Inland Revenue (IR) has released draft guidance for share investors who may not be aware of their tax obligations.
It is aimed at investors who use online investment platforms to buy and sell shares, but the principles also apply to other ways of investing in shares, such as using a broker.
The draft guidance is out for public consultation until 24 September 2024. There is a detailed statement that explains the law and two fact sheets that summarise the rules for investors – see them here - Income Tax – Share investments
Inland Revenue released the draft guidance to help investors know when they need to file a return to include income from their share investing activity.
Which rules apply
Inland Revenue is aware that there is some confusion about when foreign investment fund (FIF) rules apply, and when ordinary tax rules apply.
The draft guidance explains which option investors should use.
When the ordinary rules apply, investors need to make sure that they return income from dividends and also taxable share sales.
In many cases, the tax on dividends is withheld on the investor’s behalf but this may not be the case if the dividend is from a foreign company.
Investors should check with the platform or broker they use to see if tax is withheld in New Zealand on their behalf. If not, they may need to file a tax return to include that income.
Selling shares
The draft guidance also explains when an investor will have a taxable share sale.
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.
The guidance explains the tests that Inland Revenue applies to determine whether shares are bought for resale. We encourage investors to keep records explaining the reasons for their share purchases.
Note: The guidance does not apply to managed funds, kiwisaver, non-individuals or illiquid investments in closely held companies.