These are a bit like ETFs except they donât trade on an exchange. You may wish to consult with an authorised financial adviser before making any investment decisions. Smartshares offers an NZX listed US500 ETF, which invests directly into the Vanguard US500 ETF. 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. 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. Which means you could be taxed on capital gains that you wouldn’t usually be taxed for! 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. Most banks offer PIE equivalents of some savings accounts and term deposits (sometimes called Term PIEs). For example, the 2020 tax year runs from 1 April 2019 to 31 March 2020. You can then use the lowest PIR out of those years. Do not include this in your tax return if you file one. 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. 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. ETFs can be both index tracking or actively managed. The buyer offers a lower amount than what the seller wants to accept, meaning the price isn't always clear. Recently a tax accountant contacted me regarding my post on comparing cost on ETF investing between SmartShares and Superlife. Which rate you’re taxed at depends on the type of investment you’re in. If you receive a tax bill, this usually must be paid by the 7th of February of the following year. 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. 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. 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. Anyone looking for investment diversification to spread the risk. Check here to see if the ASX listed company you own is exempt. Most of the time, all it takes to invest in an ETF is the amount needed to buy a single share, and some brokers, such as Hatch, even offer fractional shares.. Superstar shares like Xero (50 cents to $100+) and a2 Milk (25 cents to $15+) do exist, but neither index funds or ETFs will give you much exposure. The fund’s tax liability is calculated by the fund manager, then attributed and passed onto the fund’s investors to pay. ... (ETFs). Further Reading:Money King NZ – NZ Dividend Calculator (Google Sheets)Sharesight – Calculating taxable gains on share trading in New Zealand. It’s important to give your fund manager or fund platform your correct PIR, as you can’t claim back any overpaid tax with MRPs. Index Funds and Exchange Traded Funds (ETFs) offer investors opportunities to diversify their investments with one single purchase. 10 Top Investments for Young New Zealanders, Investing in the US Stock Market from New Zealand, Barefoot Investor-Friendly Financial Products in New Zealand. AUTs are required to pay out any of their realised capital gains as dividends. Withholding tax on dividends can get trapped in an offshore investment entity (i.e. Buy and sell ETFs like shares. This is not tax advice, but if you’re an employee, and stick to the following investments, then chances are all your tax will be paid automatically and you won’t have to file a tax return: You would only have to file a tax return if you invest in the following (or if you are required to file a tax return for some other reason, like being self-employed): But I still would not be put off too much – it is very achievable to complete the return yourself, and if you need professional help to file your return, the fees you pay can be deducted as an expense. 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. For taxation purposes, a year runs from 1 April to 31 March of the following calendar year. To make things more convoluted, in 2016 the ATO changed the rules around investment trusts by creating the Attribution Managed Investment Trust (AMIT) regime. You either have to buy them directly from the fund provider, or through a company like Sharesies. Before reading any further, it’s important to understand that the content of this article is very generic, and geared towards individuals who are New Zealand tax residents. The term ETF is commonly confused with Index Funds, but they are not the same thing! Overseas dividends may already have some foreign tax deducted. Kernel is 100% Kiwi owned and are committed to no-nonsense index funds with low, transparent fees. A portfolio of investments that can be either actively managed or index tracking. In general, there are two methods in which you pay tax on your investments. 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. You don’t have apply the de minimis exemption if you’re a de minimis investor. This is known as an IRD number, which is NZ’s equivalent of a Taxpayer Identification Number. The most common method to convert foreign amounts to NZD is to use the actual exchange rate on the day of each transaction. We are a journalistic online resource with the aim of providing New Zealanders with the best money guides, tips and tools. Funds contain assets like shares and bonds, which generate taxable income (such as dividends, interest, foreign income) and tax credits. In NZ, investors also need to think about tax, with the key element of this being our Portfolio Investment Entity (PIE) tax regime. 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. 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. Further Reading:IRD – Questions & answers: Cryptocurrency and tax. You need to choose the correct tax rate or you could face an unexpected bill at the end of the tax year. 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. 0.60% per annum of fund's net value. 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. Your PIR works similarly to your RWT rate, with a couple of major differences in calculating your rate: The way that your PIR is calculated means that tax treatment for PIE investments could be beneficial in a couple of circumstances: Further Reading:IRD – Using prescribed investor ratesASB – What PIR should I use? Unfortunately there’s no black and white rule to determine whether you meet the definition of a trader or not. I’d say the most important things to know are: Found this article helpful? KiwiSaver funds are all multi-rate PIEs, so are taxed at your PIR. For example, to claim back excess tax from listed PIEs and dividends. Costs include the cost of buying units, along with foreign income tax paid by you directly on income of the FIF. 