This blog article is based on two articles written by David Chaplin for Business Desk and also for Investment News (our Monday summary of all things investment in New Zealand).
IRD have issued a draft 'interpretation' statement to remind online share-traders of their tax obligations. As the IRD says 'Most people understand that share traders or dealers who buy shares for resale need to pay tax. But it is not so well understood that people who make only occasional sales also have to pay tax, if those shares were bought for the purpose of resale'.
IRD says that share-traders must take care to document the 'dominant purpose' IRD 'cracking the whip' on platform share traders for their purchases or risk a surprise tax on any realised gains.
Some other reasons that you might want to purchase shares (apart from capital gain) are to a. capture dividends, b. receive voting rights or c. as part of a long-term diversified portfolio. If the behaviour then supports these reasons for purchasing, then any sale profits may be tax free.
The draft guide then says: An investor may have one purpose, more than one purpose, or no particular purpose for buying shares. The onus is on the investor to prove whether their dominant purpose for buying shares was to dispose of them'.
IRD notes that as well as the purpose of buying the shares, they will also look at
the nature of the asset class (ie the type of shares purchased and the rights that they give the holder.
the length of time the shares were held
the circumstances of the purchase and disposal of the shares
whether there is a pattern of purchases and sales suggesting there was a dominant purpose of sale.
There is no set amount of time or number of share trades required that might trigger a tax liablity.
The draft guide also clarifies that the statement 'does not apply to managed funds, KiwiSaver, non-individuals or illiquid investment in closely held companies.'
This is a draft (consultation closed on September 24th), but it is important to note if you are dealing directly with your trades and not using a fund manager.
