Speaker 1: You're listening to a Chase's podcast. We have a lot
Speaker 1: of companies on Chase's that are US based. Investing there.
Speaker 1: Things get a little bit different, don't they. With the
Speaker 1: I think the FAF is the kind of the acronym
Speaker 1: that's everywhere. If you can explain that for US.
Speaker 2: I'll certainly have a go. So the Foreign Investment Fund
Speaker 2: regime is intended to capture all foreign investments, particularly or
Speaker 2: traditionally into companies. There is an Australia is actually caught
Speaker 2: within the context of those rules. However, because of our
Speaker 2: close economic relationship with Australia and the fact that a
Speaker 2: lot of New Zealanders invest into Australia, we have what's
Speaker 2: called a foreign Investment Investment Fund exemption list. So that
Speaker 2: typically is entities in Australia that are listed on the
Speaker 2: Australian Stock Exchange that are resident in Australia. Those companies
Speaker 2: are included in of an exemption list. What that effectively
Speaker 2: means is that you don't need to apply the foreign
Speaker 2: Investment Fund rules to those particular investments. You can just
Speaker 2: treat them, going to call it as normal investments where
Speaker 2: you pay tax on dividends as and when they are received.
Speaker 2: For everybody else or everywhere else in the world, did
Speaker 2: a subject to the foreign investment fund rules? What effectively
Speaker 2: that does is it sort of ignores, if you like,
Speaker 2: the dividends that are paid, and the investments are taxed
Speaker 2: on the basis of a number of methods, but in
Speaker 2: the sense sort of deemed income for tax purposes and
Speaker 2: for individuals. The two main options there are the fair
Speaker 2: dividend rate and the comparative value method.
Speaker 1: And just to stop you there, Mark, I think you
Speaker 1: wouldn't be subject to the foreign investment fund unless you
Speaker 1: were investing fifty thousand New Zealand or you had that
Speaker 1: in investments or.
Speaker 2: Right, it's correct. There's a deminimus, so an exclusion from
Speaker 2: having to apply these horrendous rules. If you if you,
Speaker 2: if you hold foreign investment fund interests that cost less
Speaker 2: than New Zealand fifty thousand dollars, if you are unfortunately
Speaker 2: fortunate enough to hold investments over that threshold, then you
Speaker 2: will be subject to these rules and the complications that
Speaker 2: go that go with that.
Speaker 1: So if you had a couple of thousand dollars in Tesla,
Speaker 1: for example, you'd probably be all right, that's correct, it
Speaker 1: would only be if you had a fear bit more
Speaker 1: thinking of that, though surely at that stage you'd begin
Speaker 1: your advisor to have a lock unless you were real
Speaker 1: wizard tax.
Speaker 2: Yeah, there's not many people that have a go can
Speaker 2: I use that phrase? It doing it themselves. It's these
Speaker 2: rules are are incredibly complicated. The method dollar methods that
Speaker 2: are that are available to people to sort of return
Speaker 2: their income a tricky and so we do recommend that
Speaker 2: if you are subject of the Foreign Investment fund rules,
Speaker 2: that you do seek to get some advice in and
Speaker 2: around the preparation of your tax position on an annual.
Speaker 1: Basis, because could it be that without realizing it, you
Speaker 1: might actually almost be paying more tax than you're actually
Speaker 1: getting in a return.
Speaker 2: That's correct, you know. So, for example, under the fair
Speaker 2: dividend rate method, you have a deemed dividend equal to
Speaker 2: five percent of the opening market value of that investment.
Speaker 2: So if you'd bought one thousand dollars of Tesla shares,
Speaker 2: for example, they were valued at one thousand dollars on
Speaker 2: the first of April twenty twenty four, then your deemed
Speaker 2: income for the year will be five percent of that
Speaker 2: And if the dividend yield coming out of that Tesla
Speaker 2: stock is you know, around the one one to two percent,
Speaker 2: which often American companies do tend to have relatively low
Speaker 2: dividend yields. The actual cash dividend that you receive may
Speaker 2: be well less than the deemed income that you have
Speaker 2: from that investment under the fair dividend rate. There is
Speaker 2: another methodology that's available to natural persons and trustees of trusts,
Speaker 2: and that's to use comparative value. And that comparative value
Speaker 2: methodology effectively seeks to tax you on the unrealized gain
Speaker 2: that you've had during the year. So if the shares
Speaker 2: were worth a thousand dollars at the beginning of the
Speaker 2: year and they're worth nine hundred and you've made a loss,
Speaker 2: you have a choice to be able to say, oh,
Speaker 2: I'll take that comparative value method I'll take that loss,
Speaker 2: in which case your income under the Foreign Investment fund
Speaker 2: rules is nil, and you do have the option to
Speaker 2: choose between years. So yeah, some of it can be
Speaker 2: quite complicated. Investing involves risk you might lose the money
Speaker 2: you start with.
Speaker 1: We recommend talking to a licensed financial advisor. We also
Speaker 1: recommend reading product disclosure documents before deciding to invest