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Thread: Tax advice

  1. #16
    Kanga ru Xerof's Avatar
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    They did ask if I traded over 50k worth of shares or if I owned more than 50k worth of shares so I guess that point there must be different rules.
    skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

    best to ask an accountant, not IRD

  2. #17
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    Quote Originally Posted by KW View Post
    Its probably the paper that I published the link to above :-)

    There is nothing wrong with the law being a bit grey - as this means that you can play it to your advantage. At present, so long as you know what to say and do, you can easily prove that you don't have to pay tax. After all, its very difficult for the taxman to try and prove that what you were thinking at the time is different from what you say you were thinking :-)

    I'd rather confusion than the Australian approach which is to tax everyone and everything - no discretion at all.
    Agreed,looking at Aussie tax law other than the blanket CGT it appears quite a rigorous test is applied before they will accept you as a legitimate trader and able to claim losses

  3. #18
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    Quote Originally Posted by Xerof View Post
    skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

    best to ask an accountant, not IRD
    I had and he had no idea, advised me to ask the IRD >_<
    "Gold is money, everything else is credit"- J.P. Morgan

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    Quote Originally Posted by Xerof View Post
    skeet, they were digging to see if you might be liable to tax under the FIF regime, I suspect

    best to ask an accountant, not IRD
    Correct,In my discussions with them the amount you have in shares is irrelevant in determining whether you are a trader or not be it 10k or 1 million,its all about intent at time of purchase

  5. #20
    Member skeet's Avatar
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    But isnt it the intent and purpose of buying stocks to make a profit? I know dividends are declared and that makes sense, but no one buys shares to lose money.
    "Gold is money, everything else is credit"- J.P. Morgan

  6. #21
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    Quote Originally Posted by KW View Post
    It all hinges on the "Purpose" of acquisition which is a subjective question not one of fact. Hence you cannot be "technically wrong".
    There was a great property case recently where a family built and moved houses about 9 times in 6 years. Every house they built they 'intended to live in for life' but each one they had a fantastic reason to leave (school to far away, to far from parents, to close to parents, creapy neighbors, allergic to carpet, being about to only turn left to get to school (no joke), etc). Judge called bullsh!t and overruled their stated intent and rule their real intent was to profit from selling.

    Even funnier was the fact they lost money on most of the transactions, with only the last two (double garages seemed to be the key) pushing them into a tax paying position.

  7. #22
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    Interesting discussion.... my only advise is keep a written record of the reason for buying and sell for each share purchase undertaken.
    For investing perhaps hold the share in your individual name and if trading perhaps use another entity. (ie Company) If you wish to trade and invest in your own name at the same time then have separate bank accounts for each and a different broker (ie use ASB for trading and Direct Broking for investing). The most important issue is to be able to support the activities that you are undertaking: trading or investing or both...

  8. #23
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    (ie use ASB for trading and Direct Broking for investing). ...
    Other way around. DB is slightly cheaper which will be a small help with your trading profits

  9. #24
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    This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
    Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
    Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.

  10. #25
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    Quote Originally Posted by Aaron View Post
    This is an argument that will continue until we have a comprehensive capital gains tax (no exclusions even for your own home).
    Prior to 1987 everyone was investing long term in the sharemarket, post Oct 1987 a lot of investors actually realised they were traders and their losses were deductible. There were some tax cases but I don't remember their names. Prior to the GFC people were buying coastal sections to build a holiday home (or two) post GFC they were speculating on land. Bond investors became bond traders after the finance company debacle although the rules were pretty specific I do recall hearing about an old dog on this site slipping some debenture losses through his income tax return.
    Time to stop the bull**** and putting normally honest NZ citizens in a situation were they feel compelled to lie for personal gain. After the next big slump in asset values the govt of the day should bring in a capital gains tax.
    Agreed Aaron this is the only clear solution in principle(True family home excluded) where everyone knows where they stand as long as the CGT is set at a lower rate than the top tax rate like15% for example otherwise non compliance will still be an issue,in some countries if you hold the investment for longer than a year you pay a reduced rate of tax on profits as opposed to short term holders,an idea I like

  11. #26
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    On a similar note and maybe a nob question, just can't think at the moment , how do you normally treat the following scenario (Treated as a trader (individual) and filing tax returns declaring profits and losses)

    You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

    You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

    What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
    b) Treat each transaction separately
    c) as above usng FIFO basis
    d) doesn't make any difference
    e) something else - who cares all works out the same in the end??
    I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.

  12. #27
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    Technically you should be able to pick which parcel you are selling. However, I would pick a method and stick to it. I would probably use LIFO as it should give you a better result unless you are averaging down.

  13. #28
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    Quote Originally Posted by Jay View Post
    You buy shares in XYZ in several tranches - e.g 1000 @ $5.00, another $500 @ 4.00 and another 500 @ 4.50

    You then decide to sell say 750 and get $4.45 for them. The rest you do not sell until the following financial year

    What do you declare as your cost of the shares/ on your tax return; do you: a) Base on the average price overall
    b) Treat each transaction separately
    c) as above usng FIFO basis
    d) doesn't make any difference
    e) something else - who cares all works out the same in the end??
    I have never done this so far in my Trading history - Only ever sold all at once and therefore used the total cost as a basis.
    I will have a go at this one but don't take my word for it.

    I thought you had to use FIFO or a Weighted Average Cost to value shares considered trading stock.

    Sales 3,337.50 (750*$4.45)
    Less Purchases 9,250.00 ((1000*5.00)+(500*4.00)+(500*4.50))
    Plus Closing Stock FIFO 5,500.00(1,250*5)+(500*4)+(500*4.50)
    Loss 412.50

    Or Weighted Average 5,775.00 (4.62*1,250)
    Loss 137.50

    Correct me if I am wrong on anything but the result is significantly different.
    I understand that you need to be consistent once a valuation option is selected as changes in valuation methods need to be justified by sound commercial reasons. Advancing or deferring income tax liability is apparently not a sound commercial reason.
    Last edited by Aaron; 17-03-2014 at 05:30 PM.

  14. #29
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    Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

    But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.

  15. #30
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    Quote Originally Posted by Jay View Post
    Sorry I forgot to mention that I complete the tax return on a cash basis, therefore only have to worry about what I have sold, not what is remaining.

    But would have to agree with both you Aaron and HS be consistent, just not sure what that is yet.
    Unless you are a barrister or doctor, Jay I think you have to account for business income on an accrual basis which would include valuing closing stock. The cash basis is applicable to salary and wage earners and dividends can be returned when received rather than the ex date but trading would be a business activity which requires accrual accounting.
    Don't take my word for it though, it might pay to get some professional advice if the amounts you are trading are significant.

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