WEBVTT - Tax for investors 101 0:00:05.480 --> 0:00:08.440 Jorda and welcome to this episode of Shed Lunch, where 0:00:08.440 --> 0:00:11.559 we delve into the often vexed subject of tax. 0:00:12.080 --> 0:00:12.800 Yes, that's right. 0:00:12.840 --> 0:00:14.840 We're going to do a one oh one on what 0:00:14.880 --> 0:00:18.680 it means to invest in individual companies and funds and 0:00:18.760 --> 0:00:21.239 to keep it as simple as we can. I'm joined 0:00:21.239 --> 0:00:23.800 by Mark lash, a partner with Deloitte. 0:00:23.840 --> 0:00:28.080 Private investing involves risk you might lose the money you 0:00:28.120 --> 0:00:32.000 start with. We recommend talking to a licensed financial advisor. 0:00:32.479 --> 0:00:36.839 We also recommend reading product disclosure documents before deciding to invest. 0:00:37.360 --> 0:00:40.279 Everything you're about to see and hear is current at 0:00:40.280 --> 0:00:41.280 the time of recording. 0:00:41.640 --> 0:00:44.000 Welcome to studio Mark, Thanks Allen. 0:00:44.960 --> 0:00:47.040 Now, tax for most of us, I know it's your 0:00:47.080 --> 0:00:50.040 every day, but for most of us it's a tricky subject. 0:00:50.440 --> 0:00:52.159 Why do you think it is. 0:00:52.880 --> 0:00:56.240 Well, tax is very spac specific and there's a lot 0:00:56.240 --> 0:00:59.080 of complexity in the rules that we have in New Zealand. 0:00:59.680 --> 0:01:02.400 And some of those rules are relatively simplistic at the 0:01:03.240 --> 0:01:05.600 at the simple investment end, and some of those rules 0:01:05.600 --> 0:01:08.240 are incredibly complex when we start to get into things 0:01:08.319 --> 0:01:12.360 like foreign investment funds and investing in those. So it's 0:01:12.360 --> 0:01:15.360 always important I think to you know, to remember that 0:01:15.400 --> 0:01:18.440 because text is specific, you've got to be too careful 0:01:18.480 --> 0:01:21.240 to ensure that the that you take advice where that 0:01:21.400 --> 0:01:24.560 is appropriate, and ensure that a lot of the advice 0:01:24.640 --> 0:01:26.680 that's actually written in terms of iety commentaries and the 0:01:26.800 --> 0:01:29.200 like of your generic right, so they are intended to 0:01:29.200 --> 0:01:33.600 be guides, are not necessarily specific advice. So our recommendation 0:01:33.720 --> 0:01:36.520 to clients is always to take specific advice where they 0:01:36.520 --> 0:01:39.880 need to take that advice, and to be very careful 0:01:39.920 --> 0:01:42.560 around ensuring that they don't just rely on generic comments. 0:01:42.880 --> 0:01:46.559 What about AI, there's a lot of chet GP text 0:01:46.720 --> 0:01:49.040 kind of questions you can throw in and get all 0:01:49.080 --> 0:01:49.920 sorts of answers. 0:01:50.320 --> 0:01:51.760 What's your experience there. 0:01:52.080 --> 0:01:54.880 I think AI is probably in its infancy at the moment, 0:01:55.000 --> 0:01:56.960 so you do want to be a little bit careful 0:01:57.000 --> 0:02:00.440 about you what you are relying on. Ultimately, Lee, in 0:02:00.480 --> 0:02:03.280 New Zealand, it's up to the individual taxpayer to ensure 0:02:03.280 --> 0:02:06.360 that their tax positions are correct, and so it's so 0:02:06.400 --> 0:02:08.960 important that they do take advice in the right way 0:02:09.120 --> 0:02:12.400 or rely on the right type of information. My experience 0:02:12.480 --> 0:02:16.160 is that tools like chat GBT are credibly useful tools, 0:02:16.760 --> 0:02:18.800 but you do need to be careful that they provide 0:02:18.840 --> 0:02:22.040 you just with generic comment rather than specific advice. 0:02:22.600 --> 0:02:25.320 Okay, so let's think about the retail investor then, what 0:02:25.440 --> 0:02:29.040 would be the things that they need to consider. I mean, 0:02:29.120 --> 0:02:32.560 you can have dividends and you can have share gains 0:02:32.600 --> 0:02:36.120 and losses. Obviously, what does a retail investor need to 0:02:36.120 --> 0:02:36.680 think about? 