WEBVTT - Quick Bite: What's the $50,000 Rule in NZ Foreign Investing?

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<v Speaker 1>You're listening to a Chase's podcast. We have a lot

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<v Speaker 1>of companies on Chase's that are US based. Investing there.

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<v Speaker 1>Things get a little bit different, don't they. With the

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<v Speaker 1>I think the FAF is the kind of the acronym

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<v Speaker 1>that's everywhere. If you can explain that for US.

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<v Speaker 2>I'll certainly have a go. So the Foreign Investment Fund

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<v Speaker 2>regime is intended to capture all foreign investments, particularly or

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<v Speaker 2>traditionally into companies. There is an Australia is actually caught

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<v Speaker 2>within the context of those rules. However, because of our

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<v Speaker 2>close economic relationship with Australia and the fact that a

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<v Speaker 2>lot of New Zealanders invest into Australia, we have what's

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<v Speaker 2>called a foreign Investment Investment Fund exemption list. So that

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<v Speaker 2>typically is entities in Australia that are listed on the

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<v Speaker 2>Australian Stock Exchange that are resident in Australia. Those companies

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<v Speaker 2>are included in of an exemption list. What that effectively

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<v Speaker 2>means is that you don't need to apply the foreign

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<v Speaker 2>Investment Fund rules to those particular investments. You can just

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<v Speaker 2>treat them, going to call it as normal investments where

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<v Speaker 2>you pay tax on dividends as and when they are received.

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<v Speaker 2>For everybody else or everywhere else in the world, did

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<v Speaker 2>a subject to the foreign investment fund rules? What effectively

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<v Speaker 2>that does is it sort of ignores, if you like,

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<v Speaker 2>the dividends that are paid, and the investments are taxed

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<v Speaker 2>on the basis of a number of methods, but in

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<v Speaker 2>the sense sort of deemed income for tax purposes and

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<v Speaker 2>for individuals. The two main options there are the fair

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<v Speaker 2>dividend rate and the comparative value method.

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<v Speaker 1>And just to stop you there, Mark, I think you

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<v Speaker 1>wouldn't be subject to the foreign investment fund unless you

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<v Speaker 1>were investing fifty thousand New Zealand or you had that

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<v Speaker 1>in investments or.

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<v Speaker 2>Right, it's correct. There's a deminimus, so an exclusion from

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<v Speaker 2>having to apply these horrendous rules. If you if you,

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<v Speaker 2>if you hold foreign investment fund interests that cost less

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<v Speaker 2>than New Zealand fifty thousand dollars, if you are unfortunately

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<v Speaker 2>fortunate enough to hold investments over that threshold, then you

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<v Speaker 2>will be subject to these rules and the complications that

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<v Speaker 2>go that go with that.

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<v Speaker 1>So if you had a couple of thousand dollars in Tesla,

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<v Speaker 1>for example, you'd probably be all right, that's correct, it

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<v Speaker 1>would only be if you had a fear bit more

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<v Speaker 1>thinking of that, though surely at that stage you'd begin

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<v Speaker 1>your advisor to have a lock unless you were real

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<v Speaker 1>wizard tax.

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<v Speaker 2>Yeah, there's not many people that have a go can

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<v Speaker 2>I use that phrase? It doing it themselves. It's these

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<v Speaker 2>rules are are incredibly complicated. The method dollar methods that

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<v Speaker 2>are that are available to people to sort of return

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<v Speaker 2>their income a tricky and so we do recommend that

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<v Speaker 2>if you are subject of the Foreign Investment fund rules,

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<v Speaker 2>that you do seek to get some advice in and

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<v Speaker 2>around the preparation of your tax position on an annual.

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<v Speaker 1>Basis, because could it be that without realizing it, you

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<v Speaker 1>might actually almost be paying more tax than you're actually

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<v Speaker 1>getting in a return.

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<v Speaker 2>That's correct, you know. So, for example, under the fair

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<v Speaker 2>dividend rate method, you have a deemed dividend equal to

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<v Speaker 2>five percent of the opening market value of that investment.

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<v Speaker 2>So if you'd bought one thousand dollars of Tesla shares,

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<v Speaker 2>for example, they were valued at one thousand dollars on

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<v Speaker 2>the first of April twenty twenty four, then your deemed

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<v Speaker 2>income for the year will be five percent of that

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<v Speaker 2>And if the dividend yield coming out of that Tesla

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<v Speaker 2>stock is you know, around the one one to two percent,

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<v Speaker 2>which often American companies do tend to have relatively low

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<v Speaker 2>dividend yields. The actual cash dividend that you receive may

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<v Speaker 2>be well less than the deemed income that you have

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<v Speaker 2>from that investment under the fair dividend rate. There is

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<v Speaker 2>another methodology that's available to natural persons and trustees of trusts,

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<v Speaker 2>and that's to use comparative value. And that comparative value

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<v Speaker 2>methodology effectively seeks to tax you on the unrealized gain

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<v Speaker 2>that you've had during the year. So if the shares

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<v Speaker 2>were worth a thousand dollars at the beginning of the

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<v Speaker 2>year and they're worth nine hundred and you've made a loss,

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<v Speaker 2>you have a choice to be able to say, oh,

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<v Speaker 2>I'll take that comparative value method I'll take that loss,

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<v Speaker 2>in which case your income under the Foreign Investment fund

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<v Speaker 2>rules is nil, and you do have the option to

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<v Speaker 2>choose between years. So yeah, some of it can be

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<v Speaker 2>quite complicated. Investing involves risk you might lose the money

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<v Speaker 2>you start with.

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<v Speaker 1>We recommend talking to a licensed financial advisor. We also

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<v Speaker 1>recommend reading product disclosure documents before deciding to invest