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Calculating taxable gains on share trading in New Zealand

by David Olsen, Senior Marketing Manager - Content/SEO, Sharesight

While New Zealand’s proposed general capital gains tax (CGT) regime in 2019 was abandoned by Government after much debate. Did you know that a tax on gains already applies to some investors who trade equity or foreign debt investments in New Zealand?

Here, we break down who New Zealand’s capital gains tax currently applies to, and how to calculate losses/gains on share trading activity using Sharesight for tax purposes.

calculating taxable gains on share trading in new zealand

Taxable gains on shares in New Zealand

While no general capital gains tax applies in New Zealand, tax on gains made may apply to NZ investors trading shares when:

  1. They purchase a property with the intention to sell it (this rule was introduced in 2016)

  2. They purchase shares or other investments with the intention to sell it at a profit (rather than hold the shares and earn income from holding them)

In these situations, the individual may be classified to be a “Trader” (as opposed to a regular investor) by the IRD.

When are gains made on shares taxed in NZ?

Unfortunately New Zealand’s IRD provides very little information to investors on when the latter is ruled to apply.

Per Section 65 of the 2007 Income Tax Act, a gain is liable for income tax when:

  • The investor is in the business of dealing in shares, or

  • The shares were acquired with the dominant purpose of resale at a profit, or

  • The investor enters into a scheme or undertaking to make a profit from shares

In simpler terms:

  1. The intent when purchasing the shares needs to be to make a gain when sold

  2. This needs to be the dominant purpose for the buying of these shares (rather than earning dividend income for example)

NZ may tax gains on shares when:

The IRD looks for a number of behaviours in determining whether the investor is undertaking a business in dealing (or trading) in shares:

  • Individuals show a pattern of (usually frequent) buying and selling of shares over time

  • Individuals invest significant levels of capital in investments, in particular when investing on margin / borrowing to invest

  • Individuals monitor their investment portfolios closely, perhaps using an advanced online trading platform

  • Individuals spend a lot of time researching their investments

  • Individuals buy high risk shares to flip at a profit

  • Shares are bought and sold on ‘revenue’ account instead of capital account

New Zealand’s IRD tax rules are complex and the above should not be considered tax advice.

Consult your accountant if you’re unsure

While many Sharesight users tend to be “buy and hold” investors, who invest over the long term to earn dividends, New Zealand’s IRD may still judge the activity to be ‘trading’. Even if you’re not an active trader, the issue of intent is very important, and Sharesight recommends consulting a registered accountant whether these rules apply to your circumstance.

Calculate gains/losses on NZ shares for tax purposes

Sharesight makes it easy to calculate gains (or losses) for share traders in New Zealand with our ‘Traders Tax’ report.

Sharesight’s Traders Tax report calculates any taxable gains, using one of four methods:

  • First-in, first-out (FIFO)

  • First-in, last-out (FILO)

  • Minimise capital gain (sell highest priced shares first)

  • Maximise capital gain (sell lowest priced shares first)

NZ’s IRD may require you to use a specific sale allocation method in your situation (often FIFO), consult your accountant for information specific to your situation.

Sharesight - Traders Tax Report 2019

Calculate your NZ taxable gains today

By using Sharesight for performance tracking and tax reporting, investors can eliminate the paper-chase and headaches normally associated with completing their IRD tax returns.

With Sharesight you can:

  • Automatically track your dividend and distribution income from stocks, ETFs, LICs and Mutual/Managed Funds
  • See the true picture of your investment performance, including the impact of brokerage fees, dividends, and capital gains with Sharesight’s annualised performance calculation methodology
  • Run powerful tax reports to calculate your dividend income with the Taxable Income Report
  • Calculate taxable gains/losses for individuals who hold shares on revenue account (i.e. they are classified as traders by the IRD) with the Traders Tax Report
  • Calculate foreign investment fund (FIF) income for New Zealand residents with certain offshore holdings according to IRD rules with the FIF Report

Sign up for a FREE Sharesight account and get started tracking your investment performance (and tax) today. Plus, if you upgrade your Sharesight subscription may be tax deductible.†

†If you are a New Zealand tax resident and you derive income from the sharemarket, your Sharesight subscription may be tax deductible. Check with your accountant for details.

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Important Disclaimer: Sharesight does not provide tax or investment advice. The buying of shares can be complex and varies per individual. You should seek tax and investment advice specific to your situation before acting on any of the information in this article.