0:02:37.200 --> 0:02:39.480 Yes, at the end of each year, a retail investor 0:02:39.560 --> 0:02:43.200 needs to ensure that they have appropriately accounted for the 0:02:43.240 --> 0:02:46.240 income that they've received from their investments, whether it's interest 0:02:46.360 --> 0:02:49.400 or dividends that they've received, and those need to be 0:02:49.720 --> 0:02:52.200 brought to tax and any sort of square up amounts 0:02:52.480 --> 0:02:56.200 dealt with with inland revenue. It's also appropriate for investors 0:02:56.240 --> 0:02:58.840 to stand back and reflect on the nature of the 0:02:58.880 --> 0:03:01.360 activity that they've can do during the year. So we 0:03:01.440 --> 0:03:05.200 don't have a comprehensive capital gains tax in New Zealand, 0:03:05.280 --> 0:03:10.760 but we do tax gains from investments where those investments 0:03:10.760 --> 0:03:13.959 have been purchased for a dominant purpose of selling them 0:03:14.760 --> 0:03:17.480 if they are part of a business activity or share 0:03:17.560 --> 0:03:22.000 trading activity conducted by that person. So we do recommend 0:03:22.040 --> 0:03:23.600 that people stand back at the end of the year 0:03:23.639 --> 0:03:25.160 and have a look at what they've done from an 0:03:25.200 --> 0:03:28.560 investment activity. Point of view and reflect on whether or 0:03:28.600 --> 0:03:31.080 not they might have some concerns that Inland Revenue might 0:03:31.200 --> 0:03:34.640 view them as as being a trader in business or 0:03:34.680 --> 0:03:37.920 having acquired those investments for a purpose of disposing of them. 0:03:38.280 --> 0:03:42.600 Mark with platforms like Shaersy's, we deduct the tax from 0:03:42.640 --> 0:03:46.720 the distributions for most, not all investors. But it would 0:03:46.720 --> 0:03:50.000 be fair to say that investors can't just set and forget. 0:03:50.280 --> 0:03:53.600 There are obligations that they have under tax, aren't. 0:03:53.360 --> 0:03:58.120 They Absolutely so, As I mentioned before, the obligation to 0:03:58.240 --> 0:04:01.000 ensure that the tax appropriate tax has been paid does 0:04:01.080 --> 0:04:05.880 fall on the relevant investor. It's it's not Chazy's responsibility. 0:04:06.040 --> 0:04:09.160 And if the investor hasn't got it right, then Inland 0:04:09.200 --> 0:04:13.280 Revenue will will be in contact. I think you know 0:04:13.320 --> 0:04:16.800 the things that Chas's and other platforms do you know, 0:04:16.839 --> 0:04:19.760 do the services they provide do issis greatly if you like, 0:04:19.839 --> 0:04:24.040 in terms of ensuring that tax has been withheld. Ideally, 0:04:24.080 --> 0:04:26.320 it it ensures that for most investors they're not going 0:04:26.320 --> 0:04:29.360 to get a nasty surprise come come the end of 0:04:29.400 --> 0:04:33.359 the year. But in some instances, when a conservative approach 0:04:33.440 --> 0:04:37.000 is taken around, you know, withholding, it can actually mean 0:04:37.040 --> 0:04:40.880 for some investors that they are actually entitled to refunds 0:04:40.880 --> 0:04:44.280 of amounts because in New Zealand we do we do 0:04:44.360 --> 0:04:48.120 tax people on a on a marginal rate basis. So 0:04:48.160 --> 0:04:50.640 what that means is that as people earn more, their 0:04:50.680 --> 0:04:54.440 tax rate progressively increases. So you know, if a flat 0:04:54.520 --> 0:04:57.000 rate of thirty three percent tax has been deducted, that 0:04:57.080 --> 0:05:00.480 could be well in excess of, for example, tax rate 0:05:00.520 --> 0:05:05.360 applying to a twelve year old student. Yeah, who's only 0:05:05.360 --> 0:05:07.039 got a ten and a half percent tax rate, So 0:05:07.040 --> 0:05:09.760 there could be refundaments that are available. 0:05:10.120 --> 0:05:13.920 Let's unpack the difference between if I invest in an 0:05:13.920 --> 0:05:18.120 individual company or if I, say, want to invest in 0:05:18.160 --> 0:05:21.000 a managed fund or an exchange traded fund, what's the 0:05:21.040 --> 0:05:24.279 tax treatment? Because I understand one could be more effective 0:05:24.320 --> 0:05:24.719 than the other. 