Bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. Rental income from renting out a room or a home (including through Airbnb like services) is taxed. The fund’s tax liability is calculated by the fund manager, then attributed and passed onto the fund’s investors to pay. Check here to see if the ASX listed company you own is exempt. There are other methods that the IRD accepts to convert currency, but the use depends on your circumstances (check with a tax professional for more info). ETFs can be both index tracking or actively managed. Do you own shares in a NZ company, or have invested in individual companies via Sharesies? (offers managed funds, index funds, ETFs and individual shares), (offers ETFs and individual shares in New Zealand markets), Index Funds - Pros, Cons and the Bottom Line, Investing in Index Funds and ETFs with the Right Platform, you will pay specific US tax as well as NZ tax (via an IR3 form), some (but far from all) US equity ETFs are very cheap and in some cases offer an expense ratio less than 0.10%, Investing In The US Stock Market From New Zealand. Further Reading:IRD – New Zealand tax residents with interest and dividends from New Zealand bank accounts and investmentsASB – What RWT rate should I use? If you make a very low or negative return, it is advantageous to use the CV method, which could result in low or no tax to pay on your investment. However, a tax return is required if you need to declare some source of income that the IRD isn’t aware of yet. For example, to claim back excess tax from listed PIEs and dividends. With one simple NZ$ purchase an investment in an ETF provides you with a range of securities, such as listed companies or corporate bonds, spreading your risk more broadly. You must apply FIF tax rules if you hold over $50,000 in FIF investments. Active ETFs. All NZ citizens and residents pay either Resident Withholding Tax (RWT) or tax at the Prescribed Investor Rate (PIR) on income from savings and investments in New Zealand. You can keep your dividend statements, and claim this back via your tax return, as there are provisions to avoid double taxation between NZ and other countries. Learn everything about iShares MSCI New Zealand ETF (ENZL). With ETFs you buy units in an investment fund that invests in a basket of securities, like company shares, bonds and other assets – all in one go. Our annual fee is 0.34% p.a. Principal launches PQDI ETF to help U.S. taxpayers boost after-tax income. Further Reading:RNZ – KiwiSaver tax rate errors: Up to 450,000 New Zealanders overtaxed. you can’t use the FDR method on one fund, and CV on another fund. First of its kind exchange traded fund focuses on qualified dividend income In offshore markets like the US, using an ETF has the same tax consequences as using an unlisted fund. For taxation purposes, a year runs from 1 April to 31 March of the following calendar year. an ethical investment index). Your consumer guide to Index Funds is sponsored by our friends at, A portfolio of investments, following an index such as the NZX 20, or S&P500, or an index specific to an industry (i.e. Cryptocurrency is treated as property for tax purposes, and whether it’s taxable, depends on the purpose you acquire them for: Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from selling it are taxable. Further Reading:IRD – Questions & answers: Cryptocurrency and tax. RWT is not a final tax, so if you choose the wrong rate you’ll receive a tax bill/refund at the end of the year to reflect any over or underpaid RWT. Both are regarded as long-term investments. Tax might be the biggest expense you’ll pay over your lifetime. Australia has a similar concept known as franking credits. 0.60% per annum of fund's net value. Estimated revenue for an ETF issuer is calculated by aggregating the estimated revenue of the respective issuer ETFs with exposure to New Zealand. Basically if you buy the shares with the intent of selling them for a profit (as opposed to buying and holding long-term to earn dividend income), or are in the business of trading shares, then you could be considered a trader. I’ve gone down the rabbit hole and combined my knowledge of tax with research from various sources, and the result is this article, a general overview of how different types of investments are taxed in New Zealand. ETFs held for more than a year are taxed at the long-term capital gains rates, which goes up to 23.8%, including the 3.8% Net Investment Income Tax, while those held for less than a … But if you choose not to declare the rental income, then you cannot deduct expenses from your income. However, there are some key differences to be aware of that this guide details. Most banks offer PIE equivalents of some savings accounts and term deposits (sometimes called Term PIEs). For example, if I earned an income of $45,000 two years ago, and last year doubled my income to $90,000, I can still use a PIR of 17.5%, If you’re on a 30% or 33% tax rate, as PIRs