You either have to buy them directly from the fund provider, or through a company like Sharesies. In many cases, Resident Withholding Tax (RWT) or PIE tax is automatically deducted from you at a certain point in time, like when the income is paid – in the same way PAYE tax is deducted from your salary or wages. Examples are the Smartshares NZ Top 50 ETF, and Smartshares Total World ETF. Popular examples of Foreign Investment Funds (FIFs) are anything you buy through Hatch, or Australian Unit Trusts (AUTs) you can find on InvestNow. This is a significant compliance benefit (saving time and accountant’s fees). This is a market capitalisation index of the 40 NZ listed companies below the top 10. Let’s take a look at what tax applies to different types of investments. Your KiwiSaver provider will handle all the taxes for you, so you don’t have to do anything apart from making sure they have your correct PIR. 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. The ETF tax nightmare in Australia. For Australian investors, ETFs create tax complications because instead of classifying them as ordinary company shares, the ATO classifies ETFs as trusts. But if you choose not to declare the rental income, then you cannot deduct expenses from your income. 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. Cumulative Value (CV) – Closing value plus gains, minus opening value plus costs. Most salary and wage earners do not have to complete a tax return, as all of their taxable income will be covered by the above Income Tax Assessment. Subscribe to get new Money King NZ articles in your inbox. Do you own shares in a NZ company, or have invested in individual companies via Sharesies? In many cases, ETFs may have a lower minimum investment than index funds. Paying tax on investments and savings in NZ. For example, if your annual income is $30,000, the most appropriate RWT rate for you would be 17.5%. The IRD will look at things like your trading patterns and frequency to determine whether you’re a trader. Unfortunately, if you need to complete a tax return, you need to declare all your taxable income in the return, even if your tax liability for this income has already been covered by an Income Tax Assessment. For other cases… You will have tax deducted on the interest when it’s paid, as well as at the end of the tax year (31 March). 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. To get the estimated issuer revenue from a single New Zealand ETF, the AUM is multiplied … The S&P/NZX 50 High Dividend Index is made up of 25 high yielding financial products listed on the NZX Main Board and included in the S&P/NZX 50 Index. At Sharesies, we make things easy by paying income tax on your investments for you. You can choose to apply the above FIF rules (particularly if they work out in your favour), but if you do so, you must use them for the next four years. 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. Anyone looking for investment diversification to spread the risk. Where you’ve owned an ETF for 12 months, the law allows the taxable capital gain to be reduced by 50% for individuals. Within a few months of the end of the tax year, the IRD may automatically issue you an income tax assessment. Let’s say they made an investment that would produce $4000 of interest income. He pointed out that apart from the admin fee and management cost, investors also need to consider the tax implication when investing. Many investors decide to buy into index funds and ETFs, as each has its unique advantages. 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. As a Kiwi investor you’ll need a way for our tax department, the IRD, to identify you as a taxpayer. In NZ, investors also need to think about tax, with the key element of this being our Portfolio Investment Entity (PIE) tax regime. InvestNow Tip: Use the ‘Fund Type’ dropdown on InvestNow’s Fund Search page to filter funds by type. This means if the NZD gets stronger against, for example, the USD, any ETFs held in USD will reduce in value (in NZD). Recently a tax accountant contacted me regarding my post on comparing cost on ETF investing between SmartShares and Superlife. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. These are a bit like ETFs except they don’t trade on an exchange. Get new investing articles in your inbox. It’s understandable if you read the above and have been put off by the complexity of tax on investments. Further Reading:IRD – Selling PropertyIRD – IRD313 – Buying an selling residential property (PDF). You also must apply the same calculation method across all your FIF investments for the year E.g. If so, you may be taxed on your dividends and capital gains. For other cases, a tax return is required. If you hold investments, there are various aspects of tax legislation that may apply to you, depending on the type of investment you have, and any other earnings that you make. However, many NZ dividend paying companies have imputation credits attached to their dividends, reducing the amount of tax you’re liable for. 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. Quick Links . And you wouldn’t be alone if you said that tax is the most confusing (and perhaps the most boring!) Given the fixed RWT rate of 33%, those on a lower tax rate may be able to file a tax return to claim back their excess tax paid. The main ways that Kiwi investors might come into possession of FIFs are: I’ll focus on how the above FIFs are taxed. 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. 