0:05:25.560 --> 0:05:30.640 Yes, So with most managed funds and exchange traded funds, 0:05:30.680 --> 0:05:33.960 they are wrapped up in a product that we refer 0:05:34.080 --> 0:05:38.600 to as a portfolio investment entity or pie. With a pie, 0:05:39.120 --> 0:05:41.359 they typically take care of all of the tax on 0:05:41.400 --> 0:05:45.800 behalf of the relevant investor, so investors don't then need 0:05:45.839 --> 0:05:49.320 to include their income from those investments in their personal 0:05:49.360 --> 0:05:52.640 tax return. The way that works is that the investor 0:05:52.720 --> 0:05:56.760 is required to notify the PIE of their prescribed investor rate, 0:05:57.320 --> 0:06:00.880 which broadly equates to what their margin digital tax rate 0:06:01.000 --> 0:06:05.479 would be on that investment income. The PIE in that 0:06:05.560 --> 0:06:09.640 instance then ensures that the relevant tax is deducted and 0:06:09.680 --> 0:06:13.279 paid within the PIE on behalf of the investor and 0:06:13.440 --> 0:06:17.599 pays out the tax paid return to the investor. So 0:06:17.680 --> 0:06:20.919 in those situations, investors are not required to include that 0:06:21.000 --> 0:06:25.279 income in their tax return. Now, the maximum pier that 0:06:25.760 --> 0:06:30.320 can be elected is twenty eight percent, So for investors 0:06:30.360 --> 0:06:33.359 that are subject to twenty eight to thirty three or 0:06:33.400 --> 0:06:37.800 thirty nine percent marginal tax rates, using a or investing 0:06:37.800 --> 0:06:43.440 into a PIE can can generate a more advantageous tax outcome. 0:06:44.279 --> 0:06:48.880 If we can compare that with investing directly into a company. 0:06:48.920 --> 0:06:53.520 Then typically dividends from New Zealand or Australia and the 0:06:53.680 --> 0:06:56.479 like are then subject to tax at the marginal rate 0:06:56.520 --> 0:06:59.280 of that particular investor. So if you have a tax 0:06:59.360 --> 0:07:01.320 rate of thirty three you're thirty nine percent, then that 0:07:01.440 --> 0:07:03.719 is the rate of tax that you will pay on 0:07:03.760 --> 0:07:06.600 that investment. So you can see if you were to 0:07:06.640 --> 0:07:09.840 be able to have an equivalent investment in a PIE 0:07:10.480 --> 0:07:12.560 that could be kept at twenty eight percent rather than 0:07:12.600 --> 0:07:16.640 those high rates. It's really important in that context for 0:07:16.760 --> 0:07:19.120 investors to ensure that they have notified of the correct 0:07:19.120 --> 0:07:22.440 pir that applies to them so that the correct amount 0:07:22.440 --> 0:07:27.640 of tax can be deducted by the pie and an 0:07:27.680 --> 0:07:30.040 event that you get it wrong, that can sometimes lead 0:07:30.080 --> 0:07:33.280 to adjustments being made by a land revenue and compliance 0:07:33.320 --> 0:07:36.560 costs as you sort that out whether you've underpaid or 0:07:36.600 --> 0:07:38.600 overpaid in that particular instance. 0:07:39.280 --> 0:07:43.000 Are there penalties that iod hands down? If your light 0:07:43.080 --> 0:07:45.920 sounds quite dracony and saying like that, but you know 0:07:46.400 --> 0:07:48.880 if you aren't paying the right amount of tax? 0:07:48.880 --> 0:07:50.080 I mean, it obviously. 0:07:49.720 --> 0:07:52.520 Depends on the individual and the amounts involved. But is 0:07:52.600 --> 0:07:55.600 there straight penalties that we know of? 0:07:56.680 --> 0:07:59.400 There are? There is a whole penalty regime that exists 0:07:59.400 --> 0:08:02.160 within the Income Tax Act where where you know not 0:08:02.200 --> 0:08:04.000 the correct amount of tax is not being paid at 0:08:04.000 --> 0:08:08.160 that at the correct time. In our experience, thus far, 0:08:08.240 --> 0:08:11.480 inland Revenue hasn't taken a hard line, if you like, 0:08:11.480 --> 0:08:15.640 in relation to a failure to elect the correct rates. 0:08:15.720 --> 0:08:19.600 It's more been focused around ensuring that the top up 0:08:19.880 --> 0:08:22.520 or catch up amount of taxes collected and that the 0:08:22.520 --> 0:08:25.120 correct pr is applied going forward. 