a problem with doing this if I have to sell my shares quickly. However, since I can't envisage such a situation occurring I haven't needed to find a way to get my money back yet.

SNOOPY

[Sauce]

Yep

If you google Foreign Investment Fund tax there should be plenty that comes up - always best to go straight to the source, so IRD website certainly the best place. There is a 50k threshold under which it is not applicable as CJ wisely pointed out.

Your overseas dividends will be taxed at your personal tax rate (assuming you own the shares personally).

Cheers

Sauce

[Sauce]

P.s. I called it a capital gains tax. Technically its the "fair dividend model" (as termed by the IRD) and not a true CGT. It is in fact worse than the CGT that the US have for instance. But many people don't understand the maths and are fooled by the seemingly small annual percentage.

And I should clarify that normal dividends will be taxed regardless of the size of your portfolio. Which sucks because you are getting taxed twice; at the company level in the country of origin and then again in NZ.

Cheers

[Lizard]

P.s. I called it a capital gains tax. Technically its the "fair dividend model" (as termed by the IRD) and not a true CGT. It is in fact much worse than the CGT that the US have for instance. But most people don't understand the maths and are fooled by the seeming small annual percentage.

Cheers

For an individual, who doesn't pay tax in years when shares lose money, FDR has probably cost less in tax than they would have paid otherwise. There have been plenty of FIF regime shares around paying divs greater than 5%, even without franking.

[Sauce]

Hi Liz

The problem is the cumulative, compound effect, over long periods of time.

The tax is a real disincentive to investing overseas.

Cheers

Sauce