 | Taxation | |
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NOTE: You should not select an investment on the basis of taxation alone. Tax laws change frequently and what seemed to be a good deal this year may not be so attractive next year. This information is given as a guide only. If in doubt please seek professional advice. New Zealand Personal Taxation Rates New Zealand Personal Taxation Rates For individuals earning less than $38,000 annually, there is a 'low income earner' rebate which reduces the effective tax rate. Proposed Changes in Taxation of Australian Unit Trusts An announcement on the proposed changes will be made in the May 2005 budget. At this stage UK based OEIC (Open Ended Investment Company) funds are not targeted. Examples of funds that will be affected by the proposed changes: We will keep clients posted. Capital Gains Tax The taxation law is not clear and the IRD may deem you to be a trader (this includes property) if you have traded assets as little as 4 or 5 times in a year. You are in the business of trading assets, such as a Fund Manager. You purchase assets with the prime intention of selling them to make a capital profit!! New Zealand Domiciled Unit Trusts Whether capital gains is taxed or not depends on whether the unit trust has a taxation ruling which deems it to be a 'passive' or 'active' fund. Passive funds tend to be index type share funds and usually have an IRD ruling exempting them from taxation of capital gains. Active funds are funds which actively trade and may include a range of asset classes such as shares, bonds, property, futures etc. these funds pay tax on capital gains (including 'unrealised') and are able to deduct any losses ( and 'unrealised losses'). Imputation Credits If you pay too much tax via imputation tax you can only use imputation tax to offset other income and resident withholding tax. You can carry imputation credits forward to a future tax year but if you are in credit the IRD will not refund the tax paid. For overseas tax residents imputation credits paid in New Zealand will not be refundable but you should be able to offset against your total taxable income. New Zealand Group Investment Funds (GIF's) These funds are suitable for non-resident investors. Residents of countries that have a double taxation agreement with New Zealand may be able to use any withholding tax credits issued. Those funds that have Approved Issuer Levy Status can deduct tax at 2% in lieu of withholding tax. This makes these funds very tax effective for residents in low or zero tax jurisdictions. For further information on taxation of non-residents refer to: http://www.ird.govt.nz/ New Zealand Superannuation Trusts and Insurance Bonds If your marginal tax rate is less than 33% you will be better off from a tax perspective investing in an equivalent unit trust. Some fund managers offer the same fund in both insurance and unit trust structures. If your income is above $60,000 this will put you in the 39% tax bracket. These investments can be used to reduce your overall tax rate, refer to Salary Sacrifice. Australian Domiciled Unit Trusts The fund will also pass through to Australian residents any franking credits (same as imputation credits) that the fund has received from investments in Australian company shares. Please note these franking credits are not available to New Zealand investors to offset against personal income tax such as imputation credits available for New Zealand unit trust funds. Australian based unit trusts distribute any realised capital gains to investors under the Australian capital gains tax rules, generally in the year the gains were realised. What this means for a New Zealand investor is that the capital gains are passed to the investor as income which is taxable as income for New Zealand tax payers. Any non-resident withholding tax deducted in Australia can be used as a credit to offset tax payable in New Zealand. For unit trusts that invest in Australian shares, Australian franking credits can not be used by a New Zealand tax payer. For those investors living outside Australia and New Zealand, Australian unit trusts may have some significant tax advantages over an equivalent New Zealand unit trust. UK OEIC Funds (Open Ended Investment Companies) Capital gains/losses are kept within the funds and reflected in the share price appreciating or depreciating. These UK OEIC Funds are much more tax effective than nearly all New Zealand domiciled unit trusts, super schemes, insurance bonds, and Australian domiciled unit trusts. Overseas Resident Issues Unit trusts invested predominantly in income producing assets eg. bonds, mortgages, property funds are not generally recommended for overseas investors. Most or all of the return derives from income which is taxed at 33% and issue imputation credits which generally cannot be used by non-residents. Group Investment Funds (GIF's) Generally these funds are income orientated and are suitable for non-residents. Residents of those countries that have a double taxation agreement with New Zealand may be able to use any withholding tax credits issued. Those funds which have Approved Issuer Levy Status can deduct the levy at 2% in lieu of withholding tax. This makes these funds tax effective for residents in low or zero tax jurisdictions. Superannuation Trusts and Insurance Bonds Tax Deductibility of Financial Planning Fees Tax Penalties
The above penalties may be reduced for disclosure before an audit by 75% or during an audit by 40%. Above penalties may be increased by 25% for obstruction. |
Disclosure Statement available on request and free of charge, phone 04 471 0662, or email alison@lyfords.co.nz |
