Précis: Given the steep fall in overseas equity markets over 2023, and likely to continue with then flat markets for some years, many investors caught in New Zealand’s FIF regime, pending when they invested, may be paying more tax than on the total capital appreciation of their holdings plus dividend stream: that is more than if caught in a true capital gains tax such as in US, UK or Australia. Given the importance of savings, policy makers need to urgently fix this hotch-potch regime.
Nice article, Mark. Yes, it's a mess. I tend to invest my shares in the ASX to mitigate, but unfortunately (maybe?) I have a decent portfolio on the FTSE already, which gets captured and hammered.
Thanks for that. I see from your profile you're an 'energy professional' .. funny thing, outside of bonds, etc, my portfolio mainly oil and gas shares to set me up for great dividends over next decade when demand for oil and gas will outstrip supply thanks to underinvestment in extraction last decade and malinvestment in renewables, but yes, I was trying to concentrate around Woodside Energy on ASX for the reason you mention - to keep out of FIF as much as possible - but then along comes Albanese trying to ludicrously destroy Australia's source of wealth; resources and energy. I've held off buying more on oil/gas dips to keeping going into North Amercian companies instead: Devon Energy, Chesapeake, Exxon (although too pricy now) and of course Halliburton which does well almost despite oil price. ... Flaming politicians, but I am really disappointed with how on Earth Aussies voters could have put Albanese in.
Hi Mark as the election is approaching, have you reached out to any politicians via email (in particular Grant Robertson, Barbara Edmonds, Nicola Willis & David Seymour) to raise some awareness of how badly kiwis are getting shafted by FIF tax? I
I have emailed all four and got a response from Seymour, would be cool for them to know there is a public demand for reform.
Thank you for reading this Marg, first and foremost.
I spend too much of my life emailing politicians for no result. I've never managed to get one interested in this. Would be really intereested in what David Seymour wrote back ... either here, or to my email markhubbardltd@gmail.com
Or was it just an acknowledgement promising nothing?
Thanks for your note. I can’t say we’ve got a policy on FIF’s. You’ll need to forgive me but I’m not sure where you get the 1.4 from, is that 28 per cent x 5 per cent of foreign investments? Notwithstanding that the fiscal situation will be a nightmare, our goal in tax policy is always neutrality. In so far as the current FIF regime makes investors favour domestic investments over foreign ones, our principle would be to make the tax system neutral when conditions allow.
Aug 16, 2023·edited Aug 16, 2023Liked by Mark Hubbard 1965
I have been thinking about this.. I think the best chance for FIF tax to go will be when/if a CGT tax is introduced. I believe the removal of FIF tax without replacing it with some other form of tax is likely unrealistic and potentially radical for either party to go ahead with. NZ having no FIF tax would mean (assuming a NACT government) there would be limited taxes on both property and stocks. NZ would become an extreme outlier compared to other OECD countries tax wise.
Ironically, a likely pathway for FIF tax to be removed could be from a post-Hipkins Labour government. This assumes a post-Hipkins Labour government will introduce their long rumoured tax reform (CGT). Which could see the FIF removed and shares are taxed neutrally as a CGT tax would take its place.
The risk is trusting Labour on taxes, where people could end up getting double taxed as a CGT is introduced but FIF tax is kept. This is what Labours own Tax Working Group has recommended and merely recommended that if a CGT is introduced then FIF tax should be slightly reduced to 3-4%.
Not that this means much but I would hope that the introduction of CGT would mean that FIF tax would go and we would align with Australia. Wouldn’t count on it though. Pretty grim either way as National’s priorities lie with property investors. M
As a small person who had some overseas shares … made some gains then made some losses … when I saw you get taxed on gains but can’t claim losses against other income… well I thought this whole share thing is a mugs game for people like me. Better to go buy a piece of land as an investment and get cg. No wonder this country is struggling with so much disincentive to save or invest.
thanks for comment Sally. And yes, you've figured out why Kiwis like property so much. Our FIF regime is a disgrace: and I bet even this new government doesn't have the guts to look at it adnd sort it out, despite it's such a disincentive to Kiwis saving (and savings are a cornerstone of all economies).
