US Shares - Taxation

[SBQ]

Investment returns from non-exempt Australian shares will be under FIF if the total purchase price of your entire overseas portfolio was over $50k. Note it is the purchase price in NZD that determines if the FIF regime is triggered or not. The current market price is not a factor.



Trading in non-exempt foreign shares does come under FIF, but there are special 'quick sale' provisions if you buy and sell within a year. See page 2 of this document.

https://home.kpmg/content/dam/kpmg/p...s-FIF-2015.pdf

SNOOPY

Hold on there... FIF has nothing to do with what 'purchase price' being under $50K. What triggers FIF is the TOTAL of ALL foreign accounts outside NZ. If a person had a UK broker + a US broker, the sum of these accounts if over $50K in value, will fall under FIF.

I've explained this here with a link directly from IRD's pdf docuement;

https://www.sharetrader.co.nz/showth...l=1#post857435

Your KPMG pdf doc also explains FIF as a threshold limit with an example on the right column of 2nd last page. Initially the person bought USCo under the FIF limit but his account balance triggered FIF once he bought UKCo. Once your account passes over the $50K NZD total, FIF kicks in for that year.

How about from IRD's point of view. Do you really think IRD will allow people to make multiple foreign share purchases in the amounts under $50K and let it compound 10 or 20 years which could end up over $500K or $1M and the NZ resident not pay a $1 in tax? I don't think so....

[Snoopy]

Hold on there... FIF has nothing to do with what 'purchase price' being under $50K. What triggers FIF is the TOTAL of ALL foreign accounts outside NZ. If a person had a UK broker + a US broker, the sum of these accounts if over $50K in value, will fall under FIF.

Yes, you have to add all of your FIF liable accounts together. And if the total that you put into them is over $50k then the FIF regime applies. That is what I said.

I've explained this here with a link directly from IRD's pdf docuement;

https://www.sharetrader.co.nz/showth...l=1#post857435

Yes and I use the same quote that you referenced from the IRD pdf

-------

Page 15 from the horse's mouth:

IF:

"NZ$50,000 threshold is exceeded at any time in the year when you're a New Zealand resident (for a natural person), or any time in the year for the trustee of an eligible trust"

THEN:

all your offshore interests are subject to the FIF rules - the first NZ$50,000 is not exempt.

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Up until you spend up to $NZ50k , FIF does not apply. After that FIF does apply to all of your FIF investments. There is no exemption for the first $50k investment you made that subsequently does fall under FIF. (I may not have made that clear). If your total FIF investment of over $50k shrinks in value to below $50k, then FIF still applies, because your historical triggering of the $50k purchase threshold cannot be reversed on those investments. Of course you could sell these investments at a loss, then start again with a new purchase total under $50k and the FIF regime would not apply to that new investment.

Your KPMG pdf doc also explains FIF as a threshold limit with an example on the right column of 2nd last page. Initially the person bought USCo under the FIF limit but his account balance triggered FIF once he bought UKCo. Once your account passes over the $50K NZD total, FIF kicks in for that year.

You have misinterpreted what was written. Read the bold bit again. FIF was triggered with a purchase. It is only the sum of the purchase prices that matter, not the market balance.

How about from IRD's point of view. Do you really think IRD will allow people to make multiple foreign share purchases in the amounts under $50K and let it compound 10 or 20 years which could end up over $500K or $1M and the NZ resident not pay a $1 in tax? I don't think so....

No.

But the IRD will allow multiple foreign purchases for a total of under $NZ50,000. And provided you don't put more than $NZ50k into those investments in total or add any other subsequent investments that may fall under FIF, then you are not subject to FIF. If your $50,000 subsequently grows to $500,000 you can bring it back to NZ tax free with no need to declare any FIF interest along the way.

SNOOPY

[Snoopy]

Hold on there... FIF has nothing to do with what 'purchase price' being under $50K.

How about from IRD's point of view. Do you really think IRD will allow people to make foreign share purchases under $50K and let it compound 10 or 20 years which could end up over $500K or $1M and the NZ resident not pay a $1 in tax? I don't think so....

One last note on SBQs -wrongful- interpretation of how FIF works.

The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced.

