The beginners struggle

[Snoopy]

In NZ, to the wage/salary earner there is no requirement to file a tax return; no tax return means no assessment to get some sort of tax credit back despite there may be a credit if the person overpaid in withholding by being in the wrong tax bracket; unfortunately to IRD's benefit.

Well that isn't quite how it works. A wage/salary earner in NZ will still have to file an IR3 if they have other income as well, like NZ shares that are not in a PIE, overseas shares, earnings from trusts etc. etc. But generally the tax system has been redesigned over the years so that pure wage and salary earners do not have to put in a tax return.

Your wording is perhaps better when you say there is no requirement to put in a tax return. But just because there is no requirement to do it, that doesn't mean you should not do it: For exactly the reasons you point out above SBQ.

Dividends are taxable in Canada but at a much lower rate than general income. However the lowest tax impact is capital gain. But in accounts like TFSA, the broker files in an exemption where the dividend is fully paid with no with-holding. On my father's TFSA account, he received dividends on his BP shares (which is a UK company) in full amount. Interestingly this applied on the international level and not dividends received from Cdn listed companies. How? Because companies that issues dividends do not withhold tax on it. It's entirely up to the INDIVIDUAL to file their tax return and declare their dividend income.

I think it is not unusual for capital gains to be taxed at a lower rate than income. When capital gains tax was introduced in Australia it was to be taxed at half the rate that income was taxed at. Why? Because not all of the capital gain was capital gain above the rate of inflation. Taxing capital gain at half the income tax rate was the ATOs way of adjusting the tax take to reflect the capital eroding power of inflation.

AFAIK Australia and NZ are the only two countries that give individual shareholders credit for tax paid by any company they hold shares in as an entity. Tax has already been paid at the corporate rate by US companies at least, before any dividend is paid to shareholders. I wonder if the lower tax rate paid on Canadian dividends is Canada's way of accounting for this?

Now flip the tables around and how would the foreign investor feel by owning NZ shares that have withholding on the dividends? How would they get that taxed portion back? Perhaps this is why most foreign managed funds have sidestep NZ investments and why we see a dwindling level of liquidity on the NZX.

Most NZX companies, when they pay dividends to foreign shareholders, pay a foreign 'Supplementary Dividend' that effectively wipes out the withholding tax on dividends paid to foreigners. There are arrangements with the IRD that allow NZ companies who do this, not to pay more tax than they 'otherwise would' if they had no foreign shareholders.

@3) I assume you're referring to TFSA?

Yes

Unlike the other registered investment plans RESP, RDSP, RRSP, the TFSA is entirely 100% tax free during the years invested AND when you sell up; really 100% tax free. But likewise, any losses are not allow for claim for credit.

The investment world in Canada has many to suit each individual's situation. Those with disabled children get RDSP. Those into academics look to RESP. Those who are rich and wealthy look to TFSA, well actually all residents can benefit with the TFSA. One thing common in ALL these investment plans is the 'deferral of tax' with exception of TFSA with doesn't matter when you sell up. The oldest program would be RRSP which is similar to Kiwi Saver but much more elegant. What is not elegant to structure your income in years you have low or year income and the ABILITY TO CHOOSE how much you want to have as taxable income? Isn't that what retirement is all about? If i'm 67 and want to buy a new caravan or RV, I would sell the amount of shares I want, pay the capital gain tax enough to cover my living cost and new toy and as you know, most seniors have little or no salary / wage income so they would benefit being at the lower end tax bracket.

With the tax treatment in Canada you have outlined, I can understand why you object to the tax paid under the New Zealand system SBQ! If you pay no tax at all in your Canadian TFSA, even upon redemption, it is hard to imagine any other country being able to compete with that. I guess there must be some restrictions on TFSA though. I presume you can only take money out of it once you hit 65? Is there a limit on the amount of money you can put into a TFSA?

So to answer your question, how much tax does a person pay at retirement? Well that's entirely up to you until the day you die, for which the entire account would be deemed sold and tax on the capital gains would apply (fortunately, only 1/2 of the gain is taxable income).

Half the capital gain being taxable in Canada is equivalent to the Australian system of paying tax on all of your capital gain but at half the income tax rate.

SNOOPY