Nice article, Mark. Yes, it's a mess. I tend to invest my shares in the ASX to mitigate, but unfortunately (maybe?) I have a decent portfolio on the FTSE already, which gets captured and hammered.
Thanks for that. I see from your profile you're an 'energy professional' .. funny thing, outside of bonds, etc, my portfolio mainly oil and gas shares to set me up for great dividends over next decade when demand for oil and gas will outstrip supply thanks to underinvestment in extraction last decade and malinvestment in renewables, but yes, I was trying to concentrate around Woodside Energy on ASX for the reason you mention - to keep out of FIF as much as possible - but then along comes Albanese trying to ludicrously destroy Australia's source of wealth; resources and energy. I've held off buying more on oil/gas dips to keeping going into North Amercian companies instead: Devon Energy, Chesapeake, Exxon (although too pricy now) and of course Halliburton which does well almost despite oil price. ... Flaming politicians, but I am really disappointed with how on Earth Aussies voters could have put Albanese in.
Hi Mark as the election is approaching, have you reached out to any politicians via email (in particular Grant Robertson, Barbara Edmonds, Nicola Willis & David Seymour) to raise some awareness of how badly kiwis are getting shafted by FIF tax? I
I have emailed all four and got a response from Seymour, would be cool for them to know there is a public demand for reform.
Thank you for reading this Marg, first and foremost.
I spend too much of my life emailing politicians for no result. I've never managed to get one interested in this. Would be really intereested in what David Seymour wrote back ... either here, or to my email markhubbardltd@gmail.com
Or was it just an acknowledgement promising nothing?
Sure no worries, this is what David replied:
Thanks for your note. I can’t say we’ve got a policy on FIF’s. You’ll need to forgive me but I’m not sure where you get the 1.4 from, is that 28 per cent x 5 per cent of foreign investments? Notwithstanding that the fiscal situation will be a nightmare, our goal in tax policy is always neutrality. In so far as the current FIF regime makes investors favour domestic investments over foreign ones, our principle would be to make the tax system neutral when conditions allow.
Thanks Marg. Good as it goes, but obviously even under another Nat/ACT government, nothing is going to happen with the FIF regime.
Where on earth is our gutless funds management and professional tax community on this?
I have been thinking about this.. I think the best chance for FIF tax to go will be when/if a CGT tax is introduced. I believe the removal of FIF tax without replacing it with some other form of tax is likely unrealistic and potentially radical for either party to go ahead with. NZ having no FIF tax would mean (assuming a NACT government) there would be limited taxes on both property and stocks. NZ would become an extreme outlier compared to other OECD countries tax wise.
Ironically, a likely pathway for FIF tax to be removed could be from a post-Hipkins Labour government. This assumes a post-Hipkins Labour government will introduce their long rumoured tax reform (CGT). Which could see the FIF removed and shares are taxed neutrally as a CGT tax would take its place.
The risk is trusting Labour on taxes, where people could end up getting double taxed as a CGT is introduced but FIF tax is kept. This is what Labours own Tax Working Group has recommended and merely recommended that if a CGT is introduced then FIF tax should be slightly reduced to 3-4%.
Although Grant Robertson is apparently in agreement that FIF tax is “crazy” - https://imgur.com/a/nJtTrFt and Labour MP Deborah Russell co-authored a book calling out the FIF tax and how the tax system favours property - https://www.stuff.co.nz/business/money/92207613/kiwisavers-harshly-taxed-compared-to-property-investors-book-claims
Not that this means much but I would hope that the introduction of CGT would mean that FIF tax would go and we would align with Australia. Wouldn’t count on it though. Pretty grim either way as National’s priorities lie with property investors. M
As a small person who had some overseas shares … made some gains then made some losses … when I saw you get taxed on gains but can’t claim losses against other income… well I thought this whole share thing is a mugs game for people like me. Better to go buy a piece of land as an investment and get cg. No wonder this country is struggling with so much disincentive to save or invest.
thanks for comment Sally. And yes, you've figured out why Kiwis like property so much. Our FIF regime is a disgrace: and I bet even this new government doesn't have the guts to look at it adnd sort it out, despite it's such a disincentive to Kiwis saving (and savings are a cornerstone of all economies).