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Tax time: What you need to know

As we near March 31st, your foreign shares portfolio needs to be considered when preparing your tax return. This overview of tax on US shares should make the process a lot smoother. But as always, consult a tax professional if you have any uncertainties.

The most poignant reminder of late nights rushing to finish an assignment, tax time is approaching. As we near March 31st, your foreign shares portfolio needs to be considered when preparing your tax return. This overview of tax on US shares should make the process a lot smoother. But as always, consult a tax professional if you have any uncertainties.

50,000 is the Magic Number

The magic number is 50,000. Tax requirements on overseas (including US) shares depend on whether your portfolio has a cost below or above NZD$50,000 for the whole financial year.

There are two key points to be aware of.

  • The calculation is the sum of the cost price of all your shares. Even if the present value of your portfolio is higher than NZ$50,000, it’s the cost price that matters.
  • If at any point during the financial year your cost price rises above NZ$50,000, even if falls by the end of the year, you will be part of the over 50k bracket. More details below.

Under 50k

Dividend Tax

Any dividends you receive have tax taken out before they hit your account in accordance with US government tax policy. This is known as withholding tax. Typically it’s 30% but a completed W-8BEN form, which Stake automatically filed and filled on your behalf when you signed up, reduces this tax to 15%.

When filing your NZ tax forms, dividend income is taxed at your marginal tax rate. However, you will be eligible to receive a 15% credit as you already paid tax when the dividend was received.

Profit tax

In most cases, no tax is required to be paid on profits for regular investors unless they fall into a specific class of traders characterised by their level of sophistication. It’s best to seek clarity with a tax professional on whether this applies to you.

Over 50k

It’s at this point we strongly advise seeking professional advice.

While the processes related to tax can be made clear, the exact calculations require particular care to avoid under or overpaying – especially when a fluctuating foreign exchange rate is a factor.

Once a portfolio grows to this size, Foreign Investment Fund rules apply. Under these rules, investors pay the tax at their personal tax rate on the lower of two different tax amount calculations:

  • Comparative Value Method: Tax on your gains, less any costs over the course of the whole financial year.
  • Fair Dividend Method: 5% of the market value of your whole portfolio on April 1.

To help you all this, you’ll receive an easy-to-read spreadsheet with your tax year details on Stake, including dividends and transaction records. We’ll be in touch when it’s available.

That’s it; not too stressful. If you’ve got any uncertainties, we recommend contacting a tax professional.


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