are capped at 28%, $2,000 of their interest income will be taxed at 30%, Capital gains on bonds are generally taxable, Fees you pay in relation to earning interest from P2P Lending (such as Harmoney’s service fee, or Lending Crowd’s Interest Flex) should be tax deductible, Capital losses on P2P Lending (such as write-offs), are generally not tax deductible, Most funds offered by local fund managers such as Milford and Devon, Most investment funds offered by our banks, Listed property shares E.g. However, one advantage that traders have is that they can claim capital losses on shares to reduce their taxable income. You need to choose the correct tax rate or you could face an unexpected bill at the end of the tax year. ETF tax differs depending on the location and domicile of the fund. Index funds diversify their investments by following a particular index, buying and holding the investments that make up the index. Once you have selected a method, and calculated your taxable income, you will need to pay tax on that income at your marginal tax rate. So based on that statement, IRD are likely to view any gains on cryptocurrency as taxable. ​. Anyone looking for investment diversification to spread the risk. Index funds invest to match the holdings and performance of the index it tracks.​. For Australian investors, ETFs create tax complications because instead of classifying them as ordinary company shares, the ATO classifies ETFs as trusts. Ultimately the total claimable overseas tax paid (combining both the value from the non FIF overseas tax paid amount and FIF total claimable overseas tax paid amount) can be entered into the NZ IR3 income tax return at field 17A and can be used to offset the income tax payable. Overseas dividends may already have some foreign tax deducted. For other cases, a tax return is required. Withholding tax on dividends can get trapped in an offshore investment entity (i.e. InvestNow Tip: Use the ‘Fund Type’ dropdown on InvestNow’s Fund Search page to filter funds by type. At Sharesies, we make things easy by paying income tax on your investments for you. NZ Top 10 Fund . ETFs trade on the stock … Comparing Sharesies vs Investnow vs Hatch and more, Top 10 New Zealand Personal Finance Experts, Trusted Insurance Brokers in Christchurch, American Express Airpoints Platinum Review, Best Foreign Currency Debit & Credit Cards, TransferWise International Money Transfer Review, Renting Directly to Tenants vs Using an Agent, Trusted Mortgage Brokers in Napier and Hastings, Fixed or Floating Mortgage Rate Calculator, How to Check Your KiwiSaver Contributions, New Zealand Defence Force KiwiSaver Scheme, 65+ Best Online Shopping Websites in New Zealand, The Complete Guide to Renting in New Zealand, Hardship Assistance - Urgent Costs and Living Expense Assistance, Student Job Interview Questions and Answers. Free ratings, analyses, holdings, benchmarks, quotes, and news. I won’t get into detail into the calculations, but fortunately InvestNow and services like Sharesight can perform the calculations for you, or you can use IRD’s calculator. Kernel is a passive alternative to ETFs, offering six index funds that aim to offer value and diversification. If you buy an ETF in a non-NZD currency, the value of your investment in New Zealand Dollars will change as the exchange rate goes up and down. Bank ETFs. This income could be (copied from the IRD): The Income Tax Assessment determines whether you have a tax bill or tax refund for the year, correcting any under or over payment of tax (e.g. This tax is paid when you sell your investment in a fund, or at the end of the tax year (31 March), which is why you may receive a tax bill from platforms like InvestNow in April. ETF Nerds » The ETF Nerds work to educate advisors and investors about ETFs, what makes them unique, how they work and share how they can best be used in a diversified portfolio. I've known about this issue but did not include on my blog because I did not… Your family home is usually excluded from the Bright-Line test, rental property including Airbnb and Bookabach, Bank deposits, bonds, peer to peer lending, Things that would make you liable for capital gains such as cryptocurrency, or trading shares and property, Know your RWT rate and PIR, and make sure your investment provider has your correct rates, Know which tax rate applies for each type of investment, so you can choose one that better fits your personal circumstances, Know when you need to file a tax return, and when you don’t, Seek professional advice – there may be rules and caveats unique to your personal circumstances, Despite its complexity, don’t let tax put you off investing. But there are a few cases where capital gains are taxable: Like capital gains on shares, capital gains on property is taxed at your marginal tax rate. You don’t have apply the de minimis exemption if you’re a de minimis investor. Information about tax on FIFs deserves a section of its own – see section