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. Rental income from renting out a room or a home (including through Airbnb like services) is taxed. Invest Now. So based on that statement, IRD are likely to view any gains on cryptocurrency as taxable. You need to work out your rate based on the income from each of the past two tax years. an ethical investment index). I've known about this issue but did not include on my blog because I did not… Tax might be the biggest expense you’ll pay over your lifetime. This is known as an IRD number, which is NZ’s equivalent of a Taxpayer Identification Number. I’d say the most important things to know are: Found this article helpful? 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. Shares you buy on Hatch would have 15% US tax deducted from their dividends. We outline the most important facts below. I will provide more specific info on each case below as you read along. Index Funds and ETFs invest in shares, but not always. you can’t use the FDR method on one fund, and CV on another fund. Index funds have a number of advantages over ETFs, and we explore these in detail below. You don’t have apply the de minimis exemption if you’re a de minimis investor. The information on this website does not constitute financial advice in any form. There are also a number of different ways to own an ETF, which will impact how your tax information is shared with you. Tax benefits: Check the index fund is a PIE. Check out our helpful guide on how exchange traded funds work. Further Reading:IRD – Questions & answers: Cryptocurrency and tax. You do not have to include listed PIE income on your tax return, but if your marginal tax rate is less than 28% you may want to do so to claim any excess imputation credits to reduce your other taxable income. The term ETF is commonly confused with Index Funds, but they are not the same thing! 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. According to the EY analysis , investors in NZX-listed ETFs tracking global share indices could garner after-tax returns of up to 15 per cent above similar products domiciled in offshore jurisdictions. This means index funds and ETFs are typically seen as a lower risk investment. Your free guide to Five Low-Fee NZ Index Funds, ... Summary: Hatch provides access to over 2,700 companies and over 450 ETFs, with Vanguard's S&P 500 ETF being one of the most index funds popular.in the world. You should always do your own research and seek advice from a tax professional before applying the information in this article. 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. Entry fee. 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. Your RWT rate depends on your overall taxable income for the tax year. 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. Which rate you’re taxed at depends on the type of investment you’re in. New Zealanders must pay tax on their worldwide income to the IRD, including income from their investments in Foreign Investment Funds (FIFs). If you receive a tax bill, this usually must be paid by the 7th of February of the following year. 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 … 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. 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. Let’s be friends on Facebook, Twitter, or via email so you can keep up with the latest news and posts! There some exceptions where you do not have to declare any rental income, like for some holidays homes and boarders. We welcome your stories, tips and any feedback via. Free ratings, analyses, holdings, benchmarks, quotes, and news. In this article, we’ll take a look at some of the more common investment tax … Further Reading:IRD – New Zealand tax residents with interest and dividends from New Zealand bank accounts and investmentsASB – What RWT rate should I use? In general, there are two methods in which you pay tax on your investments. Australia has a similar concept known as franking credits. ​We cannot accept liability for any decision made based on our information. Check here to see if the ASX listed company you own is exempt. Similar to shares, capital gains on residential property are generally not taxed. We link to other websites throughout this website, but take no responsibility for the content they publish. The FIF rules appear daunting compared to investing in PIE funds, but can actually work out in your favour. To declare your rental income, you must complete an IR3R form for each rental property, as part of your tax return, and keep any records of income and expenses for 7 years. 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. More funds = less diversification? First of its kind exchange traded fund focuses on qualified dividend income Hint: click [read more] to view a detailed summary for each ETF, including the applicable management fees and a link to a website with more information about your chosen ETF. Trusted by more than 1,000 Kiwis, Kernel offers easily accessible index fund investing. If you don’t need to file a tax return, there are some cases where it may be beneficial for you to still do so. Index ETFs. ETFs can be both index tracking or actively managed. The administration fee is stated net of an income tax deduction applied in calculating your PIE tax payable (the deduction is paid to us). View our MDZ Stock Quote. 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. ETF tax differs depending on the location and domicile of the fund. 