If the FIF scheme was triggered when your investor running balance exceeded $NZ50k, our investor would have to keep a daily ticker feed of their share investment and the exchange rate on that day to get an instantaneous read out of the exchange rate as well, so that everything can be converted back to $NZ. Unless our investor had such a set up, he could inadvertently break the FIF rules by not noticing that his investment had popped up in value to over $50k (and so breaking a threshold) before coming back down again. It gets more complicated again if you have more than one FIF investment. You would have to co-ordinate the ticker feeds and currency value feeds of all your investments and add them together, every day.

Now imagine you did not do all of this and the IRD decided to investigate you. They would have to download all the price information themselves, and run the same exercise that you did not download. By the time they co-ordinated all the dividend information as well, we might be looking at several hundred hours work. And only at that point could they start figuring out what your tax obligations might be. And at the end of it all they might find that your approach of 'just paying tax on dividends' might have resulted in a greater tax bill anyway! The whole thing would be an administrative nightmare, that would more than likely in administrative costs, chew through the extra tax reigned in anyway.

Now consider the purchase price based approach. When you make your FIF purchase you will very likely have a contract note converted to NZD. That document will be a proof of purchase in an NZD amount that can be easily verified by the IRD by just looking at it. There is no need to gather any more information. That is administratively workable, in a sense that the 'running balance approach' is not.

Thus what seems to be an illogical way of doing things is the only practical way to go, even though from the perspective of 'Person B' it is not fair.

SNOOPY

[SBQ]

One last note on SBQs -wrongful- interpretation of how FIF works.

The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced.

If the FIF scheme was triggered when your investor running balance exceeded $NZ50k, our investor would have to keep a daily ticker feed of their share investment and the exchange rate on that day to get an instantaneous read out of the exchange rate as well, so that everything can be converted back to $NZ. Unless our investor had such a set up, he could inadvertently break the FIF rules by not noticing that his investment had popped up in value to over $50k (and so breaking a threshold) before coming back down again. It gets more complicated again if you have more than one FIF investment. You would have to co-ordinate the ticker feeds and currency value feeds of all your investments and add them together, every day.

Now imagine you did not do all of this and the IRD decided to investigate you. They would have to download all the price information themselves, and run the same exercise that you did not download. By the time they co-ordinated all the dividend information as well, we might be looking at several hundred hours work. And only at that point could they start figuring out what your tax obligations might be. And at the end of it all they might find that your approach of 'just paying tax on dividends' might have resulted in a greater tax bill anyway! The whole thing would be an administrative nightmare, that would more than likely in administrative costs, chew through the extra tax reigned in anyway.

Now consider the purchase price based approach. When you make your FIF purchase you will very likely have a contract note converted to NZD. That document will be a proof of purchase in an NZD amount that can be easily verified by the IRD by just looking at it. There is no need to gather any more information. That is administratively workable, in a sense that the 'running balance approach' is not.

Thus what seems to be an illogical way of doing things is the only practical way to go, even though from the perspective of 'Person B' it is not fair.

SNOOPY

I'm sure you will find most accountants will work on the same interpretation that the FIF $50K threshold is simply 'a threshold'. There are all sorts of examples online that show going over the $50K and valuations are determined at a SET DATE ; and the Quick Sales method makes frequent trading complicated enough to keep the accountants busy. If you trade too frequent, then IRD will simply say you're doing it as a means to profit and FIF will not apply ; but instead, the worse ; RWT would apply. A similar threshold applies to whether a business should be GST registered or not. Once you exceed the $30K in sales, you must be registered despite it could be less than $30K in many months of the same year.

But look at the example of the KMPG pdf - it shows the person in the 1st year under $50K and then FIF triggered by buying UKCo later on. Both transactions were under the $50K each but there's no denying the account value exceed $50K later for FIF to kick in.

[Bjauck]

One last note on SBQs -wrongful- interpretation of how FIF works.

The SBQ view is actually entirely logical. How is it fair that someone (Person A) invests $NZ49,999 in an FIF investment that grows for thirty years to be worth $NZ500,000 and then brings that capital back to NZ with no tax payable? Yet another person (Person B) pays $NZ50,001 for a yield type FIF share that might hardly grow at all, yet that second person has to pay FIF tax every year for 30 years? The answer is - it isn't logical, it doesn't make sense, it isn't fair, until you think about how 'fair' rules could be enforced....

Fairness is subjective. Maybe the introduction of a FIF type FDR regime for NZ real estate and NZ and Australian equities returns could get around Ardern’s self imposed ban on a CGT. With real estate it could be deferred until the property is sold.