D below, Further Reading:InvestNow – PIEs and PIE tax – your questions answeredThe Smart and Lazy – Different Tax on Smartshares and SuperLife ETF. If the two holders of a joint account have different RWT rates or PIRs, the investment provider will usually tax the account at the higher rate. Phew, that was a mission to write up, and I am just scratching the surface of tax in this article. Gains include dividends, sale proceeds and tax credits. Unfortunately there’s no black and white rule to determine whether you meet the definition of a trader or not. ETFs are simply funds in which you can buy and sell their units on the sharemarket (in the same way as shares in an ordinary company) – hence the name Exchange Traded. The tax return form is known its the IR3, which you can also complete online. This level playing field, means that investors can simply focus on fees. Invest Now. Returns and Fees Frequently Asked Questions Legal Documents NZ Super Rates Invest For Children. How you can apportion the income to each individual is a topic better discussed with a tax professional. Examples of MRPs are: Listed PIEs are PIEs that are listed on the sharemarket. Our values statement is simple: MoneyHub exists to give every New Zealander the information they need to make better financial decisions. : To understand how ETFs and Index Funds differ, we explain the fees: An example of an index fund (the Simplicity NZ Bond Fund) which shows both the management fee and member fee being deducted as a cash expense against the returns. Source: nzx.com/instruments/MZY (please note prices will have changed). View SuperLife's funds. Index Funds and Exchange Traded Funds (ETFs) offer investors opportunities to diversify their investments with one single purchase. Whether you decide to invest in index funds, ETFs, or both, there are some smart ways to save money to increase your profits in the short and long-term. In this article, we’ll take a look at some of the more common investment tax … Cumulative Value (CV) – Closing value plus gains, minus opening value plus costs. As a Kiwi investor you’ll need a way for our tax department, the IRD, to identify you as a taxpayer. You should be aware of two tax rates when it comes to your investments – your RWT rate and PIR. This is known as an IRD number, which is NZ’s equivalent of a Taxpayer Identification Number. SmartShares NZ Dividend ETF (DIV) Designed to … The IRD will look at things like your trading patterns and frequency to determine whether you’re a trader. In NZ we use marginal tax rates. Additionally, anyone unwilling to take the time to research individual companies to invest in. I’d say the most important things to know are: Found this article helpful? Active ETFs are managed by professional fund managers and aim to beat the market; passive ETFs follow a benchmark index. Trusted by more than 1,000 Kiwis, Kernel offers easily accessible index fund investing. In many cases tax is simple. $60 a year (regardless of the number of investment options you invest in, or the number of times you change investment options). You need to file it by the 7th of July following the end of a tax year, and after filing, the IRD will come back to you with a tax bill or refund. The buyer offers a lower amount than what the seller wants to accept, meaning the price isn't always clear. E.g. Since banks' effective tax rates hover in the range of as high as 25% to 35%, these are likely to benefit more from the tax reform plan. The main ways that Kiwi investors might come into possession of FIFs are: I’ll focus on how the above FIFs are taxed. In addition, tax doesn’t just apply when you cash out to NZD, but when you make a disposal that results in a realised gain or loss – such as trading one crypto for another, or a crypto to another fiat currency like USD. You need to work out your rate based on the income from each of the past two tax years. What Happens If Your Investing Platform Shuts Down? For Stockspot clients, we calculate your tax liability for you including any ETFs that were sold or rebalanced during the year. The information on this website does not constitute financial advice in any form. Further Reading:IRD – Income tax assessments. For example, the 2020 tax year runs from 1 April 2019 to 31 March 2020. Home-based exchange-traded funds (ETFs) provide NZ investors with a sizeable tax uplift across both equity and fixed income asset classes, a new study by the Hong Kong arm of EY shows. Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! This is a market capitalisation index of the 40 NZ listed companies below the top 10. ​We cannot accept liability for any decision made based on our information. You bought the property with the intention to resell it for a profit, You have a history of buying and selling property which could see you considered a property dealer, You are in or associated with the building industry, The ‘Bright-Line test’ – You sell within 5 years of purchase. Your RWT rate depends on your overall taxable income for the tax year. To get the estimated issuer revenue from a single New Zealand ETF, the AUM is multiplied … We welcome your stories, tips and any feedback via. The income earned from investments is commonly referred to as dividends, and you’re not taxed on profit or loss.At Sharesies you can invest in NZ and US companies and exchange-traded funds (ETFs), as well as a selection of NZ managed funds. Listed PIEs include: Dividends from listed PIEs may contain Excluded income. The PIR applies to investments that are structured as Portfolio Investment Entities (PIEs). The two methods are (copied from InvestNow’s tax guide): Fair Dividend Rate (FDR) – 5% of the opening market value at the beginning of the income year, plus a quick sale adjustment if you bought and then subsequently sold units in the same fund during the year. Unlike buying individual shares, index funds and ETFs lower risk through diversification – you're never investing in just one company. If you invest in certain ASX listed Australian companies (typically those who pay franking credits with their dividends), the FIF tax rules do not apply to them. Index funds and ETFs have some key differences when it comes to tax and buying and selling costs, as we outline below: Bid/Offer differential, typical of any ETF purchase or sale. ETF Data for Journalists » Here you will find consolidated and summarized ETF data to make data reporting easier for journalism. However, many NZ dividend paying companies have imputation credits attached to their dividends, reducing the amount of tax you’re liable for. An Exchange Traded Fund (ETF) is a fund that the units in that fund are bought and sold on a stock exchange via broker, rather than directly from the fund manager. If so, you may be taxed on your dividends and capital gains. Let’s take a look at what tax applies to different types of investments. I am not a tax professional and this article is not to be used as tax advice! This rule requires you to choose from one of two methods to calculate your taxable income on each FIF investment you own. Further Reading:KPMG – Tax on Offshore share investments (PDF)InvestNow – Going global – Tax tips and traps for local investorsInvestNow – InvestNow Tax Guide (PDF)IRD – Foreign investment fund calculatorIRD – Foreign currency amounts – conversion to New Zealand dollarsÂ. This means that tax is only paid on half of the capital gain. Passive ETFs. If you receive a tax bill, this usually must be paid by the 7th of February of the following year. There are two ways you can make money from property – rental income and capital gains. In rare instances, a provider will change a price or product before we've had a chance to update our information; double check prices first before making any decision. Those using a PIR too low have been hit with a tax bill, while those using a PIR too high are not entitled to a refund of their overpaid tax. You also must apply the same calculation method across all your FIF investments for the year E.g. Subscribe to get new Money King NZ articles in your inbox. Buy and sell ETFs like shares. Tax is really complicated, this article doesn’t cover every rule and scenario, and the information here may apply differently from person to person, depending on their personal circumstances. These are a bit like ETFs except they don’t trade on an exchange. The FIF rules appear daunting compared to investing in PIE funds, but can actually work out in your favour. The ETF tax nightmare in Australia. ETF, ETFs, Hatch, Index Funds, Kernel, Money Education, Sharesies, SmartShares I’ve had a number of emails asking about the changes to Smartshares, in particular the introduction of their new S&P/NZX 50 ETF (NZG) and how it compares to their existing NZ Top 50 ETF (FNZ). There some exceptions where you do not have to declare any rental income, like for some holidays homes and boarders. In many cases, it’s not as daunting as it appears to be! Entry fee. Another example, is someone who earns $68,000. Further Reading:IRD – Selling PropertyIRD – IRD313 – Buying an selling residential property (PDF). The administration fee is stated net of an income tax deduction applied in calculating your PIE tax payable (the deduction is paid to us). Objective. These exchange traded funds seek to replicate and track a benchmark index as closely as possible. Using the FDR method, your taxable income is capped at 5% of your investment’s value, even if you make a return of 10% for example. Shares you buy on Hatch would have 15% US tax deducted from their dividends. Costs include the cost of buying units, along with foreign income tax paid by you directly on income of the FIF. But one quirk of AUTs may mean that using the exemption could result in a tax disadvantage. Kiwi Property Group, Vital Healthcare Property, Owning certain Australian shares, like Xero. For traders, their capital gains are considered taxable income. LOWER COSTS The funds