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. Phew, that was a mission to write up, and I am just scratching the surface of tax in this article. ETFs trade on the stock â¦ E.g. Capital gains on shares are generally not taxable, that is unless the IRD considers you a “trader”. 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. View our MDZ Stock Quote. Both are regarded as long-term investments. The main ways that Kiwi investors might come into possession of FIFs are: I’ll focus on how the above FIFs are taxed. You can deduct expenses that relate to the rental from your income, such as insurance, rates, maintenance, and property management fees. However, there are some key differences to be aware of that this guide details. Let’s take a look at what tax applies to different types of investments. Active ETFs. NZ Top 10 Fund . 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. (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. Source: nzx.com/instruments/MZY (please note prices will have changed). ETF, ETFs, Hatch, Index Funds, Kernel, Money Education, Sharesies, SmartShares Iâve 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). Learn everything about iShares MSCI New Zealand ETF (ENZL). 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. I am not a tax professional and this article is not to be used as tax advice! 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. New Zealanders must pay tax on their worldwide income to the IRD, including income from their investments in Foreign Investment Funds (FIFs). He pointed out that apart from the admin fee and management cost, investors also need to consider the tax implication when investing. This is incorrect – only the dollars you earn over $70,000 are taxed at 33%, with your first $14,000 you earn in the year being taxed at 10.5%, income between $14,001 and $48,000 being taxed at 17.5%, and so on. 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). Free ratings, analyses, holdings, benchmarks, quotes, and news. In many cases, ETFs may have a lower minimum investment than index funds. Quick Links . 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. Passive ETFs. Aussies call this a TFN – a Tax File Number. 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. 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. In general, there are two methods in which you pay tax on your investments. 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. You must apply FIF tax rules if you hold over $50,000 in FIF investments. The use of incorrect PIRs has been in the news in recent months, as the IRD have been warning hundreds of thousands of taxpayers to correct their PIRs. 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 â 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. If one company underperforms, there are dozens or hundreds of other companies that can counteract the fall in the value of one company. Also known as indexed ETFs or index funds, these funds aim to replicate the returns of a specific index or benchmark. You will still need to pay tax on their dividends, but unlike imputation credits, New Zealanders cannot claim franking credits. 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. 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. Smartshares NZ Mid Cap ETF (MDZ) Designed to track the return on the S&P/NZX Mid Cap Index. These exchange traded funds seek to replicate and track a benchmark index as closely as possible. 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. Further Reading:RNZ – KiwiSaver tax rate errors: Up to 450,000 New Zealanders overtaxed. 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. a property sector index) or investing preference (i.e. First of its kind exchange traded fund focuses on qualified dividend income We outline the most important facts below. 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. You need to work out your rate based on the income from each of the past two tax years. 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. Returns and Fees Frequently Asked Questions Legal Documents NZ Super Rates Invest For Children. The ETF tax nightmare in Australia. Listed PIEs include: Dividends from listed PIEs may contain Excluded income. Let’s say they made an investment that would produce $4000 of interest income. For example, if your annual income is $30,000, the most appropriate RWT rate for you would be 17.5%. This means that tax is only paid on half of the capital gain. 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. The income earned from investments is commonly referred to as dividends, and youâre 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. Our priority is accurate information. 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. The content of this article is based on my personal opinion and should not be considered financial advice. But if you choose not to declare the rental income, then you cannot deduct expenses from your income. 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. Entry fee. Index Funds and ETFs invest in shares, but not always. It’s understandable if you read the above and have been put off by the complexity of tax on investments. I will provide more specific info on each case below as you read along. Further Reading:IRD – Rental income and paying taxIRD – IR264 – Rental Income Guide (PDF)IRD – IR3R – Rental Income Schedule (PDF). 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. 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. 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. Objective. 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. 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. Index ETFs. Gains include dividends, sale proceeds and tax credits. The NZ PIE pays tax for each investor in the fund, so there is no need to do any tax calculations. PAYE and RWT) you may have made during the 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 â¦ As a Kiwi investor you’ll need a way for our tax department, the IRD, to identify you as a taxpayer. Invest Now. 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