0:08:25.800 --> 0:08:28.560 Is there a hunch though, that a number of investors 0:08:28.560 --> 0:08:33.720 maybe aren't applying the correct or paying the correct tax. 0:08:34.160 --> 0:08:37.839 Yeah, Inland Revenue's got quite sophisticated in and around how 0:08:37.840 --> 0:08:40.120 they manage these types of things now and do have 0:08:40.160 --> 0:08:42.440 a number of tools that they can use to ensure 0:08:42.480 --> 0:08:46.600 that they are matching the correct pr to the relevant taxpayer. 0:08:48.120 --> 0:08:50.080 Our experience is that it's less likely that people are 0:08:50.080 --> 0:08:52.319 going to be able to sort of game the system 0:08:52.400 --> 0:08:53.640 by having the incorrect rate. 0:08:53.800 --> 0:08:56.360 There's lots of jargon with tax it would appear now 0:08:56.920 --> 0:08:59.840 often we hear about imputation or franking credits. I think 0:09:00.040 --> 0:09:02.480 victation as New Zealand franking is often if you are 0:09:02.480 --> 0:09:05.480 invested in the AX or the Australian share market, can 0:09:05.480 --> 0:09:08.160 you explain to us when they come in to be 0:09:09.080 --> 0:09:09.760 You're quite right. 0:09:10.200 --> 0:09:14.160 Imputation credits and franking credits are in essence the same thing, 0:09:14.240 --> 0:09:16.560 but just ones in New Zealand credit and the others 0:09:16.559 --> 0:09:21.960 are an Australian credit. The underlying concept around it is 0:09:22.000 --> 0:09:27.079 that when a company makes makes a profit, it has 0:09:27.160 --> 0:09:31.520 to pay some tax, and that tax that the company 0:09:31.559 --> 0:09:34.240 pays should be able to be passed through to the 0:09:34.280 --> 0:09:36.920 shareholder for them to claim as a credit. So in 0:09:36.960 --> 0:09:40.560 New Zealand, the company tax that is paid generates an 0:09:40.600 --> 0:09:44.439 imputation credit that the shareholder can claim back. In Australia, 0:09:45.840 --> 0:09:48.760 the company tax paid generates a franking credit that an 0:09:48.760 --> 0:09:54.040 Australian resident shareholder can claim back. So if a company 0:09:54.040 --> 0:09:56.680 makes one hundred dollars a profit, it has to pay 0:09:56.720 --> 0:09:59.839 corporate tax of twenty eight dollars. That same one hundred 0:09:59.840 --> 0:10:02.560 dollar a profit also gets taxed in the hands of 0:10:02.600 --> 0:10:07.080 the shareholder when it's distributed, but the shareholder is able 0:10:07.120 --> 0:10:11.000 to claim back that twenty eight dollars company tax that's 0:10:11.000 --> 0:10:14.200 already been paid as an imputation credit. 0:10:14.920 --> 0:10:18.160 When does that happen though? So if I in my 0:10:18.320 --> 0:10:22.520 tax return, am I? If I see the word gross dividend? 0:10:23.520 --> 0:10:27.040 Is that one hundred dollars? But actually I then get 0:10:27.120 --> 0:10:28.000 some money back? 0:10:28.840 --> 0:10:34.800 Yeah, So the gross dividend concept is recognizing the cash 0:10:34.920 --> 0:10:39.720 that's been paid to the investor together with the imputation 0:10:39.920 --> 0:10:45.319 credit that is attached to that dividend, plus any withholding 0:10:45.320 --> 0:10:50.440 tax that's been deducted. So it's that gross amount that 0:10:50.600 --> 0:10:53.360 is required to be put into the investor's tax return 0:10:53.600 --> 0:10:58.000 or tax calculation that's then subject to tax at the 0:10:58.040 --> 0:11:01.640 tax rate of the investor, but then you can claim 0:11:01.640 --> 0:11:05.760 a credit against that tax. And the credits that you 0:11:05.800 --> 0:11:10.600 can claim are the imputation credit that's been attached and 0:11:10.640 --> 0:11:13.920 also any withholding tax that's been deducted, and if there 0:11:13.960 --> 0:11:17.200 is an excess amount that can sometimes be refunded. 0:11:18.559 --> 0:11:20.720 So if I'm investing into Australia, then I want to 0:11:20.720 --> 0:11:23.120 be tax efficient or as efficient as. 0:11:22.960 --> 0:11:23.560 I can be. 0:11:24.440 --> 0:11:27.440 I need to keep an eye on those franking credits 0:11:27.720 --> 0:11:29.280 and percentage thereof. 