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. The most common method to convert foreign amounts to NZD is to use the actual exchange rate on the day of each transaction. 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. 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. To be able to invest in index funds and/or ETFs, you'll need to sign up to an appropriate investment platform or make a direct purchase. Their dividends are always taxed at 28%, but they often contain imputation credits to eliminate your tax on these dividends. 1% of the amount transferred or $500 (whichever is greater). What Happens If Your Investing Platform Shuts Down? The purpose of imputation credits is to mitigate double taxation, given dividends are essentially a company’s profits, which they may have already paid company tax on. 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). Investments in overseas companies and managed funds costing less than NZ$50,000 and Australian shares not included in the FIF regime will usually be treated under the normal income tax rules, when on the basis the shares were not acquired with an intention of disposal, shareholders only pay tax on dividend income they receive. Objective. Invest in managed funds. Bank deposits, bonds, and investments in P2P Lending all generate some form on interest. 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. The content of this article is based on my personal opinion and should not be considered financial advice. Listed PIEs include: Dividends from listed PIEs may contain Excluded income. Unfortunately there’s no black and white rule to determine whether you meet the definition of a trader or not. 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. However, one advantage that traders have is that they can claim capital losses on shares to reduce their taxable income. ​. These are not PIEs. Another example, is someone who earns $68,000. The dividends must be declared in a tax return, however, if you earn less than $200 in overseas dividends and interest, then you may not need to file a return for this income. It is a somewhat common misconception that if you earn over $70,000 for example, all the money you earn is taxed at 33%. Index funds, and ETFs that track an index, are growing in popularity because of the diversification benefits, lower fees, and typically consistent outperformance compared to actively managed funds. ETFs are bought on a sharemarket, which means you'll pay brokerage and face bid/offer pricing (the difference between the price available to purchase at and the true value of the units in the fund). Tax on interest income from standard bank deposits, bonds, and Peer to Peer Lending, is automatically deducted when it’s paid to you, at your RWT rate. Also known as indexed ETFs or index funds, these funds aim to replicate the returns of a specific index or benchmark. In many cases, Resident Withholding Tax (RWT) or PIE tax is automatically deducted from you at a certain point in time, like when the income is paid – in the same way PAYE tax is deducted from your salary or wages. Phew, that was a mission to write up, and I am just scratching the surface of tax in this article. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them. Learn everything about iShares MSCI New Zealand ETF (ENZL). Capital gains on shares are generally not taxable, that is unless the IRD considers you a “trader”. Gains include dividends, sale proceeds and tax credits. This means that tax is only paid on half of the capital gain. Further Reading:IRD – Income tax assessments. Index funds and ETFs both charge annual management fees (expressed as a percentage), this fee comes out of the fund automatically on a daily basis. Before you invest in ETFs, it’s important to find out what tax information your chosen provider will give you at tax … 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. If you don’t provide your rate to your investment provider, you’re automatically taxed at the top tax rate. Active ETFs are managed by professional fund managers and aim to beat the market; passive ETFs follow a benchmark index. In general, there are two methods in which you pay tax on your investments. A portfolio of investments that can be either actively managed or index tracking. Being a relatively new asset class, the taxation rules on cryptocurrency is relatively undeveloped. Do not include this in your tax return if you file one. This ETF has total assets of almost US$450 billion, and has an annual management fee of 0.04% p.a. Which means you could be taxed on capital gains that you wouldn’t usually be taxed for! Your guide to investing in shares, bonds, funds, and peer to peer lending in NZ, New Zealand tax residents with interest and dividends from New Zealand bank accounts and investments, Peering into tax: bad debts and P2P lending, Calculating taxable gains on share trading in New Zealand, PIEs and PIE tax – your questions answered, Different Tax on Smartshares and SuperLife ETF, Going global – Tax tips and traps for local investors, Foreign currency amounts – conversion to New Zealand dollarsÂ, KiwiSaver tax rate errors: Up to 450,000 New Zealanders overtaxed, IRD313 – Buying an selling residential property, Questions & answers: Cryptocurrency and tax, IR3G – Individual income tax return guide, 5 things to know about investing in Peer to Peer Lending. Kernel is 100% Kiwi owned and are committed to no-nonsense index funds with low, transparent fees. Each FIF investment you ’ re taxed at your PIR to other websites throughout website. 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