keep costs down because in most cases we do not need to make active investment decisions, which may require spending on research and analytical expertise. The Smartshares range of ETFs includes socially responsible international equity exposure, ... without having to worry about the complexity of managing foreign currencies or overseas tax. Quick Links . In many cases, ETFs may have a lower minimum investment than index funds. Am a little unclear, can someone wiser please clarify- we live in Australia, hold Australian domiciled etfs and are clear on tax implications of various funds. Check out our helpful guide on how exchange traded funds work. For other cases… a property sector index) or investing preference (i.e. Using the de minimis exemption is probably simpler than following the FIF rules. Kernel is 100% Kiwi owned and are committed to no-nonsense index funds with low, transparent fees. I will provide more specific info on each case below as you read along. Using the Exchange Traded Fund (ETF) Selector below, you can view a list of all available ETFs that Direct Broking has access to on the New Zealand (NZ) and Australian (AU) share markets. Tax applies to investment income in New Zealand. 10 Top Investments for Young New Zealanders, Investing in the US Stock Market from New Zealand, Barefoot Investor-Friendly Financial Products in New Zealand. These are taxed at your PIR, so are beneficial for those who have a PIR that’s lower than their RWT rate. The Smartshares NZ Dividend ETF invests in financial products listed on the NZX Main Board and is designed to track the return on the S&P/NZX 50 High Dividend Index. He pointed out that apart from the admin fee and management cost, investors also need to consider the tax implication when investing. Tax on residential property is a step up in terms of complexity, so this is just an extremely basic and simplified overview – there are heaps of rules and caveats I won’t cover here. Their dividends are always taxed at 28%, but they often contain imputation credits to eliminate your tax on these dividends. Using the FDR method, if you make additional contributions to your investment over the year, you are only taxed on the opening value of your investment as at 1 April. This is because both investment options focus on diversifying risk; going all-in on Xero may seem obvious now, but no investment manager would ever take sure a risk. This means if the NZD gets stronger against, for example, the USD, any ETFs held in USD will reduce in value (in NZD). Being a relatively new asset class, the taxation rules on cryptocurrency is relatively undeveloped. If you got this far hopefully your brain is still intact, and that this article has given you an idea of what to expect regarding your tax implications when investing. You can then use the lowest PIR out of those years. NZ ETFs are classified as a listed PIE, meaning that each distribution from the fund is automatically taxed at 28% – the highest rate. A portfolio of investments that can be either actively managed or index tracking. The most common method to convert foreign amounts to NZD is to use the actual exchange rate on the day of each transaction. Index ETFs. ​Our priority is accurate information. For example, you may want to invest in a fund that tracks the performance of the top 50 NZ companies listed on the NZX (NZX 50). This ETF has total assets of almost US$450 billion, and has an annual management fee of 0.04% p.a. View our MDZ Stock Quote. And you wouldn’t be alone if you said that tax is the most confusing (and perhaps the most boring!) Administration fee. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them. More funds = less diversification? For example: If you hold less than $50,000 in FIF investments, you are a de minimis investor. De minimis investors can apply the de minimis exemption and simply pay tax on the actual dividends from their FIF investments, rather than following the FIF tax rules. What I’ve been investing in – August 2019, ← What I’ve been investing in – September 2019, What I learnt – NZ Shareholders’ Association ‘Money 101’ Seminar →, What I’ve been investing in – February 2020, Rights issues, share buybacks, and acquisitions – 5 things to know about Corporate Actions, Property vs Shares – The pros and cons of buying residential property, Due diligence on shares – How I evaluate companies before investing, How to invest in Australian shares from New Zealand, What I’ve been investing in – January 2020. KiwiSaver funds are all multi-rate PIEs, so are taxed at your PIR. Produce $ 4000 of interest income differences to be used without first assessing your own research room a. Are also a number of advantages over ETFs, and has an annual management of. Overseas investments, the way they are not the same calculation method across all FIF! General, there are two methods in which you are a journalistic online resource etf tax nz aim! 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