0:11:29.920 --> 0:11:33.320 Yeah, I think it's always important to start with tax. 0:11:33.320 --> 0:11:36.040 Shouldn't be the tail wagging the roll, you know, you 0:11:36.080 --> 0:11:42.640 should always start with a sound investment plan, diversified investment portfolio, 0:11:42.840 --> 0:11:45.440 which as well outside my area of expertise naturally, but 0:11:46.720 --> 0:11:48.480 it is useful to just sort of keep an eye 0:11:48.559 --> 0:11:51.000 on the way in which the taxation rules might apply 0:11:51.080 --> 0:11:53.560 to the different types of returns that you're receiving from 0:11:53.840 --> 0:11:56.679 from your investment portfolio, and certainly in the case of 0:11:57.160 --> 0:12:02.840 Australian investments into Australian company, it's important to just keep 0:12:02.840 --> 0:12:05.280 in mind those ones that are that are paying a 0:12:05.400 --> 0:12:09.080 franked dividend and those that are paying an unfranked dividend, 0:12:09.480 --> 0:12:12.880 and the reason for the subtle difference is that if 0:12:12.880 --> 0:12:16.160 the dividend coming out of Australia is not fully franked, 0:12:16.200 --> 0:12:20.200 then it'll be subject to withholding tax. Those withholding taxes 0:12:20.600 --> 0:12:22.480 are able to be claimed as a credit in New 0:12:22.559 --> 0:12:26.079 Zealand in most circumstances, so sometimes you can get sit 0:12:26.120 --> 0:12:29.360 as subtle differences in the after tax return or the 0:12:29.400 --> 0:12:33.920 effective tax rate that comes from investing into Australian entities. 0:12:34.440 --> 0:12:36.960 What about dual listed companies, We've got quite a few 0:12:37.000 --> 0:12:41.320 obviously on chess. Would it be more tax advantageous if 0:12:41.360 --> 0:12:45.400 you like to invest in the New Zealand share market 0:12:45.440 --> 0:12:47.959 as opposed to the ASEX for them. 0:12:49.040 --> 0:12:52.120 Well, typically from a tax perspective, it shouldn't make any 0:12:52.240 --> 0:12:55.720 any difference in the sense that a New Zealand company 0:12:55.720 --> 0:12:58.960 that's registered on the Australian Australian Stock Exchange is still 0:12:58.960 --> 0:13:01.520 in New Zealand company still will be paying if you 0:13:01.679 --> 0:13:04.280 like a New Zealand dividend with imputation credits, So those 0:13:04.320 --> 0:13:09.320 sorts of things shouldn't necessarily influence a New Zealand investors' decision. 0:13:09.880 --> 0:13:12.120 One of the things that investor might look at is 0:13:12.120 --> 0:13:16.880 that if an entity is dual listed, is whether that's 0:13:16.920 --> 0:13:20.679 because they are deriving income from both New Zealand and Australia, 0:13:21.160 --> 0:13:23.400 and whether there might be subtle differences in the way 0:13:23.440 --> 0:13:26.120 that that company pays to it and such that they're 0:13:26.160 --> 0:13:29.080 able to, if you like, provide imputation credits to New 0:13:29.160 --> 0:13:35.199 Zealand investors and franking credits to Australian investors, because because 0:13:35.320 --> 0:13:37.640 neither of those credits are able to be claimed in 0:13:37.679 --> 0:13:38.480 either country. 0:13:39.240 --> 0:13:42.280 One thing mark too, that often comes up is you 0:13:42.360 --> 0:13:46.559 can merely go along investing and you get your dividends 0:13:46.600 --> 0:13:51.720 and your tax is all deducted and hopefully everything's happy. 0:13:51.720 --> 0:13:55.360 But is there a time when investors really need to 0:13:55.400 --> 0:13:55.880 be thinking. 0:13:55.720 --> 0:13:58.000 About or is there extra that I should be telling 0:13:58.120 --> 0:14:00.600 the IID And I'm assuming that. 0:14:02.040 --> 0:14:03.760 When you look at an entire. 0:14:03.559 --> 0:14:06.200 Portfolio that might have property, it might have other assets. 0:14:06.480 --> 0:14:08.840 I'm talking beyond say you're Cheesy's portfolio. 0:14:09.240 --> 0:14:16.360 Yes, so if you're not a natural person, so companies 0:14:16.400 --> 0:14:19.880 and trusts are all required to file a tax return 0:14:20.440 --> 0:14:23.760 for natural persons. You've sort of got two different pathways 0:14:23.800 --> 0:14:27.440 that you end up going down. The first is the 0:14:27.760 --> 0:14:31.120 sort of the simplified approach, which is any sense a 0:14:31.200 --> 0:14:33.960 letter of assessment by inland revenue. So if Inland Revenue 0:14:34.000 --> 0:14:37.760 believe that if all of the income that the individual 0:14:37.840 --> 0:14:41.280 has received has been taxed largely its source in New Zealand, 0:14:41.320 --> 0:14:46.160 so for example, sellaring wages subject to PYE investment income 0:14:46.160 --> 0:14:48.760 that's been subject to withholding tax or imputation credits in 0:14:48.800 --> 0:14:52.160 New Zealand. And if Inland Revenue believes that that's the 0:14:52.200 --> 0:14:55.440 sole sources of your income and they have most of 0:14:55.440 --> 0:14:58.680 that information necessary to do a calculation of the assessment 0:14:58.840 --> 0:15:02.640 for the year, then for those individuals, they'll receive this 0:15:03.120 --> 0:15:05.960 letter of assessment and their responsibility is to review that, 0:15:06.080 --> 0:15:08.800 to check that and to make sure that it's right. 0:15:09.920 --> 0:15:12.600 If it's not right, there's an obligation to notify a 0:15:12.640 --> 0:15:16.840 land revenue changes. There is a little sort of deminimous 0:15:16.920 --> 0:15:20.040 rule there around other income that's sort of less two 0:15:20.120 --> 0:15:23.240 hundred dollars or less. So if there's an amount that's 0:15:23.280 --> 0:15:26.120 missing from that assessment and it's two hundred dollars or less, 0:15:26.120 --> 0:15:28.520 then there is no requirement to notify in Land revenue 0:15:29.160 --> 0:15:33.280 of that fact. If an in revenue doesn't believe that 0:15:33.320 --> 0:15:36.560 it has all of that information necessary to do that assessment. 0:15:36.600 --> 0:15:39.920 Then individuals will be required to file an IR three 0:15:40.000 --> 0:15:44.040 tax return, and that could include things like there's overseas income, 0:15:45.040 --> 0:15:48.520 there's income subject to the under the fIF or Foreign 0:15:48.520 --> 0:15:53.080 Investment Fund rules. There could be rents from property, there 0:15:53.120 --> 0:15:56.600 could be tax losses, there could be income from self employment, 0:15:56.640 --> 0:15:57.560 those sorts of things. 0:15:58.640 --> 0:16:02.520 That's a nice segue to investing offshore. And I don't 0:16:02.560 --> 0:16:05.280 so much mean Australia, but perhaps the US, which you know, 0:16:05.360 --> 0:16:07.360 we have a lot of companies on Cheesy's that are 0:16:07.440 --> 0:16:12.000 US based investing there. Things get a little bit different, 0:16:12.000 --> 0:16:14.440 don't they with the I think the FAF is the 0:16:14.480 --> 0:16:16.120 kind of the acronym that's everywhere. 0:16:16.200 --> 0:16:18.000 If you can explain that for US. 0:16:18.120 --> 0:16:22.320 I'll certainly have a go. So the Foreign Investment Fund 0:16:22.360 --> 0:16:27.840 regime is intended to capture all foreign investments, particularly or 0:16:27.880 --> 0:16:33.440 traditionally into companies. There is Australia is actually caught within 0:16:33.480 --> 0:16:38.000 the context of those rules. However, because of our close 0:16:38.040 --> 0:16:41.440 economic relationship with Australia and the fact that a lot 0:16:41.440 --> 0:16:44.880 of New Zealanders invest into Australia, we have what's called 0:16:45.400 --> 0:16:51.160 a Foreign Investment Investment Fund Exemption list. So that typically 0:16:51.360 --> 0:16:55.640 is entities in Australia that are listed on the Australian 0:16:55.680 --> 0:16:59.880 Stock Exchange that are resident in Australia, those companies are 0:17:00.040 --> 0:17:03.080 included in a sort of an exemption list. What that 0:17:03.160 --> 0:17:05.800 effectively means is that you don't need to apply the 0:17:05.920 --> 0:17:10.560 Foreign Investment Fund rules to those particular investments. You can 0:17:10.640 --> 0:17:13.719 just treat them, going to call it as normal investments 0:17:13.760 --> 0:17:17.359 where you pay tax on dividends as and when they 0:17:17.359 --> 0:17:21.000 are received. For everybody else or everywhere else in the 0:17:21.040 --> 0:17:23.359 world that is subject to the Foreign Investment Fund rules. 0:17:24.200 --> 0:17:27.879 What effectively that does is it sort of ignores, if 0:17:27.880 --> 0:17:32.080 you like, the dividends that are paid, and the investments 0:17:32.119 --> 0:17:35.160 are taxed on the basis of a number of methods, 0:17:35.200 --> 0:17:38.040 but in the sense sort of deemed income for tax 0:17:38.040 --> 0:17:43.440 purposes and for individuals. The two main options there are 0:17:43.640 --> 0:17:48.320 the fair dividend rate and the comparative value method. 0:17:49.119 --> 0:17:52.119 So you can choose which and just to stop you 0:17:52.160 --> 0:17:56.040 their mark, I think you wouldn't be subject to the 0:17:56.359 --> 0:18:00.239 Foreign Investment Fund unless you were investing fifty thousand in 0:18:00.440 --> 0:18:03.840 New Zealand or you had that in investments or is 0:18:03.840 --> 0:18:04.240 that right? 0:18:04.400 --> 0:18:07.320 It's correct. There's a deminimus so an exclusion from having 0:18:07.320 --> 0:18:11.000 to apply these horrendous rules. If you if you if 0:18:11.040 --> 0:18:15.000 you hold foreign investment fund interests that cost are less 0:18:15.040 --> 0:18:19.679 than New Zealand fifty thousand dollars, if you are unfortunately 0:18:19.680 --> 0:18:23.439 fortunate enough to hold investments over that threshold, then you 0:18:23.480 --> 0:18:27.000 will be subject to these rules and the complications that 0:18:27.520 --> 0:18:28.879 go with that. 0:18:29.400 --> 0:18:32.639 So if you had a couple of thousand dollars in Tesla, 0:18:32.680 --> 0:18:33.800 for example. 0:18:33.520 --> 0:18:35.520 You'd probably be all right, that's correct. 0:18:35.560 --> 0:18:37.199 It would only be if you had a fear bit 0:18:37.240 --> 0:18:40.560 more thinking of that though, surely at that stage you'd 0:18:40.600 --> 0:18:42.439 begin an advisor to have a lock unless you were 0:18:42.480 --> 0:18:43.639 a real wizard tax. 0:18:44.119 --> 0:18:47.320 Yeah, there's not many people that have a go can 0:18:47.359 --> 0:18:51.080 I use that phrase? It doing it themselves. It's these 0:18:51.200 --> 0:18:56.000 rules are are incredibly complicated. The method dollar, the methods 0:18:56.000 --> 0:18:58.359 that are that are available to people to sort of 0:18:58.440 --> 0:19:02.440 return their income are tricky. And so we do recommend 0:19:02.480 --> 0:19:05.280 that if you are subject to the foreign investment fund rules, 0:19:05.320 --> 0:19:07.879 that you do seek to get some advice in and 0:19:08.000 --> 0:19:11.360 around the preparation of your tax position on an annual basis, because. 0:19:11.160 --> 0:19:14.760 Could it be that without realizing it, you might actually 0:19:14.760 --> 0:19:16.720 almost be paying more tax than you're actually getting in 0:19:16.760 --> 0:19:17.840 a return. 0:19:17.800 --> 0:19:21.800 That's correct, you know. So, for example, under the fair 0:19:21.840 --> 0:19:26.760 dividend rate method, you have a deemed dividend equal to 0:19:26.840 --> 0:19:31.000 five percent of the opening market value of that investment. 0:19:31.119 --> 0:19:33.720 So if you'd bought one thousand dollars of Tesla shares, 0:19:33.760 --> 0:19:37.320 for example, and they were valued at one thousand dollars 0:19:37.400 --> 0:19:40.960 on the first of April twenty twenty four, then your 0:19:41.040 --> 0:19:43.359 deemed income for the year will be five percent of that. 0:19:44.520 --> 0:19:47.440 And if the dividend yield coming out of that Tesla 0:19:47.920 --> 0:19:50.720 stock is you know, around the one one to two percent, 0:19:50.760 --> 0:19:54.760 which often American companies do tend to have relatively low 0:19:54.760 --> 0:19:58.480 dividend yields, the actual cash dividend that you receive may 0:19:58.520 --> 0:20:01.840 be well less than the deemed income that you have 0:20:02.600 --> 0:20:06.119 from that investment under the fair dividend rate. There is 0:20:06.359 --> 0:20:10.480 another methodology that's available to natural persons and trustees of trusts, 0:20:10.520 --> 0:20:13.760 and that's to use comparative value. And that comparative value 0:20:13.800 --> 0:20:17.240 methodology effectively seeks to tax you on the unrealized gain 0:20:17.920 --> 0:20:21.160 that you've had during the year. So if the shares 0:20:21.200 --> 0:20:22.960 were worth a thousand dollars at the beginning of the 0:20:23.040 --> 0:20:25.639 year and they're worth nine hundred and you've made a loss. 0:20:26.240 --> 0:20:28.040 You have a choice to be able to say, I'll 0:20:28.080 --> 0:20:30.600 take that comparative value method. I'll take that loss, in 0:20:30.640 --> 0:20:34.040 which case your income under the Foreign Investment Fund rules 0:20:34.160 --> 0:20:37.840 is nil, and you do have the option to choose 0:20:37.880 --> 0:20:41.879 between years. So yeah, some of it can be quite complicated. 0:20:42.440 --> 0:20:46.320 Just thinking if you've got a less complicated portfolio, but 0:20:46.440 --> 0:20:48.679 you are wanting to make sure that you are paying 0:20:48.720 --> 0:20:51.439 the tax you should be. Apart from the fact that 0:20:51.480 --> 0:20:55.840 she says has deducted from the distribution so far, are 0:20:56.119 --> 0:20:59.600 what resources are out there? I mean, does this wonderful podcast, 0:20:59.720 --> 0:21:00.600 But apart from the. 0:21:02.760 --> 0:21:05.680 Yeah, so Inland Revenue you have some really good material 0:21:05.760 --> 0:21:10.280 on their website. You can obviously avail yourself of tools 0:21:10.320 --> 0:21:13.120 like chat GPT just sort of to sort of give 0:21:13.119 --> 0:21:18.040 you some sort of base base information around it shares. 0:21:18.080 --> 0:21:22.320 These and a number of other investment platform and providers 0:21:22.920 --> 0:21:26.280 produce resources that are intended to help provide some advice 0:21:26.359 --> 0:21:31.399 to investors about how these rules might potentially potentially work. 0:21:33.040 --> 0:21:35.480 Our recommendation would be yeah, by all means, you know, 0:21:35.640 --> 0:21:37.720 undertake and do a bit of due diligence, get to 0:21:37.800 --> 0:21:40.520 get get familiar with with how you think the rules 0:21:40.560 --> 0:21:43.399 might apply. But then if you do have foreign investment 0:21:43.440 --> 0:21:46.480 fund interests, we'd recommend you engage in an appropriate skill 0:21:46.520 --> 0:21:48.560 tax advisor to help you sort of work your way 0:21:48.600 --> 0:21:52.800 through those rules. It does get quite complicated, particularly if 0:21:52.840 --> 0:21:56.320 you've got dividends that are being received and there's withholding 0:21:56.320 --> 0:21:59.000 tax that's been deducted overseas, and you've got some withholding 0:21:59.040 --> 0:22:03.000 tax that's been deducted New Zealand. Sometimes the withholding tax 0:22:03.080 --> 0:22:05.480 that you can claim might be limited under the double 0:22:05.520 --> 0:22:09.720 taxation agreements that New Zealand has with the US, for example, 0:22:10.480 --> 0:22:13.840 and sometimes not the correct amount of taxes in fact 0:22:13.920 --> 0:22:16.560 being deducted, and so you may be limited around how 0:22:16.640 --> 0:22:18.680 much you can actually claim. So someone can get quite 0:22:18.720 --> 0:22:21.520 tricky and you have to track and calculate the amount 0:22:21.560 --> 0:22:23.879 of tax credits on a line by line, investment by 0:22:23.960 --> 0:22:24.920 investment basis. 0:22:25.480 --> 0:22:27.760 Thanks Mark for your insights today. It's been great to 0:22:27.800 --> 0:22:28.520 have you in the studio. 0:22:28.800 --> 0:22:33.040 Thanks Helen. Hopefully I've managed to make tax a little 0:22:33.119 --> 0:22:37.680 less confusing for people, but you really appreciate the opportunity. 0:22:37.240 --> 0:22:39.800 And thanks everyone for tuning in. Hopefully that was a 0:22:39.800 --> 0:22:43.920